Republic Of Peru Environmental Sustainability

Public Disclosure Authorized

Report No. 40190-PE

Report No. 40190-PE

Republic of Peru Environmental Sustainability: A Key to Poverty Reduction in Peru

Public Disclosure Authorized

Country Environmental Analysis June 2007

Environmental Sustainability: A Key to Poverty Reduction in Peru

Public Disclosure Authorized

Republic of Peru

Public Disclosure Authorized

Environmentally and Socially Sustainable Development Department Latin America and the Caribbean Region

Document of the World Bank

ACKNOWLEDGEMENTS This report was prepared by a team led by Ernest0 Shnchez-Triana (LCSEN). T h e core team included Yewande Awe, Renan Poveda, Carolina Urmtia Vhsquez, Maribel Cherres, and Angie Alva (LCSEN); William Reuben (LCSEO); Marcel0 Bortman (LCSHH); Marea Hatziolos and Poonam Pillai (EN); Ani1 Markandya (ECSSD); and David Lee (Cornel1 University), Bjorn Larsen, Santiago Enriquez, Elena Strukova, and Michelle Falck (Consultants). The extended team included Abel Mejia (LCSEN); Vicente Fretes (LCC6); Maria Donoso Clark (LCSES); Douglas C. Olson (LCER); Juan David Quintero (LCSEN); Veronica Andino (LCSEO); Alberto Ninio and Charles Di Leva (LEGEN); Andrea Semaan (ENV); Lenkiza Angulo, Juan Guerrero Barrantes, Peter Davis, Jorge Elgegren, Nelson Schack, Juan Carlos Sueiro, Jorge Price, and Jorge Villena (Consultants); Manuel Pulgar-Vidal and Isabel Calle (Sociedad Peruana de Derecho Ambiental); and Manuel Glave and Rosa Morales (GRADE Consultants). The peer reviewers for the study include Maria Angelica Sotomayor (LCSFP), Dan Biller (EASES), Raul Tolmos (United Nations Development Program), Javier Cuervo and Sergio Ardila (Inter-American Development Bank), and Richard Morgenstern (Resources for the Future). The Government o f Peru, mainly through the Consejo Nacional Ambiental (CONAM), provided key feedback during the preparation o f the study and participated actively in the production o f diverse parts o f the report. Particularly important were the contributions o f the following government officials: Carlos Loret de Mola, Mariano Castro, and Gabriel Quijandria (CONAM). The team would also like to thank the following government officials for their feedback Walter Huanami, Maria Paz Cigarhn, Julio Garcia, Maria Luisa del Rio, and Iv6n Lanegra (CONAM); Vilma Morales (DIGESA); Alberto Bisbal (INDECI); Rosario Acero, Manuel Cabrera Sandoval, Antonio Morisah, Mario Aguirre, and Javier Martinez (INRENA); and HCctor Talavera (OSINERG). Important feedback was received from members o f international donor agencies and non-governmental organizations, including Swisscontact and UNDP. The team i s particularly grateful to the Norwegian and Finnish governments for supporting some o f the studies that underpin this report through TFESSD funds.

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ACRONYMS

DINSECOVI DIREPRO DIRESA DIRTUECO ECA ECLAC EL4 EPS FA0 FEN FONAM

Direction Nacional de Seguimiento, Control y Vigilancia

Direccion Regional de Produccion Direccion Regional de Salud Ambiental Direccion de Turismo y Ecologia Esthdar de Calidad Ambiental Economic Commission for Latin America and the Caribbean Evaluacion de Impact0 Ambiental Empresa Prestadora de Servicios de Saneamiento Food and Agriculture Organization Fenbmeno de El Niiio Fondo Nacional del Ambiente

..

11

HC HC HCA IDB IIAP IMAWE INDECI INIA INRENA IPCC IPPS IRA ITDG ITTA ITTO IUCN JASS JICA JNUDW

Ju Kg lull2 l/s per km2 LFFS LGA LMP LPG m’/s MDGs MDL MEF MEGA MEM MINAG MINEDU MINEM MINSA

mm MTC

Mvcs

Hoja de Cubicacion Hydrocarbon Human capital approach Inter-American Development Bank Instituto de Investigacion de l a Amazonia Peruana Instituto del M a r del Peni Instituto Nacional de Defensa Civil Instituto Nacional de Investigacion Agraria Instituto Nacional de Recursos Naturales Intergovernmental Panel o n Climate Change Industrial Pollution Projection System Infeccion Respiratoria Aguda Intermediate Technology DeveIopment Group - Soluciones Practicas Acuerdo Intemacional de Comercio Intemacional Organizacion Intemacional de Maderas Tropicales World Conservation Union Junta Administradora de Servicios de Saneamiento Japan International Cooperation Agency Junta Nacional de Usuarios de 10s Distritos de Riego del Peni Juntas de Usuarios Kilogram Square kilometers Liters per second per square kilometer Ley Forestal y de Fauna Silvestre Ley General del Ambiente Limite Maximo Permisible Liauefied uetroleum gas Cubic meters per second Millennium Development Goals Mecanismo de Desarrollo Limpio Ministeno de Economia y Finanzas Marco Estructural de Gesti6n Ambiental Ministerio de Energia y Minas Ministerio de Agricultura Ministerio de Educacion Ministerio de Energia y Minas Ministerio de Salud Millimeters Ministerio de Transportes y Comunicaciones Ministerio de Vivienda, Construcci6n y Saneamiento

...

111

MW NBI NGO NO2 NOx O&M 03 OAD ODS OECD OGE ONERN ONG OPD OPS ORT OSINFOR OR PAHO PAMA PBI PCBs PCF PCM PCS-1E PETT PGMF PHRD PIGARS PEA PM PMlO PM2 5 PNDF PNPAD PNR POA POP PPM PRAL PRODUCE PROFONANPE PRONAMCHCS

PSP PTS RAD RAMSAR RFF RNSC RR HH RR ss SDPA SEAS

Megawatt Necesidad BBsica Insabsfecha N o n g o v e m e n t a l orgamzahon Nitrogen dioxide Nitrogen oxide Operation and maintenance Ozone Obstructive a m a y s disease Ozone-depleting substances Orgamsation for Economc Co-operabon and Development Oficina General de Epidemologia del Mimsteno de Salud Oficina Nacional de Evaluacion de Recursos Naturales Orgamzacion N o Gubemamental Orgamsmo Publico Descentrallzado Organlzacion Panamencana de la Salud Oral rehydration therapy Orgamsmo Supervisor de 10s Recursos Forestales Maderables Odds ratio Pan-Amencan Health Organlzation P r o g r a m de Adecuaci6n y Manejo Ambiental Product0 Bruto Intemo Polychlormated biphenyls Prototype Carbon Fund Presidencia del Consejo de Mmistros Programa de Ciudades Sostembles - Primera Etapa Proyecto de Titulacibn de Tierras y Catastro Rural Plan General de Manejo Forestal Japan Policy and Human Resources Development Fund Plan Integral de Gestion Ambiental de Residuos Solidos Plan Integral de Saneamento Atmosf6rico Particulate matter Particulate matter less than 10 mcrons in s u e Particulate matter less than 2 5 mcrons in slze Plan Nacional de Desarrollo Forestal Plan Nacional de Prevencion y Atencion de Desastres Plan Nacional de Prevencibn y Control de la Deforestacion Plan Operativo Anual Persistent organic pollutants Parts per m l l i o n Programa Regional de Are Limpio M m s t e n o de l a Producci6n Fondo Nacional por las Areas Naturales Protegidas por e l Estado P r o g r a m Nacional de Manejo de Cuencas Hidrogrificas y Conservaci6n de Suelos Private sector partxipation Particulas Totales e n Suspensi6n Restncted actwity days Wetlands Convention Resources for the Future C i v i l Society Natural Reserves Recursos Hidricos Residuos Sohdos Sociedad Peruana de Derecho Ambiental Strategic Envlronmental Assessments

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Sistema Nacional de Informaci6n Ambiental

VOLUME 2

TABLE OF CONTENTS Executive Summary ....................................................................................................................... vi1 Chapter 1- Country Environmental Analysis: An Overview ......................................................... 1 Chapter 2 - An Evolving Environmental Management Framework ............................................... 7 Chapter 3 -Aligning Environmental Priorities with the Needs o f the M o s t Vulnerable .............. 35 Chapter 4 - Reducing Disease and Death Caused by Environmental Degradation....................... 68 Chapter 5 - Reducing Vulnerability to Natural Disasters ............................................................. 95 Chapter 6 - Sustainable Fisheries Through Improved Management and Policies....................... 114 Chapter 7 - Conservation of Natural Assets: Soils, Forests, and Biodiversity ............................ 133 Chapter 8 - Enhancing Competitiveness Through Improved Environmental Protection............ 170 Chapter 9 - Opportunities and Challenges for Effective Environmental Management............... 199 Chapter 10 - A Way Fonvard...................................................................................................... 228 Annex 1: Technical Summary o f the Cost o f Environmental Degradation ................................. 242 Annex 2: Technical Summary o f the Cost-Benefit Analysis ....................................................... 261 References .................................................................................................................................... 271

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EXECUTIVE SUMMARY‘ 1. Peru i s one o f the most ecologxally diverse countries in the world, endowed with a large and diverse territory and an enormous wealth o f natural resources. However, Peru’s natural resources have not been used to develop a diversified and resilient economy. Instead, throughout Peruvian history, there i s a pattern in which a specific commodity triggers an economic boom shortly followed by resource depletion and collapse (Castro, 2005). Some commodities that have experienced these boom-and-collapse cycles include guano (1 850s-I870s), saltpeter (1 860s1 8 7 0 ~ )rubber ~ (I 890s-19 lo), and anchovies (1960s-1970s). The boom o f the agro-industrial sector lasted for more than seven decades, until it finally collapsed when the agrarian reform o f 1969 redistributed land property rights. Mining activities have remained a pillar o f the national economy since colonial times, but have not been exempt from problems, including a decline in mineral production during the late eighteenth century that had economy-wide implications. The causes o f these pernicious cycles are multiple, but it i s clear that they include policy and institutional failures, including ill-defined property rights. 2. Until recently, the development o f economic activities and the adoption o f land-use patterns took place in the absence o f adequate environmental safeguards. Although mineral resources have been extracted for centuries, it was only in the early 1990s that the Government o f Peru (GoP) took the first steps to address the environmental and social impacts o f the mining sector.2 Inthis context, effluents and materials generated by mining activities were not adequately disposed o f and generated significant impacts on ecosystems and public health. The negative effects o f mining are s t i l l a matter o f concern, as indicated by well-documented evidence. For example, a study carried out by the Ministry o f Health in several locations in Trujillo found that, because o f water pollution from mining and industrial activities, 23.5 percent o f the sampled population had cadmium blood levels that exceeded international standards (DIGESA, 200 1). Unsustainable agricultural practices were associated with the most significant environmental problems during the 1940s-197Os, when most o f Peru’s population was rural. In 1940, 65 percent o f Peru’s population lived in the Sierra (Pulgar-Vidal, 2006). High population density in an area with scarce agricultural land contributed to a decrease in farm size and intensification o f agncultural practices that eventually led to loss o f soil fertility, decreased yields, erosion and, ultimately, migration to other areas.

3.

W h i l e acknowledging that the problems o f mining’s environmental legacies and unsustainable apcultural practices persist, and the possibility o f future environmental problems, today’s most important environmental challenges in Peru consist o f reducing the incidence o f waterborne diseases and illnesses caused by urban and indoor air pollution, and minimizing vulnerability to natural disasters. These categories o f environmental damages have an economic cost o f 3.7 percent o f gross domestic product (GDP), and primarily affect the poor. Future environmental challenges could result from the expansion o f transportation infrastructure aimed at increasing accessibility to the eastern parts o f the country. The construction o f roads in the Amazon has often been accompanied by uncontrolled forest burning, illegal logging, slash-andbum agnculture, destructive mining, unplanned developments and plantations that might lead to the destruction o f critical watersheds and wildlife habitats. Consequently, efforts to mitigate This section was prepared by Emesto Sanchez-Triana and Santiago Enriquez. Since 1993, Peru has taken concrete steps t o mitigate the negative social and environmental impacts o f the mining sector, including (a) creating an institutional framework t o harmonize institutional responsibilities and environmental legislation; (b) developing environmental sectoral norms; (c) defining environmental standards for water, air and soil quality; and (d) elaborating an inventory o f mining’s environmental liabilities w o r l d Bank, 2005e).

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potential future environmental challenges would need to control these potential detrimental activities and their cumulative impacts. In addition, efforts would be needed to prevent plundering and uncontrolled exploitation o f Peru’s land and natural resources, as has occurred in the past throughout the Amazon; to control unplanned settlements and unregulated extractive mining activities; and to prevent wide-scale lawlessness.

4. Peru has responded to its environmental challenges by developing and continuously strengthening an environmental management framework. The National Code for Environment and Natural Resources was adopted in 1990 after extensive consensus building among stakeholders. Chapter XI1 o f the Code contained norms t o regulate the evaluation, enforcement and monitoring o f natural resource management, thereby constituting a first effort t o integrate the different actions to control water, air, noise and visual pollution that were managed independently by different entities. In 1994, the National Council for the Environment (CONAM) was established as a coordinating body with a mandate to propose, manage and evaluate national environmental policy. Various other legal instruments and entities have been created to address specific areas, ranging from forests and biodiversity t o the regulation o f sectoral activities and the integration o f a national environmental system. However, the development o f the environmental sector has been strongly resisted by sectors that perceive environmental protection as an obstacle to economic growth. In 1991, such resistance l e d t o the abolishment o f Chapter XI1 o f the Code, through the approval o f the Framework L a w for the Growth o f Private Investment, which formalized the distribution o f environmental management among line ministries. Furthermore, Peru has neither an independent environmental enforcement agency nor a planning system to rigorously define national environmental prionties and allocate resources accordingly. 5. Recent events highlighting the consequences o f environmental degradation and depletion o f natural resources have reinvigorated efforts to strengthen Peru’s environmental management framework. The media have widely covered the environmental legacies o f mining and conflicts over mining concessions, which have become the emblem o f social and indigenous movements. The devastating effect o f natural disasters associated with the occurrence o f El Nit70 in 1998 and the collapse o f the hake and anchovies fisheries in recent years have triggered short-term institutional responses t o these issues. In this context, Peru has approved over the last five years new laws t o regulate the use o f Environmental Impact Assessments (EIAs), strengthen the legal framework o f the forestry sector, and advance toward a more integrated and decentralized environmental management system. These efforts constitute the initial steps o f the reforms that Peru needs t o carry out to address the urgent environmental problems o f environmental health and vulnerability to natural disasters, and to ensure that the environment i s safeguarded as decentralization advances, new developments take place in the Peruvian Amazon and other sensitive areas, and new land-use patterns are adopted. However, Peru will need to carry out profound reforms t o strengthen i t s environmental institutions t o ensure that sound environmental stewardshp and the sustainable use o f natural resources contribute to build a more diversified and resilient economy.

CEA Objectives 6. The objectives o f the Country Environmental Analysis (CEA) center on presenting an analytical framework t o support the GoP’s efforts toward achieving integration o f the principles o f sustainable development into country policies and programs and reversing the loss o f environmental resources. The findings o f the CEA are expected to help design and implement policies to (a) improve the effectiveness and efficiency o f Peru’s environmental management system; and (b) integrate principles o f sustainable development into key sector policies, with an

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emphasis on protecting the most vulnerable groups. The CEA’s main elements are analyses o f (a) the institutional capacity for environmental management in Peru, (b) the cost o f environmental degradation, (c) the most environmentally sensitive specific sectors, and (d) the effectiveness and efficiency o f existing policy and legslative and regulatory frameworks to address priority environmental concerns.

7. The CEA was prepared through an open participatory process. An initiation workshop was organized in Paracas, Peru in October o f 2005 t o build consensus on the importance, scope, and methodologies o f the Analysis. The CEA’s preliminary findings were presented in the V I Ecodialogue, which took place in Iquitos, Peru in March o f 2006. The findings and recommendations o f the CEA were disseminated in a workshop held in Lima, Peru, on June 6-7, 2007. These workshops involved the participation o f a broad range o f stakeholders, including representatives o f agencies from various sectors, including environment, health, finances, agnculture, and energy and mines; regional environmental authorities; the private sector; NGOs; indigenous communities; civil society; and international organizations. Institutional Framework 8. Peru’s environmental management framework has continuously evolved over the past decades. T o gain a better understanding o f the institutional challenges, the C E A examines the landmarks in the evolution o f environmental management in Peru during 1950-2005. This analysis focuses on four broad areas: (a) conservation and management o f natural resources, (b) conservation o f biodiversity, (c) sectoral environmental management and pollution control, and (d) environmental health. 9. Conservation and management o f natural resources i s one area in which Peru has registered some o f i t s most important achevements. During 1962-1992, the National Office for the Assessment o f Natural Resources (ONERN) led institutional efforts to foster the development o f the agncultural sector through investments in integrated watershed management, including projects for reforestation, land-use management, erosion control and aquaculture. In 1992, ONERN was transformed into the National Institute for Natural Resources (INRENA). INRENA executes its mandate to manage public forests, soil and water resources and biodiversity through three key departments: (a) the Intendancy o f Forestry and Wild Fauna, (b) the Intendancy o f Natural Protected Areas, and (c) the Intendancy for Water Resources. This organizational structure, supported by an evolving legal framework, has allowed W N A to support the expansion o f irrigation infrastructure (with an increasing role o f Water Board Users in i t s operation and management), and to maintain deforestation rates below those o f neighboring countries. However, INRENA has also evidenced technical and administrative limitations that should be addressed to ensure the sustainability o f these resources. 10. Biodiversity conservation has been one o f Peru’s environmental priorities. The National System for Protected Areas currently comprises 61 protected areas, covering 17.66 million hectares, representing 13.74 percent o f the country’s total area. Biodiversity conservation i s regulated by various legal instruments, inchding the Convention on Biological Diversity, ratified in 1993, and the L a w for the Conservation and Sustainable Use o f Biologcal Diversity, approved in 1997. The Peruvian Trust Fund for Protected Areas (Fondo Nacional por las kreas Naturales Protegidus por el Estado - P R O F O N M E ) was established in 1992 to raise funds for the conservation o f protected areas. PROFONANF’E has been successful in increasing i t s funds and using them to leverage additional resources, with an estimated US$90.6 million having been

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channeled through PROFONANPE to support conservation efforts. Nonetheless, the development o f a financial strategy has not been matched by increased administrative and operative capabilities, and the Intendancy o f Protected Areas has been unable to spend PROFONANPE’s funds efficiently. In addition, a systematic priority-setting mechanism i s missing, and conservation efforts have largely been defined in response to demands from the donor community.

11. Sectoral environmental management has developed unevenly across sectors. Peru’s institutional framework assigns the main regulatory responsibilities o f pollution control and environmental management to the environmental units created within each sector’s authority. The Energy and Mining sector spearheaded these efforts by developing sectoral norms based on the use o f Environmental Impact Assessments (EIAs), Environmental Management and AdaptatiodCompliance Plans (PAMAs), and Maximum Permitted L i m i t s (LMPs), and by establishing an independent entity to enforce environmental norms in the electricity and hydrocarbon subsectors. Environmental units have also been established in the Ministries o f Production, Transport and Communications, and Housing, Construction, and Sanitation. Despite these efforts, Peru’s sectorized approach to environmental management and pollution control has evidenced significant weaknesses, including wide variation across sectors in developing appropriate regulations to safeguard the environment and limited institutional capacity to apply those regulations effectively. Furthermore, lack o f overall coordination and clarity o f environmental approvals processes affects investor confidence and weakens the country’s longterm competitiveness. 12. Government support of, and commitment to, environmental health management have been mixed. Since the 1940s, various entities have been created and reformed to address environmental health issues under the Ministry o f Health. Currently, the General Directorate for Environmental Health (DIGESA) i s the only governmental institution with a regulatory mandate for environmental health issues. DIGESA’s mandate includes (a) operating national analytical laboratories; (b) establishing and enforcing human health safety norms and standards; and (c) inspecting and controlling environmental health matters related to water supply, sewage, wastes and air quality. Recent efforts to mitigate environmental health risks have involved actions to control air pollution, such as the establishment o f air quality standards involving various parameters, including particulate matter (PM1 0), and measures to reduce the generation o f solid wastes. Although important, these steps will be insufficient to reduce environmental health risks, which currently represent Peru’s most important environmental problem.

Revisiting Environmental Priorities for the Most Vulnerable Groups 13. A study was conducted as part o f the CEA to identify the environmental problems that are associated with the most significant economic costs (Larsen and Strukova, 2006a). The study estimated that the economic costs o f environmental degradation, depletion o f natural resources, natural disasters and inadequate environmental services (such as inadequate sanitation) amount to 8.2 billion soles, equivalent to 3.9 percent o f GDP in 2003. The analysis shows that the most costly problems associated with environmental degradation are, in decreasing order, inadequate water supply, sanitation, and hygiene; urban air pollution; natural disasters; lead pollution; indoor air pollution; and agncultural soil degradation. The costs o f deforestation and inadequate household solid waste collection are substantially less than the former categories (Figure 1). It should be noted that these estimates are based on very conservative assumptions that aim to reduce uncertainties associated with data constraints.

X

I

WaB supply, sanitation, Outdoor air pollution Natural disasters Lead ex p u r e Indoor air pdlutjon Soils degradation D€!fOff?SUOll

Municipal wastes collecijon

0.0%

0.2%

0.1%

0.3% 0.4%

0.5% 0.6%

0.7% 0.8%

0.9%

1.0%

1.1%

Source: Larsen and Strukova (2006a)

14. The cost o f environmental degradation in Peru i s higher than in other countries with similar income levels. Studies o f the cost o f environmental degradation conducted in Colombia, an upper-middle-income country in Latin America, and several lower-middle-income countries in North Africa and the Middle East show that the monetary value of increased morbidity and mortality typically lies below 2 percent o f GDP in these countries. This corresponding figure for Peru i s 2.8 percent o f GDP (Figure 2). I

Figure 2. Costs of Environmental Degradation (Health and Quality of Life) 3 5%

I

3 0%

25%

II

ci 2.0%

2 s 0

1.5%

1 0% 0 5%

I

0 0%

Egypt

Peru

Colombia Lebanon Altrena

Swia

Mmocco Tunisia

1

Source: Tunisia and Lebanon: Sarraf, Larsen and Owaygen (2004); Algeria: Ministere de 1’Amknagement du Territoire et de 1’Environnement (2002); Egypt: World Bank (2002a); Morocco: World Bank (2003); Syria: Sarraf, Bolt and Larsen (2004); Jordan: METAP (2000). Note: The cost in Peru includes health effects and natural disasters.

15. The burden o f these costs falls most heavily on vulnerable groups. The poor are exposed to greater environmental risks than hgher-income groups and lack the resources to mitigate those risks. Environmental health impacts often have more severe repercussions o n the poor than on the non-poor, because the latter tend to have more resources to cope with such events, better access to health services and better health in general. Environmental impacts and natural disasters can also result in a loss o f income or assets that i s more detrimental for the livelihoods o f the poor than for the non-poor. I t i s estimated that the impact o f environmental degradation for the poor relative t o the non-poor i s 20 percent higher per 1,000 people, and 4.5 times higher per unit o f income, highlighting the importance o f environmental degradation as a barrier to reducing inequality.

16. The impacts o f urban air pollution relative t o income are more severe for the poor than for the non-poor. Health impact relative t o income i s a u s e h l indicator, because illness and

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premature mortality result in medical treatment costs and lost income, in addition to pain, suffering and restriction o f activity. Based on this indicator, health impacts are between 75 and 300 percent higher among the poor.

17. The impacts o f waterborne diseases are several times higher for the poor than for the nonpoor. Both child mortality and child diarrheal prevalence have a strong correlation with poverty. Official data indicate that the child mortality rate among the poorest 20 percent o f the population was five times hgher than among the richest 20 percent, while child diarrheal prevalence among the poorest 20 percent was two times higher than among the richest 20 percent. Based on these data and on the higher relative share o f children in the poor population, i t i s estimated that health impacts per 1,000 people are three times higher in the poor population than in the non-poor population. The difference i s even higher in terms o f effects relative to income, with impacts in the poor population estimated to be 10 times higher than for the non-poor. 18. The impacts o f indoor air pollution are highly concentrated among the poor. Around 10 percent o f the urban population and more than 85 percent o f the rural population use solid fuels for cooking and heating. Although data are not available on the percentage o f poor and non-poor population that use solid fuels, it i s reasonable to assume, based on urban and rural poverty rates o f 40 and 65 percent, respectively, that almost the entire 10 percent o f the urban population and around 65 percent o f the rural population that use solid fuels are poor. Under these assumptions, an estimated 80 to 85 percent o f the total health effects would be among the poor. This share could be even higher in the plausible cases that poor households use more polluting stoves and have worse general health conditions. 19. The priorities identified by the analysis o f the cost o f environmental degradation are consistent with public perceptions. Water contamination and air pollution were identified as the environmental issues o f greatest concern in a national survey on environmental awareness conducted in 1997. At that time, 85 percent o f survey respondents expressed the view that environmental problems must be solved promptly (Instituto Cuanto, 1998). In a different survey conducted in 2004 in the Lima-Callao region, 80 percent o f respondents identified air pollution as the principal environmental problem in the area (GEA, 2004). 20. Responding to environmental health problems and vulnerability to natural disasters, which are associated with the highest costs o f environmental degradation in Peru, will require establishing specialized agencies with clear responsibilities and adequate resources to address these priorities. The GoP’s existing organizational structure i s inadequate to reduce vulnerability to natural disasters, since there i s n o national entity in charge o f articulating and leading the implementation o f a long-term strategy for incorporating disaster prevention and r i s k assessment into national and regional development planning. With respect to environmental health, DIGESA’s limited resources and relatively l o w hierarchy would constitute severe obstacles to solving Peru’s severe environmental health problems. Therefore, the C E A recommends the following agencies in the short run: a.

An autonomous Environmental Health Agency within the Ministry o f Health, with responsibilities for regulating environmental quality parameters that affect health, including (i) emissions o f PM2.5, lead and toxic pollutants; (ii) fuel quality to tackle air quality; and (iii)water-quality parameters such as bacteriological quality, Persistent Organic Pollutants (POPS), Volatile Organic Compounds (VOCs) and heavy metals.

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b. An autonomous agency with responsibilities for designing, and ensuring the adoption of, nonstructural measures to prevent natural disasters.

Environmental Health 21. Negative health impacts represent more than 70 percent o f the costs o f environmental degradation. Increases in morbidity and mortality resulting from urban air pollution and lead exposure; inadequate water supply, sanitation and hygiene; and indoor air pollution have an estimated cost o f 5.85 billion soles (Figure 3).

Figure 3. Costs o f EnvironmentaIHealth Damage in Peru

Urban air pollution and lead exposure

Water supply, sanitation, and hygiene

Indoor air pollution

22. Urban air pollution i s one o f the most widespread and serious problems in Peru’s cities and i s responsible for an estimated 3,900 premature deaths per year. Peru i s already undertaking substantive measures to eliminate lead in fuels. Thus, the CEA discusses more thoroughly the r i s k s associated with exposure to PM, particularly those o f less than 2.5 micros (PM2.5), which have a strong documented relationship with negative health effects. T h e problem o f air pollution i s most critical in the country’s industrial corridors, such as Lima-Callao, which bears almost 75 percent o f the estimated cost o f associated health impacts. Pollutant concentrations in parts o f Lima are higher than in other Latin American cities with severe air pollution, such as Mexico City and Santiago, and are considerably higher than in cities outside the region, including Los Angeles, Tokyo and Rome, which have successfully reduced their ambient concentrations o f air pollutants, despite having larger industrial and transportation sectors (Figure 4).

...

Xlll

Figure 4. PMlO Average Annual Concentrationsin Selected Cities (pglm3)

pglm3= micrograms per cubic meter Source: World Bank (2005~)

As part o f the preparatory work for the CEA, a study evaluated several interventions 23. aimed at reducing urban air pollution. These included the introduction o f low-sulfur diesel; the use o f compressed natural gas in buses and taxis; changes in the bus fleet t o larger, cleaner buses; improved inspection and maintenance programs for vehicles; retrofitting particulate control technology for vehicles; a phaseout o f two-stroke engmes in “baby taxis”; better facilities for the use o f bicycles; and the introduction o f industrial abatement technologies. Three sets o f recommendations emerge from the study as short-term actions that the GoP could undertake to reduce health risks associated with ambient air pollution: a.

Implement interventions to control air pollution, including (i) retrofit diesel-powered vehicles; (ii) introduce a vehicle inspection and maintenance program with rigorous vehicle emissions testing; (iii) reduce sulfur content in diesel t o less than 500 parts per million, including increasing clean imports o f diesel with low-sulfur content; and (iv) control emissions from stationary, mobile and non-point sources.

b. Establish national ambient standards for PMlO and PM2.5 in priority urban areas, and strengthen technology-specific emission standards for P M and i t s precursors, particularly sulfur and nitrogen oxides.

c.

Implement a program to monitor air quality to keep track o f PM2.5, PMlO and ozone in priority urban areas.

24. In spite o f the important reductions that Peru has achieved in child mortality from diarrheal illnesses, diarrheal prevalence in both adults and children remains high. Poor households are most severely affected, because their relatively l o w income and education interact with lack o f access t o basic services to generate a very high risk o f diarrheal illness. An analysis conducted as part o f the CEA estimated the costs and benefits o f four water supply, sanitation and hygiene interventions: (a) handwashing by mothers or caretakers o f young children in rural and urban areas, (b) improved water supply in rural areas, (c) safe sanitation facilities in rural areas and (d) drinlung water disinfection at point-of-use in urban and rural areas.3 The analysis concluded that benefits would exceed the costs o f each o f these interventions, and that they could 3

Each intervention i s considered independently o f other possible interventions, with the aim o f providing benefit-cost ratios for each intervention that the GoP might consider implementing.

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reduce the costs o f environmental health effects by more than 300 million soles per year (Figure 5).4 However, for handwashing among adults in households without young children, the benefits were not found to exceed the costs. Based on this analysis, the CEA recommends promoting handwashing programs that target children under the age o f five, as well as safe water programs that include the disinfection o f drinking water at point-of-use. Implementing these actions in the short run could help the GoP reduce the health risks associated with inadequate water supply, sanitation and hygiene.

Figure 5. Water Supply, Sanitation and Hygiene Interventions

5

4,

Urban

3

Safe rural sanitation facilities

2 -

i

Urban drinking water disinfection

I J

1

0 ,

L

4

Handwashing (adult health)

B/C = Benefit-cost r a t i o CED = C o s t o f environmental damage (Le., cost o f health effects)

25. Uncertainties regarding behavioral changes should be considered when evaluating the different interventions that could be conducted to reduce waterborne diseases. Infi-astructure and hardware improvements (water and sanitation facilities) are predominantly functions o f provision. It can be safely assumed that households will use these facilities if design and service delivery reflect demand and provide convenience. On the other hand, evaluating interventions that involve changes in household behavior (improved hygene and disinfection at point-of-use) entail greater uncertainties, since authorities can promote such behavior, but actual behavioral changes are beyond their control. T o account for such uncertainties, the analysis o n which Figure 4 i s based assumes a response rate o f 15% among targeted households and behavioral change being sustained for two years, both o f which are very conservative estimates. 26. The urgency o f controlling water pollution to protect and improve public health cannot be overemphasized. Most o f the sectoral agencies responsible for regulating water-pollution control have focused on a limited range o f activities and have established legal limits o n a reduced number o f parameters, most o f which have aesthetic or ecological significance, but minimal importance for human health. The dearth o f relevant regulations in this area i s a problem that should be solved, since waterborne diseases are a significant cause o f morbidity and mortality in 4

.

Figure 4 does not consider the possible interaction effects between different interventions (i.e., h o w the impacts o f a first intervention affect those o f a second intervention), because data constraints preclude a sound analysis o f such effects.

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Peru. In this context, the GoP should consider developing specific regulations and enforcement mechanisms in the short run to control water-quality parameters that have health implications, such as pathogens, volatile organic compounds and persistent organics. As mentioned above, the severity o f environmental health problems underscores the need for the creation o f an autonomous Environmental Health Agency responsible for enforcing health-related parameters.

27. Indoor air pollution (LAP), associated with the use o f solid fuels for cooking and heating, has a well-documented relationship with negative health effects, particularly with acute lower respiratory illness (ALRI) in childten under age five, and chronic obstructive pulmonary disease (COPD) and lung cancer in adult females. IAP i s most severe in poor rural communities and predominantly affects women and children, who spend more time in closed areas with high concentrations o f pollutants associated with the use o f solid fuels. The analysis conducted as part o f the CEA evaluated various interventions to eliminate indoor air pollution from solid fuels, including the installation o f improved wood stoves with chimneys and using cleaner fuels in both individual households and in community lutchens. Benefits from replacing unimproved stoves with improved ones in households were found to be almost seven times larger than the costs. Substituting liquefied petroleum gas (LPG) for unimproved stoves, or substituting L P G for a combination o f unimproved stoves and L P G was also estimated to have higher benefits than costs. Conversely, the benefits o f substitutingclean fuel (LPG) for improved stoves were found to be slightly smaller than the costs o f L P G at current market prices. Substituting improved stoves for unimproved ones in households, and substituting clean fuel alone for a m i x o f unimproved stoves and clean fuel, and the use o f clean fuel in community lutchens could reduce the cost o f environmental health effects by 250 million soles per year (Figure 6). Based on the analysis, the most efficient interventions that the GoP could implement in the short run to reduce the cost o f environmental degradation associated with IAP are (i) promoting the use o f L P G and other cleaner fuels in areas that predominantly use fuelwood, and improving safe and cost-effective availability of, and access to, fuelwood for users; and (ii) implementing a program to promote improved stoves.

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Figure 6. Indoor Air Pollution Interventions’

I 7.0

stoves

f

I

6.0

5.0

Community Kitchens (clean fuel from unimproved household stove)

~

I I

3.0

I

2.0 1.o 0.0 j 0

fuel from improved household stove) Clean fuel (from mix of clean fuel 8. I unimproved stove) Clean fuel (from Clean fuel (from improved mtx of clean fuel 8 improved stove) stove)

I

I

I *

50

100

i50

200

250

f 300

350

I 400

CED reduction (million Soles per year)

BIC = benefit-cost ratio CED = cost o f environmental damage (that is, cost o f health effects)

Natural Disasters 28. Peru’s incidence o f natural disasters i s nearly twice that o f Latin America as a whole, while i t s rate o f fatalities i s the highest o n the entire continent (Charvkriat, 2000). Peru’s geographic location partly explains such a high incidence, because the country i s in one o f the planet’s most seismically active areas and i s recurrently affected by the atmospheric and oceanic conditions caused by E l Niiio. The most prevalent types o f disasters during 2000-2004 were strong winds, floods and heavy rains. However, floods, earthquakes, frost and snow, and drought have affected a larger number of victims. Different data series show an increasing frequency o f natural disasters over both the short and long term. Although some o f these disasters have distinct natural sources, others-notably flooding and landslides-are increasingly influenced by human activities that modi@ environmental conditions and create a greater predisposition to more severe effects. Soil erosion and deforestation have contributed to higher flood risk in exposed and lowlying areas, and contribute to creating the conditions for mass soil movement resulting in landslides and huaycos (mudflows). Urbanization and greater demographic density have increased exposure to potential disasters in specific areas that concentrate socioeconomic activities.

~~

5

The benefit-cost ratios included in Figure 5 reflect both health benefits and the value of time-savings. Benefit-cost ratios are based on upgrading to improved stoves in 33 percent of rural households, use of LPG in community Iutchens for 15 percent of rural households, and switching to LPG alone from a mix of unimproved stoves and LPG in 5 percent of rural households An upgrade from unimproved stoves to LPG i s not included in Figure 5, since this would represent a double counting of reductions in health effects from indoor air pollubon because switching from unimproved stoves i s already reflected in the upgrade to improved stoves

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29. Reducing vulnerability t o natural disasters should constitute a short-term priority for the GoP. These events have resulted in a significant cost to the country’s human and physical capital. I t i s estimated that more than 2 million people were affected by natural disasters during 20002004, at an annual cost o f approximately one billion soles or US$325 m i l l i o n (Larsen and Strukova, 2006a). The poorest and most susceptible have paid the highest costs for these disasters in damages, deaths and lost assets. These groups tend to be more vulnerable t o natural disasters for a variety o f reasons. These include the construction o f housing where land i s cheap, frequently near river bottoms and o n steep hillsides; the lack o f land-use control in these areas; poor quality construction; lack o f basic mitigation measures; and the marginal livelihoods and limited capacity for economic resilience o f these groups. 30. To address this problem, i t i s necessary to develop an integrated response t o natural disasters that emphasizes prevention, vulnerability analysis and r i s k assessment. As discussed earlier, the GoP should consider establishing an autonomous agency6 in charge o f nonstructural measures t o prevent natural disasters. This new agency could function independently o f existing entities focusing o n emergency relief. A crucial element o f the strategy would be the creation o f a fund to provide incentives for local governments to advance in the preparation and implementation o f prevention plans. T o reduce vulnerability to natural disasters, the CEA recommends the adoption in the short run o f structural and nonstructural measures, including the adoption o f adequate construction technologies, practices and standards in poor urban sectors and among the rural population.

Natural Resource Management Fisheries 3 1. Peru’s fishing grounds are the richest in the world. Over 274 m i l l i o n metric tons (MTs) o f fish were harvested from Peruvian waters during 1950-2001, with anchovies constituting over 75 percent o f total harvest during that period, and currently representing approximately 10 percent o f

the global annual marine catch. The importance o f the anchovies lies not only in i t s social and economic value as a fishery, but also in its role in sustaining a large and diverse food web that supports a wide array o f ecosystem goods and services that are essential to maintain marine biodiversity and productivity. Fisheries also target additional pelagic species, such as sardine, horse mackerel and chub mackerel, and coastal species that include hake (rnerluza). Inland fisheries in the Amazon and Highland areas yield an annual 30,000 to 80,000 MT. The fisheries sector i s a significant contributor to the Peruvian economy, generating around 6 percent of employment, 1 percent o f GDP, and accounting for 11 to 16 percent o f total export earnings (which makes i t the second-largest earner o f foreign exchange after mining). 32. The sustainability o f Peru’s fisheries i s critically threatened by several factors. The overcapacity o f the fishing fleet and the occurrence o f El Nifo have resulted in extreme resource volatility and overexploitation o f fisheries o f various species, including anchovies and hake. Economic inefficiencies plague the sector, with vessels remaining idle for most o f the year and the sector absorbing a substantial amount o f capital to service i t s heavy debts. Additional issues that should b e tackled t o ensure the sustainability o f Peru’s fisheries include (a) negative environmental/ecosystem impacts; (b) weak governance and inadequate oversight, manifested in the existence o f legal loopholes and the granting of “exceptions” that have allowed the sector’s capacity t o grow despite existing regulations limiting such growth; (c) weak accountability and The Federal Emergency Management Agency (FEMA) in the United States i s an agency of this type

xviii

lack o f transparency resulting from the influence o f a powerful lobby and the conflicts o f interest that stem from the dual role o f the Ministry o f Production (Ministerio de la Produccibn PRODUCE) in regulatory oversight and production; and (d) social and equity issues, including the need to develop a domestic market for direct consumption o f species that represent a potential protein source for the poor, and the dissipation and drain o f resource rents that the government might collect from the sector to support other socially desirable goals, such as poverty reduction.

45. Continuation o f the existing situation will most likely result in severe overexploitation o f fisheries and the waste o f scarce economic resources that could be used as a platform to develop a more diversified and resilient economy. In this context, the GoP should consider institutionalizing a system o f tradable quotas for the fishing fleet, as a short-term action that would help to reduce overcapacity in the fishery sector.

Soil Degradation 33. Cultivable land i s a scarce commodity in Peru: arable land amounts to only about 0.155 hectare per capita, one o f the lowest among developing nations. This makes soil erosion, which affects the whole country and i s particularly severe in the Sierra, a significant challenge. Lack o f updated statistics precludes a robust assessment o f the severity o f the problem, but data from the 1970s indicate that moderate-to-severe erosion affected 19 million hectares in Peru, and light-tomoderate erosion affected another 110 million hectares. Different estimates (of which the most recent date from 1986) consistently conclude a soil loss arising from erosion o f over 300,000 hectares per year. Soil salinity i s also known to affect a significant share o f Peru's cultivated land. Again, lack o f monitoring makes it impossible to confirm the magnitude o f the current problem, but studies conducted in the 1970s found that salinity affected 69 percent o f the soils evaluated, and qualitative evidence suggests that the situation has worsened over time. Larsen and Strukova (2006a) estimate that farmers' lost revenue caused by soil erosion and salinization i s 544 million to 918 million soles per year. W h i l e problems associated with land degradation, particularly soil erosion, have worsened with time, they are s t i l l l o w compared to other countries where similar analyses have been done (Figure 7).

Figure 7. Costs of Environmental Degradation (Erosion and Salinity) 1.20% 1.OO%

2 0

0.80% 0.60%

0.40% 0.20%

0.00%

Source: Tunisia and Lebanon: Sarraf, Larsen and Owaygen (2004); Algeria: Ministere de l'Am6nagement du Territoire et de I'Environnement (2002); Egypt: World Bank (2002a); Morocco: World Bank (2003a); Syria: Sarraf, Bolt and Larsen (2004); Jordan: M E T A P (2000); Peru: Larsen and Strukova, 2006a.

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34. Natural factors, including topographic variations and seasonal rains exacerbated by the periodic occurrences o f EZ Nirib, make the country’s soils vulnerable t o erosion. However, these natural causes are aggravated by human influences such as overgrazing, deforestation and poor cultivation practices. Similarly, soil salinity problems are created by a combination o f natural factors, such as the soil’s naturally high mineral salts levels, and human activities, such as inefficient irrigation. Concerns regarding soil degradation are deepened by the evident and progressive disinvestment o f the Peruvian government over the past 30 years in mechanisms t o address the problem. Recommended short-term actions that would help redress this situation include (i) conductinghpdating a new national inventory o f soil erosion and salinity; (ii) revising the 1969, 1989 and 1990 Water Laws to authorize higher, broad-based fees for water use; and (iii) ending the preferential treatment for rice in water allocation in coastal irrigation projects. Water Resources Management 35. Peru i s endowed with abundant water resources. I t has a national average freshwater supply o f almost 60,000 cubic meters per capita, a figure that i s several orders o f magnitude larger than for other Latin American countries such as Mexico and Argentina. However, water resources are unevenly distributed throughout the territory, and the largest share o f the population and economic activities are located in the dry Coastal region, generating considerable stress o n the resource. The agncultural sector consumes the vast majority (86 percent) o f available water at the national level. This pattern i s emulated in the Coastal region, where 58 percent o f the country’s irrigation infrastructure i s located. The use o f gravity and flooding-irrigation methods, and the setting o f very l o w irrigation fees that are rarely collected, largely explain a l o w water efficiency o f 35 percent. These factors have also contributed to drainage and salinization problems in the Coastal valleys. Historically, water-resources management has focused mainly o n sectoral users, particularly irrigation,’ and water-supply infrastructure. Recommendations t o address the water sector’s challenges include continued implementation and strengthening o f a comprehensive water-rights system, continued modernization o f irrigation practices and riverbasin agencies to improve efficiency, promotion o f integrated land and water management, and strengthening water-user organizations. Deforestation 36. With an estimated 68.7 million hectares o f natural forests covering roughly 35.5 percent o f i t s territory, Peru’s forest cover i s the eighth largest in the world and second only t o Brazil in Latin America. Fully 99.4 percent o f the forests are located in the eastern (Onente) part o f the country. The Coastal region has been depleted almost entirely o f i t s forest cover o f mangroves and dry and sub-humid forests in the Andean highlands, and some 300,000 hectares o f natural forests remain. Recent estimates suggest that Peru’s deforestation rate between 1990 and 2000 was roughly 150,000 hectares per year, representing an annual cost of approximately 440 million soles or US$130 million (Elgegren, 2005; INRENA, 2005; Larsen and Strukova, 2006a). Proximate factors leading to deforestation in Peru include slash-and-burn agriculture, woodfuel extraction, and overgrazing in the Sierra; and large-scale agnculture and forest plantations, narcotics traffickers who clear forests t o grow coca and t o build illegal runways, cattle ranching, and the development o f roads and infrastructure in the Amazon. Yet, increasing demand for land and resources driven by demographic growth, rural poverty rates o f as much as 70 percent, undervaluation o f the environmental services provided by forests, and policy failures represent some o f the ultimate causes o f deforestation. 7

An Irrigation Strategy stressing the importance o f the subsector was discussed and approved among the authorities. T h i s strategy was used as a basis for the Water Resources Strategy discussions.

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37. The 1975 Forest and Wildlife Law that governed the forest sector until 2000 had serious flaws including the lack o f recognition o f the needs o f indigenous populations, the granting o f excessively small (1,000 hectares) annual forestry contracts, and the encouragement o f an exploitative relationship between small loggers and the timber industry and intermediaries. The new Forestry and Wildlife L a w o f 2000 strengthened the sector’s institutional framework by introducing 40-year timber concessions for 5,000 to 50,000 hectares, allocated through transparent public bidding. Among the most important features o f the law are requirements for sustainable management plans based on forest inventories and census, and access rights to forest resources. However, implementation o f the new law has been characterized by inadequate planning and scheduling o f the initial public bidding process; poor mapping o f the concessions, in turn creating access difficulties to concessions and conflicts with concessionaires who argue that they received something different from what they bid for; lengthy delays in administrative processes that make timely harvesting difficult; and inadequate monitoring o f the illegal timber trade. Major factors limiting the sector’s development have been the concessionaires’ general lack o f adequate capital; lack o f access to credit; and lack o f sufficient technical, business and forest management experience. Based on the experience to date, the CEA recommends suspending concessioning processes in the short run until necessary reforms are made to overcome existing problems.

Biodiversity 38. Peru i s recognized as one o f the world’s 12 mega-diverse counties, hosting 70 percent o f the world’s biological diversity and a very large number o f endemic species. Peru’s biological diversity represents a source o f comparative advantage for the development o f commercial species, including the alpaca and vicufia, Brazil nuts, tropical fish, the peccary (for meat and hide), orchids and medicinal plants. Although these species may not have the same commercial potential o f crops such as potato or maize, they constitute the basis for a more diversified apcultural activity that can contribute to the country’s sustained economic growth. Among other conservation efforts, Peru has established 61 natural protected areas that cover 13.74 percent o f i t s total territory, a relatively high figure when compared with other biologxally diverse countries in Latin America and other regions (Figure 8). Peru’s biological wealth has attracted much attention from international organizations and nongovernmental organizations (NGOs), which have supported numerous efforts to establish baseline data and monitor biological diversity in different biodiverse or biologically fragile sites.

Figure 8. Nationally Protected Area (% o f land)

Source: World Bank (2005a)

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39. W h i l e progress has been achieved in the use and conservation o f biodiversity, Peru faces the challenge o f integrating a consistent biodiversity management framework that i s supported at the highest political level. Specifically, there i s a need to guarantee the sustainability o f existing conservation efforts, particularly because current legislation does not assign clear responsibilities to different entities with mandates on biological conservation, nor does i t foster interagency coordination. Further, the application o f the existing body of regulations and policies i s chronically deficient, there i s limited capacity to properly manage biodiversity at the regional and local levels, and the country lacks a standardized monitoring system to assess the status of, or changes in, biological diversity. T o that end, the CEA recommends strengthening the institutional capacity o f key actors, clearly defining CONAM’s roles and functions, supporting national efforts to value biological diversity and environmental services, building on Peru’s comparative advantage in biological diversity, and refining coordination mechanisms among donor agencies. 40. T h e GoP i s considering addressing the institutional weaknesses that affect the management o f water and biodiversity by establishing two independent and financially sustainable agencies. First, a national water authority has been included in a Water Resources Management bill. T h i s agency would have a mandate for overseeing the allocation o f water rights by Water User Boards and enforcing secondary water-quality standards for parameters such as biological oxygen demand, chemical oxygen demand, PH, iron, manganese and salts. The bill proposes a series o f instruments to financially support the national water authority, including water fees based on the quantity and quality o f water assigned to users, and pollution charges on parameters regulated by secondary water-quality standards. A second agency would be in charge o f the conservation and use o f biodiversity, including the management o f national parks. Resources to fund the functioning o f this agency would come from the National Fund o f the Natural Protected Areas o f Peru (Fondo Nacional por las Areas Naturales Protegidas por el Estado - PROFONANPE) and would also be collected through fees charged for entrance to national parks and for the use o f biodiversity. If these reforms come t o fruition, INRENA would be redefined as a specialized agency responsible for managmg forests and soils. Under this scheme, INRENA would carry out i t s activities through watershed councils and be funded through stumpage fees and taxes on forests or soil degradation.

Environmental Assessment and Sectoral Environmental Management 41. Environmental Impact Assessment (EIA) i s the main instrument for sectoral environmental management in Peru. However, conflicting conceptions o f the EIA have turned the instrument into a bureaucratic obstacle for projects with minimal environmental impacts, while constraining i t s use as a decision-malung tool for managing and resolving complex environmental and social issues. Limitations in the use o f EIAs include (a) lack o f standardization and uniformity in the content and scope o f EIAs across and within sectoral ministries, (b) the conception o f public participation as events for sharing information rather than for receiving critical input and (c) weak enforcement o f EL4 commitments. 42. The approval in 2001 o f the National System for Environmental Impact Assessment constitutes an important step to address these issues, but specific regulations still need to be developed to ensure that EIAs are inclusive and standardized mechanisms through which social and environmental concerns can be incorporated into the project l i f e cycle. Because EIA i s the main instrument for sectoral environmental management in Peru, issuing specific EIA regulations constitutes one o f the recommended short-term actions that the GoP might consider implementing to strengthen the country’s environmental institutional framework.

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43. Existing inconsistencies in the approach, content, timing and requirements o f the E M legal and regulatory process in Peru create a lack o f standardization and uniformity in the project planning and approval process. Given this situation, CONAM i s designing regulations for a unified EIA process-including screening and scoping criteria for all ministries and sectoral authorities-that i s consistent with the existing legal fkamework and incorporates aspects o f best EIA practice. T h i s will ensure consistency with the proposed SEIA regulations and avoid the proliferation o f different E M standards between sectors. T o enhance EIA’s effectiveness, it i s suggested that the need be minimized for carrying out EIAs for projects that pose n o environmental threat or risk. Carrying out fewer EIAs by concentrating on significant projects with regonal, precedent-setting impacts would greatly improve the quality o f EIAs and increase opportunities for meaningful public consultation and community participation.

InstitutionalAnalysis 44. Peru has conducted important efforts to consolidate an organizational structure that can respond to the country’s environmental challenges. These efforts have generated considerable dividends, particularly in the conservation o f biodiversity and natural resources management. However, the existing organizational structure has severe limitations that hinder an efficient response to the country’s current and future environmental challenges. These limitations originate from three main sources: (a) lack o f an integrated environmental planning system, (b) lack o f sufficient management capacity, and (c) weak accountability and monitoring and enforcement capabilities. 45. One o f the most serious weaknesses o f Peru’s environmental management framework i s the lack o f capacity for environmental planning. An assessment o f the costs o f environmental degradation and a review o f surveys on public perceptions indicate that environmental health problems and the reduction o f vulnerability to natural disasters are the problems that require attention most urgently. However, a review o f environmental expenditures and an institutional analysis, both conducted as part o f the CEA, conclude that environmental health and the reduction o f vulnerability to natural disasters have received minimal attention. T h i s misalignment between environmental priorities, institutional efforts and resource allocation i s largely due to (a) the absence o f an integrated system o f reliable data to provide analytical support to the decisionmalung process; (b) the lack o f representation o f vulnerable groups; and (c) the absence o f a formal mechanism for allocating financial and human resources according to clearly defined environmental priories that are linked to poverty alleviation and social priorities. 46. The lack o f management capacity constitutes a fundamental challenge in terms o f implementing environmental regulations and plans. Most entities must cope with either insufficient funding or with the variable resources provided by the donor community. Human resource capacities vary from one agency to another. Some entities, including DIGESA, have been affected by the downsizing o f the public sector (World Bank, 2000, 2005d). Other organizations, such as CONAM, lack a critical mass o f human resources with sufficient technical expertise to analyze and formulate environmental policies in highly complex sectors. Peru’s sectorized approach to environmental management exacerbates these problems, because agencies focus their efforts on the specific interests o f the sectors they represent, and not on the solution o f environmental problems that require a multi-sectoral approach. 47. The absence o f a formal mechanism for environmental planning and priority setting has been associated with inadequate funding for the environmental sector and decreases in the national government’s total environmental expenditure. Between 1999 and 2005, annual

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environmental expenditure has represented around 0.01% o f GDP. Thus, resources allocated for environmental protection constitute a small fraction o f the estimated costs o f environmental degradation and are l o w by international standards, particularly when compared t o OECD countries, which typically spend 0.05 to 0.07% o f GDP. Peru’s falling allocations for the environmental sector have taken place within a favorable economic context and could therefore indicate a relative loss o f importance o f environmental challenges relative t o other social concerns. Ensuring adequate funding for the environmental sector from the national budget, as w e l l as from additional sources, i s essential t o develop the necessary capacity to address Peru’s most pressing environmental concerns.

48. Accountability, enforcement and monitoring capacity require urgent improvement. Accountability i s diluted by (a) the absence o f clear responsibilities and capacities among agencies and by (b) the lack o f an effective voice for the poor, stemming f r o m a lack o f awareness and the absence o f sound mechanisms for public participation. Monitoring capacity i s constrained by a lack of reliable time series data o n the state o f the environment and natural resources, the nonexistence o f a system o f results-focused indicators o f environmental quality, and insufficient resources to ensure an adequate institutional presence in the field. Enforcement has been suboptimal mostly because enforcement power ultimately rests in the same ministries that are responsible for sector development, but also because quality standards s t i l l need t o be defined in many areas. 49. Major reforms are needed t o address Peru’s institutional weaknesses and respond t o the country’s most pressing environmental challenges. There i s a definite need t o assign clearer duties and functions t o all the sector’s agencies t o avoid overlaps and conflicts o f interest, build organizational capacities to deliver and be responsive t o environmental needs, and establish the incentives and mechanisms for inter-agency coordination within and outside the sector. The CEA recommends the creation o f an independent task force integrated by high-level representatives o f the Congressional and Executive branches, as well as from those groups most affected by environmental degradation, to assess the alternative structural reforms. 50. Strengthening the environmental sector will require the establishment or reorganization o f governmental bodies to ensure an adequate response to environmental priorities (Table 1). Based o n international experience, which indicates that specialized governmental agencies tend to be more effective than a single agency with a wide mandate, the CEA recommends the creation o f a national environmental health agency, an agency to reduce vulnerability t o natural disasters, a national water agency and a centralized environmental regulatory body. Inter-agency coordination will remain crucial even within a new institutional framework given the cross-sector nature o f various environmental priorities, including indoor and outdoor air pollution, and inadequate water supply, sanitation and hygiene.

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-2

Table 1. Proposed Institutional Arrangements

3

P

3 ? ! Ec Coordinaion,designand implementationof environmentalpolicy

J

Enforcementof environmentalpolicies

s,

J

I

I

I

I

I

Enforcenicnt of potlution control measures

s,

Enforcemento f natural resources management regulations I

1

I

I

Environmental permitting

I

I

+ s ,

J

s , s ,

ls,ls, I

I

s , +

EIA

Reduction of vulnerability to natural dissters

s , s , + s ,

J

Conservationand protectedareas Water and forestry rights

allocation

I

+

I

+

I

I

J

J

5 1. Strengthening CONAM’s capacity to coordinate and foster consensus building among key sectors should constitute one o f the GoP’s priority actions in the short run. As the lead environmental authority, CONAM should play a lead role in ensuring the coordination o f different agencies to address priorities that require a multi-sectoral approach, as well in incorporating sub-national agencies in the response to regional environmental challenges. CONAM should also assume the prime responsibility for ensuring that the GoP’s resources are primarily devoted to address the nation’s environmental priorities instead o f sector priorities. 52. The GoP should consider pursuing short-term actions to address the existing misalignment between environmental priorities and resource allocation. These include the following: a.

Develop a robust priority-setting mechanism based on (i)the impacts o f environmental degradation on the poor and other vulnerable groups; (ii) the most urgent needs as perceived by the population, gauged through the conduct o f surveys, (iii)the major private and public costs and risks that environmental degradation

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imposes o n the overall society; and (iv) and analysis o f the effectiveness and efficiency o f environmental policies and o f alternative interventions to reduce the cost o f environmental degradation.

b. Establish a planning process to align environmental expenditures with priorities. 53. Formal evaluation and learning mechanisms should be incorporated in the short run into the management routines o f all the institutions in Peru’s environmental system. The systematic establishment o f baselines and the evaluation o f governmental interventions constitute an appropriate tool to gauge progress, incorporate the lessons from past experience, and adjust policies based on new developments in science and technology. The information collected w i t h this tool i s crucial for building performance-based indicators, which allow organizations to set measurable goals, evaluate their achievements, and engage in a process o f reforming and improving their practices. Performance-based indicators also have the potential to strengthen the environmental sector by enhancing transparency and accountability, as well as by demonstrating the social benefits o f investing public resources in environmental protection.

Conclusion 54. The highest costs o f environmental degradation in Peru are, in decreasing order o f magnitude, inadequate water supply, sanitation and hygiene; urban air pollution; natural disasters; lead exposure; indoor air pollution; land degradation; deforestation; and inadequate municipal waste collection. Combined, these environmental problems cost 8.2 billion soles, or 3.9 percent o f Peru’s GDP. The poor and vulnerable populations bear a disproportionately high amount o f this cost. T o address these problems, this report identifies a number o f cost-effective policy interventions that could be adopted in the short and medium t e r m to support sustainable development goals. 55. In recent decades, there has been considerable progress in addressing a biodiversityconservation agenda. The high mortality and morbidity rates suggest the need to increase emphasis on environmental health interventions. However, the environmental management agenda has yet to catch up with this shift in priorities to strengthen environmental health programs, because mechanisms in the current institutional structure to signal these changes are not yet in place. Improved monitoring and dissemination o f information on environmental outcomes, assignation o f accountabilities for environmental actions and outcomes, and involvement o f a broad range o f stakeholders are three important mechanisms to allow these signals to be picked up. 56.

Table 2 summarizes the main recommended short-term actions.

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Table 2. Recommended Short-Term Actions Objective [nstitutional reform

Recommended Short-Term Actions Develop a priority-setting mechanism based on (a) the impacts o f environmental degradation on the poor and other vulnerable groups, (b) the most urgent needs as perceived by the population, and (c) the major public and private costs and risks that environmental degradation imposes on the overall society. (Cost: low) Establish a planning process to align environmental expenditures with priorities. (Cost: low) Strengthen CONAM’s capacity to coordinate and foster consensus building among sectors.(Cost: modest) Issue regulations for the Environmental Impact Assessment Law.

(Cost: low)

Establish Environmental Health Agency withm the Ministry o f Health to regulate environmental quality parameters that affect health, emission o f PM2.5, lead and toxic pollutants; (ii) fuel including (i) quality to tackle air quality; and (iiiwater-quality ) parameters such as bacteriological quality, Persistent Organic Pollutants (POPS), Volatile Organic Compounds (VOCs) and heavy metals. Implement reforms being proposed by the government, such as the establishment o f an environmental regulatory body (Procuraduria Ambientao to address the enforcement o f all productive sectors. (Cost: modest) Establish an autonomous agency responsible for nonstructural measures to Drevent natural disasters. (Cost: modest)

Reduce health risks associated with ambient air pollution

Establish national ambient standards for PM2.5 and P M l O inpriority urban areas and strengthen technology-specific emission standards for P M and its precursors (particularly sulfur and nitrogen oxides). (Cost: low) Implement a program to monitor air quality to keep track o f PM2.5, PM10, and ozone inpriority urban areas. (Cost: modest) Implement interventions to control air pollution, that includes (a) promoting the retrofitting o f diesel-powered vehicles, (b) implementing a program to test vehicle exhausts, (c) reducing sulfur content in diesel to less than 500 parts per million, including increasing clean imports o f diesel with low-sulfur content; and (d) controlling emissions from stationary, mobile and non-point sources. (Cost: modest to high)

Reduce health risks associated with inadequate water supply, sanitation and hygiene

Promote handwashing programs that target children under the age o f five. (Cost: low)

Reduce cost of environmental degradation associated with indoor air pollution

Promote the use o f L P G and other cleaner fuels in areas that predominantly use fuelwood, and implement actions to improve safe and cost-effective availability and access to fuelwood for users. (Cost: modest)

Promote safe water programs that include disinfection o f drinking water at point-of-use. (Cost: low)

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Recommended Short-Term Actions

Objective

Implement a program to promote improved stoves. (Cost: modest)

Reduce vulnerability to natural disasters

Adopt structural and nonstructural measures to reduce vulnerability to natural disasters, including the adoption o f adequate construction technologies, practices and standards inpoor urban sectors and among the rural population. (Cost: modest)

Reduce soil degradation

Conducthpdate new national inventories o f (1) soil erosion and (2) soil salinity. (Cost: low) 0

Revise the 1969, 1989 and 1990 Water Laws to authorize higher, broad-based fees for water use. (Cost: low)

End preferential treatment for rice in water allocation in coastal irrigation projects. (Cost: low)

Reduce deforestation Reduce overcapacity in fishery sector

0

Suspend concessioning process until further reforms are made. (Cost: low) Institutionalize a system o f tradable quotas for fishing fleet. (Cost: modest)

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CHAPTER 1 COUNTRY ENVIRONMENTAL ANALYSIS: AN OVERVIEW’ 1.1 Over the last five decades, Peru’s environmental management framework has evolved into a large set o f regulations, policies, and institutions that aim to respond to the country’s environmental concerns. Recent efforts have brought encouraging results, particularly in advancing towards the integrated management o f water resources, and creating one o f the most consolidated systems o f Natural Protected Areas in the region. The establishment o f agencies, including the Office o f Natural Resources Evaluation (ONERN) and the National Institute for Natural Resources (INRENA), as well as the approval o f legislation such as the General Water L a w o f 1969 and the L a w o f Forestry and Wildlife (with i t s first version dating from 1975 and a newer version promulgated in 2000), have been instrumental. However, the country faces significant challenges in controlling pollution and advancing sectoral environmental management and, most importantly, in addressing environmental health impacts, disaster prevention, and r i s k mitigation. More recently, Peru has taken a number o f initiatives to further integrate the different elements o f i t s environmental management framework, including the establishment o f the Structural Framework for Environmental Management o f 1993, the National Environmental Management System L a w o f 2004, and the General Environmental L a w o f 2005. 1.2 Environmental degradation and depletion o f natural resources constitute a formidable obstacle to Peru’s efforts to eradicate poverty, reduce inequality, and develop a more diversified and resilient economy. The principal causes o f environmental degradation represent more than 3.9 percent o f the country’s GDP, mainly due to increased morbidity and mortality and decreased productivity. Inadequate water supply, sanitation, and hygiene alone are estimated to generate a social cost o f over one percent o f GDP, with 82% o f that cost attributed to health impacts that chiefly affect children under the age o f five. Indoor air pollution, representing around 0.4 percent o f GPD, imposes a significant burden on vulnerable groups, such as children and women in poor rural households. These individuals must rely on solid fuels for coolung and heating, and spend prolonged periods o f time in closed areas with high concentrations o f pollutants resulting from the use o f such fuels. As these two environmental problems illustrate, poor households are often exposed to greater environmental risks, lack the resources to mitigate those risks, and are therefore affected in a way that further reduces their chances o f escaping poverty.

1.3 Some o f Peru’s highest costs o f environmental degradation are associated with the country’s growing urbanization. Greater concentration o f populations and economic activities in specific areas has led to h g h levels o f atmospheric pollutants and to a larger number o f people being exposed to their negative impacts, which represent 0.9 percent o f GDP. Urban populations have also been exposed to lead pollution, and exposure to pollutants i s aggravated by inadequate solid wastes collection, amounting to 0.5 and 0.05 percent o f GPD, respectively. Urbanization has also meant that a greater number o f people are affected, and the economy i s most severely struck when a city i s devastated by a natural disaster. This phenomenon occurs more frequently, and l u l l s more people, in Peru than in the rest o f Latin America. Natural disasters also highlight the importance o f sustainable resource management, not only as a means to optimize the economic benefits o f fisheries, forestry, and other activities, but as an indispensable element in controlling the anthropogenic factors that result in greater vulnerability to natural disasters.

* T h i s chapter was prepared by Emesto Sanchez-Triana. 1

1.4 If managed sustainably, Peru’s profuse endowment o f natural resources could become a pillar o f an increasingly diversified and robust economy. Peru’s fishing grounds and natural forests are among the most abundant in the world, while its ecosystems host a wide and highly endemic biodiversity. Each o f these factors could support the development o f commercially valuable products, broaden the range o f activities fueling the country’s economic growth, and generate significant revenues to support the country’s social agenda. However, as the analysis demonstrates, institutional and policy failures threaten the sustainability o f Peru’s natural resources and are largely responsible for leaving their potential fundamentally untapped. Other natural resources, such as water and cultivable lands, are under severe stress. Unless immediate actions are taken to modify current patterns o f resource utilization, growing resource scarcity i s likely to result in heightened social conflict and diminished contributions to the country’s sustainable growth by related economic activities, including agriculture. 1.5 Over the past five decades, Peru has restructured its legal and regulatory landscape, undertaken numerous policy initiatives, and dramatically expanded and strengthened i t s institutional capacity for protecting and managing the natural resources and environmental quality vital to sustainable growth and poverty reduction. While the government made significant advances, such as establishing a system o f national parks and forestry reserves that covers nearly a quarter o f the national territory and phasing out leaded gasoline, it still faces the serious challenge o f slowing and reversing environmental degradation.

Objectives o f the Country EnvironmentalAnalysis 1.6 The objective o f the Country Environmental Analysis (CEA) i s to present an analytical framework t o support the efforts o f the Government o f Peru toward achieving integration o f the principles o f sustainable development into country policies and programs and reverse the losses o f environmental resources.

1.7 Through i t s examination o f urban environmental issues such as air pollution and untreated hnlung water that affect the most vulnerable population groups, the CEA provides the analyhcal underpinnings for designing policies aimed at achieving MDG &reducing child mortality-by addressing the causes o f respiratory illness, diarrhea, and other principal factors in morbidity and mortality for children under age five. 1.8 The findings o f the CEA are specifically expected to help design and implement policies t o (a) improve the effectiveness and efficiency o f Peru’s environmental management system, and (b) integrate principles o f sustainable development into key sector policies, with an emphasis o n protecting the most vulnerable groups. The main elements o f the CEA are analyzes o f (a) the institutional capacity for environmental management in Peru; (b) the cost o f environmental degradation; and (c) the effectiveness and efficiency o f existing policy, and legislative and regulatory frameworks t o address priority environmental concerns.

CEA Process and Linkages with other Bank Products 1.9 The CEA was initiated in October 2005 through a workshop in Paracas, Peru, involving national stakeholders and development partners. Participants included representatives o f agencies from various sectors, including environment, health, and energy and mines; regional environmental authorities; and the private sector; nongovernmental organizations, and

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international organizations. Workshop participants provided valuable input for the overall diagnosis o f the state o f the environment in Peru, helped to identify crucial information gaps that needed to be addressed by the CEA, and recounted Peru’s progress in establishing a solid environmental management framework. The workshop also provided a venue for building consensus regarding the importance, scope, and methodologes used to carry out the analysis. T h e preliminary results o f the C E A were presented during the V I Ecodialogue, which 1.10 took place in Iquitos on March 22-24, 2006. The event had more than 400 representatives from public entities, indigenous peoples, professional associations, academic centers, nongovernmental organizations, and c i v i l society. The representatives engaged in an open dialogue about Peru’s most pressing environmental challenges.

1.11 The findings and recommendations o f the CEA were disseminated in a workshop that took place in Lima, Peru, on June 6-7,2007. The workshop involved more than 150 participants, including representatives from MEF, INRENA, DIGESA, MINAG, MEM, the National Ombudsman and the Prime Minister’s Office, as well as from the private sector, NGOs and civil society. 1.12 The CEA i s aligned with the Peru Country Assistance Strategy (CAS). The CAS aims to address three strategic areas: (i)competitiveness, (ii)equity and social justice, and (iii) institutionality. With respect to competitiveness, the C E A analyzes, and recommends responses to, the main weaknesses in environmental management that have a direct, negative impact on the quality o f the country’s business climate and the competitiveness o f i t s businesses. Furthermore, the C E A provides the analytical underpinnings to arrest environmental degradation, which i s clearly associated with declines in productivity, mainly through negative health impacts, increased vulnerability o f natural resources, and reduced yields from overexploited natural resources. Regarding equity and social justice, the CEA focuses primarily o n the impacts o f environmental degradation on vulnerable groups, particularly the poor and their children. The CEA builds the case for mitigating the environment-related health impacts o f vulnerable groups as the GoP’s first environmental priority. Furthermore, the CEA includes detailed analysis o f the cost-effective interventions that the GoP could undertake to that end. With respect to institutionality, the CEA proposes institutional reforms that would help increase accountability, improve compliance with environmental standards, and foster overall better environmental performance. If implemented, these reforms are expected to help the GoP to set environmental priorities, taking into account the voice o f multiple stakeholders, and align resources and institutional efforts to address those priorities. Finally, the CEA i s part o f the CAS renewed focus on environmental issues. 1.13 The CEA builds on previous Bank analytical work. The report Peru: Environmental Issues and Strategic Options (World Bank, 2000) provided a f i r s t analysis o f Peru’s most serious environmental challenges and the institutional weaknesses that impeded an articulate response to those challenges. A study o f wealth and sustainability in the mining sector analyzed the major environmental and social impacts associated with Peru’s mining sector (World Bank, 2005e). The CEA deepens the existing analytical foundation by incorporating the findings o f the various studies that were commissioned to address existing data gaps, estimate the costs o f environmental degradation, assess more thoroughly the impacts o f environmental degradation o n vulnerable groups, and propose cost-effective policy interventions. 1.14 The CEA provides new insights regarding areas where the Bank has long been involved. expansion o f water Active Bank projects support Peru’s efforts in a number o f areas, including (i) supply and sanitation in urban and rural communities through the Lima Water Rehabilitation and

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Management Project and the National Rural Water Supply and Sanitation Project; (ii) improving soil and water management in the agricultural sector through the Agricultural Research and Extension Program (currently in Phase 2) and the Peru Irrigation Subsector Project Supplemental establishing cleaner and safer mass rapid transit systems. through the Lima Transport Loan; (iii) Project; and (iv) strengthening the management o f protected areas with the participation o f local communities through the Indigenous Management o f Protected Areas in the Peruvian Amazon Project, the Participatory Management o f Protected Areas Project, and the Vilcanota Valley Rehabilitation and Management Project. The C E A analyzes the institutional frameworks in which these projects take place and recommends policy reforms that, if implemented, would facilitate meeting the projects’ objectives. Furthermore, such reforms would create an enabling environment in which further projects can take place.

1.15 Further research will be necessary to refine the analysis provided by the CEA on a number o f topics. Basic data are missing on most o f the critical environmental issues faced by the country. In many instances, such as estimating the costs o f environmental degradation, the CEA attempts to tackle the problem by applying data from other countries and, when appropriate, adjusting for income disparities. In other cases, the C E A identifies the additional analysis that should be conducted prior to deciding whether a specific policy should be implemented. This i s the case for most o f the policies that are expected to reduce urban air pollution and for the interventions that could be conducted to arrest soil degradation.

CEA Summary 1.16 The report has 10 chapters. Chapter I presents an overview o f the report. Chapter 2 examines the evolution o f Peru’s environmental management framework over the last five decades. The analysis presented in Chapter 2 finds that the country has developed a considerable institutional capacity associated with important achievements in the areas o f natural resource and biodiversity management. However, pollution control and environmental health problems have not generally been considered as national priorities, although the latter currently represent the country’s greatest environmental challenge. The chapter also reviews Peru’s achievements in the structuring o f a National Environmental Management System as well as related aspects being debated at the end o f 2005. 1.17 Chapter 3 analyzes the cost o f environmental degradation in Peru. The analysis shows that the environment-related problems with the highest costs are, in decreasing order, inadequate water supply, sanitation, and hygiene; urban air pollution; natural disasters; lead pollution; indoor air pollution; soil degradation; inadequate municipal waste collection; and deforestation. The effects o f environmental degradation associated with these principal causes are estimated to cost approximately 3.9 percent o f GDP, mainly due to increased mortality and morbidity and decreased productivity. The burden o f these costs falls most heavily on vulnerable segments o f the population, especially the poor and their children under the age o f five, who are often exposed to higher environmental health risks than the non-poor and lack the resources to mitigate those risks. 1.18 Chapter 4 focuses on the health impacts o f environmental degradation on both urban and rural communities. The chapter estimates the costs and benefits o f various interventions to address waterborne diseases, indoor air pollution, and urban air pollution in Peru. Waterborne diseases exert a significant economic cost, particularly on the poor, who often lack adequate sanitation and water supply. An analysis o f various interventions that could address waterborne diseases concludes that the most cost-effective approach would be the design and implementation

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o f a safe water program that promotes hygienic behavior through handwashing and improvements in water quality at the point o f use. Urban air pollution generates a significant environmental health risk for the nearly 50 percent o f Peru’s population living in the country’s major cities. Introducing l o w sulfur diesel would unambiguously result in net economic benefits stemming from associated reductions in health impacts. However, further assessment i s needed to estimate the efficiency o f additional interventions that could help address the problem in the short run and achieve additional cutbacks in particulate matter emissions. Indoor air pollution i s a particularly severe problem in poor rural households that must rely o n solid fuels for coolung and heating. Cost-effective interventions that can reduce the impact o f indoor air pollution include the adoption o f improved cooking stoves and/or the use o f cleaner fuels. Chapter 5 discusses problems associated with natural disasters, particularly floods and 1.19 landslides. More than 2 million Peruvians were affected by natural disasters during 2000-2004, at an annual cost o f approximately US$325 million. The analysis recognizes that while some o f these disasters have distinct natural sources, others-notably flooding and landslides-are increasingly influenced by human activities, such as deforestation and practices leading to soil erosion, which modify environmental conditions and create a greater predisposition to more severe effects. T h e poorest and most vulnerable have paid the highest costs for these disasters in damages, deaths, and lost assets. A number o f actions are recommended to address t h i s issue, particularly nonstructural measures to prevent human settlements in areas that are highly vulnerable to natural disasters, as well as specific actions to incorporate risk management in the planning activities o f all government levels and to establish adequate institutional mechanisms for disaster prevention and response.

1.20 Chapter 6 analyzes the issues associated with the management o f fisheries resources. Peru’s fisheries resources support one o f the c0untry7s most important economic activities and provide fundamental environmental services. The occurrence o f El Ni60 Southern Oscillation and the steady expansion o f fishing and processing capacity have been associated with an extreme resource volatility that could lead to resource depletion if urgent measures are not adopted in the short run. The sector also faces critical challenges with respect to reducing prevalent economic inefficiencies, internalizing i t s environmental externalities, and ensuring that the sector contributes substantial leverage to achieve the country’s social and economic goals. Meeting these challenges will require conducting an open and transparent process to (i)rationalize capacity and effort in the fishing sector, (ii)issue effective and efficient environmental regulations, (iii)strengthen the sector’s research capacity, (iv) initiate a system o f Marine Protected Areas, and (v) rehabilitate the sector’s legal and regulatory framework 1.21 Chapter 7 discusses the main challenges associated with the sustainable use o f Peru’s natural resources, particularly water, forests, biodiversity, and soils. While the analysis acknowledges the country’s achievements in reducing deforestation, protecting biodiversity, and improving water resource management, i t also identifies a series o f threats and institutional weaknesses that could undermine the sustainability o f Peru’s efforts. The chapter includes various recommendations to enhance stakeholder participation in natural resource management, increase the effectiveness and efficiency o f the agencies with a mandate for natural resource protection and management, and utilize the country’s comparative advantage in natural resources to develop commercially valuable products. Chapter 8 discusses sectoral environmental management in Peru, which has been 1.22 fundamentally based on the environmental impact assessment (EM) system. The analysis finds that the effectiveness o f EIA in Peru is, however, undermined by the lack o f a uniform perspective regarding i t s objectives and usefulness. Specifically, there exists an ambiguity among

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government authorities as to whether the purpose o f EL4 i s to achieve environmental planning or environmental management. The chapter highlights the need for the government to clarify the purpose o f EL4 and identifies the need to develop, in addition, appropriate instruments to deal specifically with environmental problems that are linked to market and policy failures.

1.23 Chapter 9 reviews the environmental management framework in Peru and assesses the complex institutional system o f checks and balances. T h e chapter finds that Peru’s environmental management framework has adequate financial resources, but that it i s unable to effectively support government efforts to promote environmentally sustainable development. This results from lack o f attention to, and insufficient allocation of, human and financial resources to tackle key environmental priorities linked to economic development. The chapter highlights the need for policy and institutional changes to address these factors and to target complementary investments toward areas that impose high economic costs, but that have not been adequately tackled. In particular, increased efforts are needed to improve the quality o f l i f e o f the growing number o f poor people living in and around urban areas in a country where more than 70 percent o f the population i s urban. T h e goal o f the recommendations i s to support the country’s efforts to move toward more equitable and sustainable economic growth.

1.24 Chapter I O presents the CEA’s conclusions and recommendations. The conclusions stress that, while there has been considerable progress in the last decades in addressing the biodiversity conservation agenda, high urbanization rates suggest the need to increase emphasis on environmental health issues. However, the environmental management agenda has yet to catch up with this shift in priorities from biodiversity conservation to environmental health problems, because mechanisms in the current institutional structure to signal these changes are not yet in place. Improved monitoring and dissemination o f information on environmental outcomes, assignation o f accountabilities for environmental actions and outcomes, and involvement o f a broad range o f stakeholders are three important mechanisms to allow these signals to be picked UP.

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CHAPTER 2 AN EVOLVING ENVIRONMENTAL MANAGEMENT FRAMEWORK To address the historical challenges posed by the extraction of natural resources and the resulting environmental degradation, the evolution of Peru’s ffamework for environmental management has focused on five core areas: (i) management and use of natural resources, (ii) use and conservation of biodiversity, (iii) pollution control and sectoral environmental management, (iv) environmental health and management, and (v) natural disasters. These areas have been determined by economic development issues, population trends and global environmental priorities. The current framework has yielded significant achievements. A number of reform proposals are under discussion in Peru, ranging from the creation of centralized agencies for enforcing environmental regulations and a water agency, to the development of measures for mitigating the impacts of large investment projects.

Introduction’ 2.1 The evolution o f environmental management in Peru has been shaped primarily by economic development and global environmental issues. The extraction and export o f Peru’s natural resources (minerals, agricultural products, hydrocarbons, rubber, fisheries and wood) have been central in the history o f Peru’s economic development and have influenced i t s social and economic structure. Throughout Peruvian history, however, the repetition o f a pattern can be observed in which a commodity triggers an economic boom that i s shortly followed by resource depletion and collapse (Castro, 2005). Commodities that have experienced these boom and collapse cycles include guano (between the 1850s and 1870s), saltpeter (186Os-l870s), rubber (1890s-1910) and anchovies (1960s-1970s). The mining sector has proven to be an exception, as it has remained a pillar o f the national economy since colonial times. Nevertheless, that sector has not been exempt from problems, including a decline in mineral production during the late eighteenth century that had economy-wide implications. 2.2 Efforts to address the challenges posed by the sustainable exploitation o f Peru’s natural resources have been focused on five issues historically considered to be in greatest need o f regulation and enforcement. The management and use o f renewable natural resources i s the issue that has received the most attention. According to official data, 65% o f Peru’s population lived in the Sierra in 1940 (INEI, 1999). High population density in an area with scarce agricultural land contributed to a decrease in farm size and intensification o f agricultural practices that eventually led to loss o f soil fertility, decreased yields, erosion and ultimately migration to other areas. 2.3

Partly in response to these issues, significant efforts have been made regarding the management and use of renewable natural resources. These efforts include investments in irrigation, decentralization o f water resources to Water User Boards ( W U B s - Juntas de Usuarios) and increases in agricultural production between 2000 and 2005. Other significant achievements include establishing, in the legal framework o f the Forestry L a w o f 2000,

institutional conditions for the sustainable management o f forest resources (Pulgar-Vidal, 2006). The revised rate o f deforestation (150,000 hdyear) i s significantly lower than in neighboring countries (Brazil, Bolivia and Ecuador).

This chapter was prepared by Renan Poveda, Emesto Shchez-Triana and Carolina Urmtia. This chapter draws from background documents prepared by Pulgar-Vida1(2006), D. Lee (2006), D. Olson (2006) and G. Castro (2005)

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2.4 The conservation o f biodiversity and Natural Protected Areas (NPAs) has had considerable achievements including these actions: (i) enactment o f the Natural Protected Areas Law o f 1997, which defines the role o f the country's protected areas to conserve biological diversity and their associated cultural, landscape and scientific values, and the establishment o f the National System o f NPAs, which currently comprise 17.66 million hectares, or 13.74% o f the country's total area; (ii) creation in 1992 o f the Peruvian Trust Fund for National Parks and Protected Areas (PROFONANPE); and (iii) the increasing number o f specialized non-governmental organizations that support efforts to conserve biodiversity and protected areas. 2.5 Pollution control and sectoral environmental management have been based on a framework o f environmental licensing and enforcement, with environmental impact assessment (EIA) and environmental management and adaptatiodcompliance program (PAMAS) serving as core instruments". Until recently, the development o f economic activities and adoption o f landuse patterns took place without adequate environmental safeguards. Although mineral resources have been extracted for centuries, it was only in the early 1990s that the Government o f Peru (GOP) took the first steps to address the environmental and social impacts o f the mining sector". In this context, effluents and materials generated by mining activities were not adequately disposed o f and generated significant impacts on ecosystems and public health. Unsustainable agricultural practices were associated with the most significant environmental problems during the 194Os-l970s, when most o f Peru's population was rural. Since 1992, a number o f ministries have established environmental units for the implementation o f environmental regulations and maximum permissible levels (LMPs). Sector-specific laws and regulations have been developed since 1993, particularly for some key sectors such as mining and energy". 2.6 A fourth core area i s environmental health. Efforts to manage environmental health began in the 1940s through the General Directorate for Environmental Health (DIGESA) o f the Ministry o f Health (MINSA). DIGESA has faced numerous institutional challenges that have affected i t s overall capacity. Nonetheless, there have been recent milestones in environmental health such as the establishment o f a program to improve personal hygiene and promote safe water programs and the phase-out o f leaded fuel in 2005. 2.7 Regarding natural disasters, historically, the National Institute for Civil Defense (INDECI) has emphasized disaster mitigation and relief, rather than disaster prevention (including the analysis o f disaster risk) and adaptation. Only in the past five years have institutions begun designing action plans for disaster prevention, risk assessment and the reduction o f vulnerability. 2.8 Attempts to integrate these areas have been made through the enactment o f integral national legislation and the creation o f a national environmental authority, the C O N A M (Table 2.1). Such efforts include the incorporation o f environmental considerations in the 1979 and 1993 Constitutions, the enactment o f framework laws such as the National Code for Environment and Natural Resources (Cbdigo Nacional del Medio Ambiente y 10s Recursos Naturales - CMARN), the Structural Framework for Environmental Management o f 1993 (Marc0 Estructurulpara la Gestidn Ambiental - MEGA), The National Environmental Management System Law o f 2004 (Ley del Sistema Nacional de Gestibn Ambiental) and the General Environment Law o f 2005 (Ley General de Ambiente - LGA).I3 lo Environmental impact

studies became integral 'assessments' after the EL4 L a w o f 2001. 1993, Peru has taken concrete steps to mitigate the negative social and environmental impacts o f the mining sector, including: (i) creating an institutional ffamework to harmonize institutional responsibilities and environmental developing environmental sectoral norms; (iii) defining environmental standards for water, air, and soil legislation; (ii) quality; and (iv) elaborating an inventory o f mining environmental liabilities, among others (World Bank, 2005e). 12 The Ministry o f Mining and Energy, for instance, has developed at least 13 laws and rulings that directly address environmental issues pertaining to the mining sector. l3 Table 2.1 does not provide an exhaustive list o f all the environmental functions assigned by the legislation to governmental agencies; it provides a list o f only the governmental agencies with a major environmental role, based o n l1 Since

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Table 2.1. Landmarksin the Evolution of EnvironmentalManagement in Peru Year

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Landmark Establishment o f the ONERN Enactment o f the Sanitary Code (now abolished) Enactment o f the Water Law Enactment o f the Forestry and Wildlife Law (now abolished) Conservation Units Regulation enacted N e w Peruvian Constitution Creation o f the Peruvian Amazon Research Institute (established by law in 1981) 1984 Creation o f a Task Force for the Development o f the Environmental and Natural Resource Code (Cbdigo de Medio Ambiente y Recursos Naturales - CMARN) 1985 Creation o f the National Council for Environmental Health (Consejo Nacional del Medio Ambiente para l a Salud - CONAPMAS) 1989 Multisectoral Commission Report for the Solution o f the Problems at 110 and Ite Bays 1990 Enactment o f the National Code for Environment and Natural Resources - C M A R N (Legislative Decree No. 613) Legal and political framework to foster incentives for private investment - the Framework 1991 Law for Private Investment Growth, Legislative Decree No. 757, which established sectoral-based environmental management 1992 Peruvian report for the UN Conference on Sustainable Development National Conservation Strategy PROFONANPE established 1992-1993 I ONERN phased out INRENA-established N e w Constitution passed 1993 C O N A M established 1994 1996-1997 Design and enactment ofthe legal framework on natural resources Organic Law for the Use o f Natural Resources Law for the Conservation and Sustainable Use o f Biological Diversity Law for Natural Protected Areas 1996-1997 Ecodialogues begin and National Environmental Agenda is discussed MEGA established 1998 Approval o f the Environmental Quality Standards (ECA) and Regulations on Maximum Permissible Levels (LMP) Design and approval o f the political and fiscal policy for forestry 2000 Regional Ecodialogue Solid Waste Law approved 2000 Environmental Impact Assessment System Law approved 200 1 Forestry Development Law established 2002 SNGA Law enacted 2004 Regional and Local Systems for Environmental Management General Environment Law Bill presented National Environmental Agenda 2005-2007 approved 2005 2005 General Law o f the Environment

1962 1969 1969 1975 1977 1979

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2.9 T h i s chapter examines the evolution o f Peru’s environmental management framework, which has been closely tied to the country’s economic development. The findings o f this chapter are based on secondary information and interviews conducted in Peru during 2005. T h i s chapter consists o f eight sections. Section Two provides a historical perspective on natural resources management in Peru. Sections Three through Six describe the evolution o f the environmental management framework in the following areas: renewable natural resource management, ecosystem conservation, pollution control and environmental health. The seventh section presents the advances achleved in the structuring o f the National Environmental Management System.

the review o f relevant legislation.

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Finally, the eighth section focuses o n the debate regarding the framework for environmental management at the end o f 2005.

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I l l

A Historical Perspective 2.10 Peru’s economy i s highly dependent on i t s rich natural resource base. Extraction o f natural resources has taken place since before the arrival o f the Spaniards. W h i l e there i s no scientific evidence to conclude that natural resource degradation was more intense during the colonial period, selective extraction o f key resources intensified after conquest in order for Peru to meet i t s mercantile needs with Spain (Castro, 2005). Once the Viceroyalty o f Peru was established, silver, gold and copper became the principal source o f wealth for the crowni4. Most o f the core economic activities during the colony concentrated in the highlands, but all the wealth and resources passed through Lima (the seat o f the viceroyalty and the main port). Thus, natural resources extraction became dependent upon a centralized political and economic structure based in Lima, in a pattern that persists until today. The extraction o f key resources such as minerals and expansion o f agricultural activities have contributed through time to degradation o f soils, erosion and sedimentation o f watersheds, and to an accumulative pollution o f soil lakes and rivers (i.e., mercury has been used since colonial times for silver extraction)”. 2.11 For instance, by 1841 the Inca fertilizer guano and saltpeter began to be widely exploited. Guano became the most important resource in Peru during the mid-19th century, both for its use as a fertilizer and as fire-powder. By 1859 guano represented close to 75 percent o f all income, but soon after, production collapsed due to lack o f investments in the industry, poor policies and unfavorable prices (Castro, 2005). 2.12 Likewise, the rubber business in the Amazon basin had a rapid growth period from the 1890s until it collapsed by 1910. The anchoveta industry became an emblematic example o f a vast resource that was overexploited and poorly managed from 1960s until mid 1970s. The collapse o f each o f these commodities had specific reasons that, among others, included weak management and poor policy formulations. Furthermore, an expansion o f ago-industrial activities from the beginning o f the 20’ century also failed by 1969 when the agrarian reform was implemented and redistributed land property rights. In addition, despite introducing technical features (i.e., vapor-run motors for draining purposes) and creating adrmnistrative reforms, the mining sector, which has been the most important economic activity since colonial times, also suffered a gradual decline in production. 2.13 During the twentieth century, the economy began to diversify and important investments were made in irrigation in the coastal region to support the growing sugar and cotton plantations. The key resources being exploited during the 20’ century included copper, sugar, gold, cotton, wool, rubber, fisheries, silver and later hydrocarbons. Each o f these activities led to specific environmental impacts mainly in the highlands, and to a lesser extent in the coastal and rainforest regions. For instance, a growth o f the mining sector in the 20” century led to the creation o f smelters at 110 and at L a Oroya. These smelters have contributed, through time, to severe air and water pollution. In addition, a large number o f mines have close during the 20’ century without the adequate measures, leaving behind environmental legacies. A preliminary inventory carried out by the Ministry o f Energy and Mines in 2003 identified about 610 mining environmental legacies (not including those from state owned companies), o f which 28 percent lacked a legal owner.

l4Organized mining began by 1540 and covered the following key mine deposits during colonial period: Potosi (1545-1776) in Bolivia; Castrovirreyna (1590) in Huancavelica; Oruro (1608) in Bolivia; Caylloma (1608) in Arequipa; Laicacota (1619) in Puno; and Pasco in the 1700’s. By the end o f the XVI century, different regions had specialized on certain crops: (i) the northern coast (Piura and the central coast (Lambayeque to Lima) in sugar; (iii) southern coast (from Tumbes) focused on cotton and goats; (ii) Ica to Arica) on wineries; (iv) the northern sierra focused on cattle ranching; (v) the central Sierra focused on wheat, corn and cattle ranching; and (vi) the southern Sierra focused primarily on tubercular roots, camelids, and cattle.

’’

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2.14 After mining, industrial growth began around Lima, and fishmeal factories were established along the coastal areas. O i l and gas have been also key economic activities developed through the early 1900’s. However, oil production in Peru has declined steadily over the past two decades, as the country‘s fields have matured and n o major new dmoveries have provided additional reserves. In contrast to production, Peru’s o i l consumption has grown over the past 20 years, reaching 161,000 bbl/d in 2004. Peru has been a net importer o f oil since 1992, with most imports coming from Ecuador and other South American countries (US Department o f Energy, 2005). Regarding gas, the Camisea Project i s the most notable example in Peru, and one o f great importance to the environmental sector. This project makes use o f one o f the most important non-associated natural gas reserves in Latin America, and it involves the operation o f two pipelines, one for natural gas (NG) and one for natural gas liquids (NGL), as well as the distribution network for natural gas in Lima and Callao. 2.15 A growing rural sector compounded by weak agricultural practices since the 1940s led to environmental impacts as pesticides and fertilizers began to be over-utilized, and the agricultural frontier expanded into forested areas. Limited productivity o f soils for agriculture in the hrghlands combined with relatively high population density led to a growing migration to urban centers in the coast. Migration also increased during the 1980’s due to a growing wave o f rural violence and terrorism by the Shining Path. Thus, urban centers (particularly in and around Lima) grew disproportionately since the 1950’s. Urban environmental problems such as air pollution, poor water quality, solid wastes issues, intensified. During this period, the fishmeal plants began to be developed along the coast, contributing to a foul smell and pollution near urban centers.

Conservation and Administration of Natural Resources 2.16 In 1962, Congress established the National Office for the Assessment o f Natural Resources (ONERN) through a supreme decree to systematically collect and analyze information and propose policies for the sustainable use o f natural resources. The mandate o f this Office was to centralize the evaluation o f natural resources and to develop basic documents to inform the economic and social development plan and i t s sectoral programs, as well as to guide structural reforms. Thus, ONERN became the base for the administration and conservation o f natural resources in Peru between 1962 and 1992. The Office gave priority to the development and promotion o f the agricultural sector, which traditionally has been very important in the portfolio o f state investment projects as a way to stimulate the economy in rural areas. Investments in this sector focused on integrated watershed management projects, which included reforestation, land use management, erosion control and aquaculture. ONERN had a number o f commendable achievements that include the publication o f the Guidelines on the Policy for the Conservation of the Renewable Natural Resources in Peru, which became an important technical underpinning for the National Strategy for Conservation. 2.17 In 1992, the ONERN was transformed into the National Institute for Natural Resources (INRENA), reducing many functions, particularly the collection and analysis o f information for decision making about the state o f natural resources and their potential. The enactment o f the 1993 Constitution and the incorporation o f the Chapter on Natural Resources also strengthened the regulatory framework for the conservation and management o f natural resources16.During the development o f the Constitution, the Organic Law for the Use o f Sustainable Resources, enacted in 1997, defined the State’s scope and the ways in which it would facilitate individuals’ access to resources for their use. l6The initiative to incorporate natural resource considerations in the Constitution was led by two environmental NGOs, Sociedad Peruana de Derecho Ambiental (SPDA) and Pro-Naturaleza, between 1992 and 1993. The participatory process included the conformation o f a Working Group with representatives o f the private and public sector that received input through workshops in the different regions.

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2.18 Consequently, in 1993, INRENA became the principal agency responsible for natural resources management in Peru. I t s mandate includes: (i) the management o f public forests, (ii) overseeing the 61 natural protected areas, (iii) overseeing wildlife exports and for-profit captive breeding enterprises, (iv) controlling illegal trade in flora and fauna, (v) promoting sustainable management o f the nation’s soils and water resources and (vi) validating environmental impact assessment o f sectoral economic activities in rural areas. INRENA, the environmental agency with the largest share o f resources, has made substantial progress in a number o f areas. INRENA internal organization evolved into three key departments: (i) the intendancy for Natural Protected Areas; (ii)the intendancy for Forestry and Wild Fauna; and (iii)the intendancy for Water Resources. In addition, INRENA’s office o f trans-sectoral environmental management has the responsibility for validating EIAs, PAMAs and promoting interinstitutional coordination”. Water Resource Management

2.19 Since the 1970s, the ONERN identified the importance o f using water for agncultural purposes. T h i s came about not only because o f the sheer volume o f agriculture, but because it generates a significant percentage o f GDP, traditionally over 10 percent. In addition, agricultural activity involves more than 30 percent o f the Peruvian population. (ONERN, 1969; ONERN, 1984, Pulgar-Vidal, 2005). Historically, the agricultural sector uses more than 86 percent o f the water available for consumption. I t i s worth noting that most agricultural production comes from the coastal region, which i s the most arid in the country; consequently, water availability has been a major constraint. T h i s i s largely due to the considerable imbalance between the two main regions in the country: the Amazon area, one o f the richest in water resources in the world, and the Pacific basin; a region characterized by the presence o f the majority o f the country’s population, characterized by low precipitation, and numerous but often-intermittent watercourses. Agriculture i s thus highly dependent on irrigation from these limited sources. As a result, the average per-capita water availability in the Pacific basin i s only one-third o f the world average (INRENA, 1995). For the preceding reasons, the General Water Law o f 1969 establishes the Ministry o f Agriculture as the National Water Authority. 2.20 In 1992, INRENA, as a decentralized organism o f the Ministry o f Agriculture, assumed the management o f water resources. Within INRENA, the Water Resources Intendancy (Intendencia de Recursos Hidricos) assumed the management o f water resources, including the supervision and control o f policies, plans, programs, projects and n o m on i t s sustainable use. The General Water Law o f 1969 and the C M A R N have provided Peru with an adequate stock o f policy tools, as evidenced by investments o f about US$5 billion between 1970 and 2005 in irrigation related hydraulic infiastructure including dams and irrigation and drainage systems. Although such infrastructure has significantly contributed to the development o f the agricultural sector, C O N A M has concerns regarding inefficiencies in water use and the concentration o f benefits in a limited extension o f productive land (Bernales, 2006). 2.21 In addition, agricultural exports have become increasingly important to Peru’s economic development and growth. From 2000 to 2005, agricultural exports have more than doubled, in part due to INRENA’s water resources management, which has complemented substantial private sector investment to increase the extension o f productive lands and improve their productivity (Bernales, 2006). Beginning in 1998, the responsibility for irrigation operation and maintenance has been transferred from the government to Water User Boards (WUBs - Juntas de Usuarios). Since the transfer, fees have gradually increased and collection has improved considerably. In addition, a water rights system has been initiated that includes: (i) a strict analysis o f water availability and demand, and (ii) linkage to land adrmnistration policies and l7INRENA has the mandate to review and provide technical observations o f EIAs and P A M A s associated with agriculture projects and activities affecting protected areas. In addition, INRENA can issue a technical opinion on EIAs for mining and transport related projects.

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(iii) development o f a Geographic Information System that includes land titling and water rights. By 2005, INRENA had issued more than 200,000 water user permits. T h i s water right system along with the land titling has resulted in reduced conflicts and frustrations among the farmers, and provided legal certainty that encourages investment in on-farm improvements. The water rights allocation system i s a regional model for water rights registry across the region. 2.22 A national strategy for water resources management was developed in 2004. Based on this strategy, between 2004 and 2005 a major effort was made to update the General Water Law. Currently a bill establishing a National Water Resources authority and River Basin Agencies, and modernizing water resources management i s awaiting congressional review. These institutional reforms are similar to Brazil's recent institutional restructuring in the water sector that has proved to have important institutional advantages for water resources management. T h i s bill was drafted with the participation o f different entities o f the central government and included significant participation by the National Water User Board (WUB). I t i s expected that the issuance and implementation o f the proposed reforms embedded in the Bill would provide an opporhmity to make additional major advancements in the agricultural sector through sustainable, integrated land and water resources management (INRENA, 2005). 2.23 Compared to other developing countries, Peru i s well placed to make important headway towards achieving sustainable integrated water resources management and ensuring that water availability does not constrain growth. In particular, the water rights system once fully implemented and operational along with water availability and land use information w i l l provide necessary elements for water resources planning at the river basin level. The W U B s provide an important basis for bringing water user participation into the planning and management mix. The institutional reform including the creation and strengthening o f a National Water Resources Authority and River Basin Agencies would provide an excellent institutional framework in support o f these objectives. T o the extent that this institutional framework strengthens integrated water resource management, it may also help address other related environmental challenges, including water quality issues and deforestation (Bernales, 2006). Forestry Resource Management

2.24 Prior to 2000, Peru's forest sector has been governed by the 1975 Forest and Wildlife Law (Law No. 21147). The law was conceived as a redistributive mechanism to alleviate rural poverty by encouraging resource-poor loggers to enter into sustainable forest activitiesI8. A number o f initiatives followed, including preparation o f a National Forestry Strategy (19851996) and a national debate that extended over much o f the 199O's, which eventually led to the passage o f the formulated Forestry and Wildlife Law (No. 27308) in 2000. In 1993, INRENA's (through the Forestry Intendancy) assumed responsibility for managing forestry related programs. The new Forestry Law i s designed to promote the reform and modernization o f the country's forest sector. The regulatory framework supporting the law was passed a year later in 2001. Following the enactment o f the law and regulatory framework, a national debate sparked in Congress and in public forums between timber industry representatives and those with a stake in the old system, as well as local and international organizations, community leaders and other authorities. The new Forestry and Wildlife L a w aims, among other things, to transform the sector into an integral part o f sustainable development. The key element o f the new Forestry L a w i s the introduction o f timber concessions under the supervision o f INRENA19.INRENA l8 While the l a w was a milestone for the sector, it had a number o f drawbacks, including lack o f recognition o f the needs o f indigenous populations, the granting o f excessively small (1,000-ha) annual forestry contracts, and the encouragement o f an exploitative relationship between small loggers and the timber industry and intermediaries. l9 The Forestry and Wildlife L a w o f 2000 and its 2001 Regulation permit other forms o f access to timber resources: (1) permits from native communities; (2) permits from private agricultural and grazing plots; (3) extraction from local forests; (4) authorizations from Northern tropical dry forests; (5) authorization for clear cutting (e.g., for road opening); and (6) authorization for the use o f trees and shrubs stranded o n river banks. Other forms o f access to non-

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launched the forest concessions process in March 2002, after establishing the t e c h c a l and adrmnistrative forestry base suitable for timber production”. The Law also defined a new policy for forestry management based on consensus and sustainable use for economic development. For instance, the Forestry Committees o f Dialogue and Consensus Building (Mesas de Dihlogo y Concertacidn Nacional) have generated agreements on issues such as: (i) the conformation o f the commission for the public bids for forestry concessions for timber products; (ii) regulations related to the price o f user’s rights; (iii) a timeline for the concessions; (iv) the concession contracts; (v) the regulations for local forests; (vi) the rules for the Management Committees; and (vii) the initiative for the creation o f the Multisectoral Commission on Illegal Logging. 2.25 The new law also reformed the concession process, providing regulations to save valuable species such as tropical cedar (Cedrela odorata) and big-leafed mahogany (Sweitenia machrophylla) from commercial extinction. Likewise, the new Forestry L a w also introduced some other innovative features, such as the definition o f a new category for forest use - Forest Recuperation Areas, where concessions can be granted on bare or open land for afforestation and reforestation. Among the most important features o f the law are requirements for sustainable management plans based on forest inventories and censuses, and access rights to forest resources. Such access i s secured by renewable forty-year forest concessions o f at least 5,000 hectares granted through a public bidding process aimed to ensure transparency. In addition, the law introduced the possibility o f establishing payment for environmental services schemes provided by forests for soil protection, water regulation and biodiversity conservation. In August 2005, INRENA formed a task force to plan PES implementation. 2.26 The new Forestry Law and its regulations also allowed for the creation o f new forestry agencies. These include the National Consultative Council for Forestry Policy (Consejo Nacional Consultivo de Politica Forestal - CONAFOR), the Supervising Organism for Timber Forestry Resources (Organism0 Supervisor de 10s Recursos Forestales Maderables OSINFOR) and the Fund for the Promotion o f Forestry Development (Fondo de Promocidn del Desarrollo Forestal - FONDEBOSQUE)21, among others. T h i s law also promoted the establishment o f !Local Forests’ (500-ha forest plots for use by local communities). Based on the new legal framework, and the promotion o f the central government towards decentralization, INRENA has the capacity to grant forestry concessions to Regional Governments, which can create ad hoc Commissions to participate in public biddings. Since 2003, the regional governments o f Loreto, Ucayali and Madre de Dios have established ad hoc Commissions for this purpose. 2.27 As part o f the implementation o f the new Forestry Legal Framework, the Government developed the National Strategy against Illegal Logging. A Commission against illegal logging (Comisidn Multisectorial de Lucha Contra la Tala Ilegal), presided over by the Minister o f Agriculture, was created in 2002 to develop and implement the National Strategy, which focused in the eradication o f the extraction and commercialization o f illegal forest products in the Peruvian Amazon (Pulgar-Vidal 2006). Through a supreme decree in 2004, the National Strategy and the “Committee” against illegal logging took effect under the mandate o f the PCM, which has responsibility for implementing the national strategy. Among the achievements o f the timber resources include: (1) Brazil nuts concessions, (2) afforestationheforestation concessions, (3) conservation concessions, (4) protection concessions, and (5) ecotourism concessions. 2o The total area o f potential forest concessions amounts to 24.34 million ha, almost 15 million o f which are in Loreto. By end o f 2004, over 7.5 million hectares o f forest had been awarded in the form o f forest concessions to 576 concessionaires for timber production in Madre de Dios, Ucayali, Huanuco, San Martin and Loreto. The Forest Development Promotion Fund (FONDEBOSQUE) is a public-private organization (presided by the head o f INRENA) and funded primarily by the donor community. Its objective i s to promote investments in sustainable and competitive forest enterprises and in environmentally responsible projects generating economic opportunities and conservation o f biodiversity. As o f July 2005, i t s portfolio amounted to US$20.4 million (82.3%, from international donors) on implementation o f forest concessions (1 5.2% o f portfolio), intermediate technology for sustainable forest use (3.7%), forestry plantation development (27.4%), sustainable communal forestry management (19.4%), and its own institutional creation and strengthening (49.6%).

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Commission (which only became operational in March 2005) are these actions: (i) strengthening MRENA's organizational and institutional capabilities in forest control and supervision; (ii) designing and implementing a system for law enforcement, timber trackmg, forest raids and timber trade transparency (including strengthening the chapter on infractions and sanctions o f the under the Forestry Law); (iii)impounding wood from illegal logging (particularly in Madre de Dios and Ucayali); (iv) promotion of, and support for, civil society and local population participation in forest control and supervision; (v) setting up control posts in Madre de Dios to control illegal logging; and (vi) designating an ad hoc Prosecutor for illegal logging in Ucayali. As part o f the strategy, MRENA i s in the process o f establishing a digital database to effectively review, evaluate and manage concessions nationwide. 2.28 The National Capacity Strengthening Program to Manage the Impact o f Climate Change and Airborne Pollution (PROCLIM) recently recalculated the annual rate o f deforestation as 149,632 ha per year. This rate i s significantly lower than previously assumed (around 261,000 ha) and lower than in neighboring countries (D. Lee & J. Elgegren, 2005). There are concerns that illegal logging and coca production are fueling a fast deforestation rate in some regions o f the Amazon basin. The government o f the San Martin Regon, for instance, recently declared environmental emergency due to the fast deforestation in the past years. According to Research Institute o f the Peruvian Amazon (IIAP), from 5,125,003 ha o f forested areas in the state o f San Martin, more than 1,300,000 have been already been cut down, at a rate o f 40 ha per day. Furthermore, deforestation rates have historically been influenced not only by sectoral policies, but also by the country's political and economic context. For instance, heightened political violence, reductions in public investments and the elimination o f agricultural loans seem to be associated with lower deforestation rates (Bernales, 2006). 2.29 Peru has made progress since 1975 in forestry related legislation. However, the evolution o f forestry management has been characterized by a weak institutional framework (both at ONERN and at INRENA) since it: (i) lacks resources, adequately trained staff, and adequate and reliable forestry data; (ii) faces excessive bureaucracy, and (iii) has been unable to address simple but key issues (i.e., not working on weekends while illegal loggers do). Reforestation Eflorts

2.30 The 2005 Supreme Decree No. 003-2005-AG declared deforestation to be a national priority concern. This decree assigned responsibility for preparing the National Reforestation Plan to INRENA and a number o f other institutions (the plan was approved in January 2006 through a supreme resolution). There have also been previous noteworthy efforts to promote reforestation activities. Some o f the early reforestation programs date back to the 1960s (supported through an IADB loan), which allowed the replanting o f 56,000 ha until the mid 1970's. Thereafter the Amazon Reforestation Royalty in the 1980's allowed for the reforestation o f 100,000 ha. Since 1988, the National Watershed Management and Soil Conservation Program (Programa Nacional de Manejo de Cuencas Hidrogrhjkas y Consewaci6n de Suelos PRONAMACHCS) has promoted numerous reforestation campaigns. The result o f these efforts i s the growth o f forestry plantations from about 262,997 hectares in 1990 to 754,244 ha in 2003 (FA0 and INRENA, 2005). Most o f this reforestation was done in land designed for watershed protection, but not for timber production. In addition, the Fujimori administration launched the Sierra Verde Project (1995-1 996) which aimed at developing a reforestation strategy, including the reforestation o f one million trees in different regions o f the country, including the dry coastal areas. 2.31 Since i t s creation in 2003, one o f FONDEBOSQUE's key components has been the promotion o f forestry plantations. FONDEBOSQUE i s currently supporting reforestation activities in Cajamarca, San Martin, Ancash, Junin and Madre de Dios, including the reforestation o f 30,000 ha in Villa Rica, Oxapampa and Pozuzo with native communities and small and mid-size enterprises. Reforestation i s also part o f the debate in the current presidential

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elections, as the APRA party has been promoting the Sierra Exportadora, which could constitute a vehicle to reforest the deforested highlands and promote the country’s commercial timber potential.

Conservation and Sustainable Use of Biological Diversity and Natural Protected Areas 2.32 The Peruvian government’s protected areas policy started in 1961 when i t created the country’s first national park (Cutervo NP). Since ONERN’s publication in 1974 o f the Policy Guidelines for the Conservation o f Natural Resources in Peru, a strategy was established for the “conservation o f soils, water, vegetation and animal life” (ONERN, 1974). Thereafter, the Forestry L a w o f 1974 and i t s regulations for Conservation Units led to the establishment o f 7.5 million hectares, equivalent to 5.8% o f the national temtory, as natural protected areas. A major breakthrough was the creation o f the National System for Areas Protected (Sistema Nacional de Areas Naturales Protegidas por el Estado - SINANPE) in 1990 (constituted by conservation units, national forests, boundary posts, and other categories o f public interest established by the agrarian sector with conservation ends). Since that breakthrough, the system has grown to 61 protected areas comprising 17:66 million hectares, which i s 13.74% o f the country’s total area. 2.33 In 1997, Congress enacted the Law for the Conservation and Sustainable Use of Biological Diversity and the Law for Natural Protected Areas (Law No. 26834). This Law established the activities permitted in each category o f national protected areas and divides those that are for direct and indirect use (National Parks, National Sanctuaries and Historical Sanctuaries) where extractive activities are not permitted. In addition, the Natural Protected Areas Law also regulates the buffer zones and establishes management committees to facilitate the participation o f civil society in the comanagement o f protected areas. This legal framework’s results have been positive and include recognizing biodiversity’s strategic value, the development potential o f regulations on access to genetic resources and the importance o f protecting traditional knowledge. Since the enactment o f the Natural Protected Areas Law, the system assigned for conservation purposes has more than doubled in size22. 2.34 The policy framework for biodiversity conservation was reinforced by the Environmental Code (1990), the signing o f the Convention on Biological Diversity (1992) and the new National Constitution (1993). Ratifying the Convention on Biological Diversity in 1993 triggered several initiatives to meet its commitments to the international treaty including these outcomes: (i) the passage o f the Conservation and Sustainable Use o f Biodiversity Law (1997); (ii) the Protected Areas Law (1997); (iii) The National System Plan o f Protected Areas (1999); (iv) the National Biodiversity Strategy (2001); and (v) the L a w for the National System o f Environmental Management (2004). All these legal instruments clearly define the need for participatory procedures in their application. Furthermore, the results o f these laws have led to the recognition o f the strategic value o f biodiversity, the development potential o f regulations on access to genetic resources and the importance o f the protection o f traditional knowledge. Conservation o f biodiversity has thus become one o f the priority areas in the environmental agenda. 2.35 By 1992, the Peruvian Trust Fund for Protected Areas (PROFONANPE) was established as a private entity to obtain and promote financing for the conservation o f protected areas. PROFONANPE was established with seed funds (US$5.2 million) from the Global Environment Facility (GEF). Since its inception, PROFONANPE’s endowment fund has increased to US$10 millionz3.PROFONANPE has also: (i) administered a number o f projects with foreign donations (i.e., GEF-Participatory Management o f Protected Areas Project); (ii) Manuel Pulgar-Vidal (2006). Based on data provided by PROFONANPE (2005), and exchanges with Albert0 Paniagua, Executive Director o f PROFONANPE, Manuel Pulgar-Vidal (SPDA) February 2006. 22

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provided procurement management services for projects implemented by INRENA (i.e., GEF Indigenous Management o f Protected Areas Project, the Natural Protected Areas Project by the KfW); and (iii) coordinated bi-lateral nature swaps (i.e., governments o f Finland, Germany, Canada and the EU). The resources for protected areas come from a number o f donations and nature swaps primarily from the GEF, the governments o f Canada, Finland, Germany (GTZ and KfW), Holland and the United States. In addition, grants fiom the McArthur and Moore Foundations, and international NGOs (Conservation International, The Nature Conservancy and WWF) have been managed by PROFONANPE24.The financial resources for the management o f protected areas come from the following sources: (i) international agencies and bilateral agreements (59.9%), NGOs (17.6%), government (12.5%) and multilateral agencies (10.4%) (Pulgar-Vidal, 2006). 2.36 PROFONANPE has supported 18 programs and projects that have been carried out in these areas: (i) the Cerros de Amotape, E o Abiseo, Huascarh, Yanachaga ChemillCn, Manu and Bahuaja Sonene Natural Parks; (ii)the Machu Picchu and Manglares de Tumbes sanctuaries; (iii) the Pacaya Samiria, Lachay, Paracas, Salinas, Aguada Blanca and Titicaca reserves; (iv) the reserved zones o f Tumbes, Tambopata, Candamo and Man&; (v) the El Angolo Boundary Post; and (vi) the Alto Mayo Protected Forest. PROFONANPE has provided a crucial t e c h c a l and adrmnistrative support to the Intendancy o f Protected Areas (IANP) at INRENA (established in 1993), which has the responsibility for the management o f the SINANPE. The evolution o f the support and financing provided by PROFONANPE has been more on a reaction to the specific demands o f the donor community, rather than being a response to a specific demand or strategy developed with INRENA (Pulgar-Vidal, 2006). 2.37 The regulations for the Natural Resource Law, enacted in 2001, have significantly advanced the conservation o f biodiversity. Based on this law, INRENA i s testing innovative approaches to manage protected areas whereby local (indigenous) communities and NGOs can participate in the comanagement o f selected areas. By 2005, the creation o f the f i r s t regional reserve, the Cordillera Escalera in San Martin, demonstrated the potential o f decentralization o f responsibilities for natural resources management. 2.38 Discussions have recently arisen among key stakeholders stemming from the proposal by the National Association o f Mining, O i l and Energy (SNMPE) to modify the Protected Areas Law so that National Parks and Sanctuaries, currently o f f l i m i t s to exploration and extraction, can be cleared for exploitation o f mining and hydrocarbons. SNMPE proposes that in exchange, companies pay a fee to the Protected Areas Fund (PROFONANPE). 2.39 Given IANP’s limited technical and administrative capacity for efficiently managing the Natural Protected Areas System and i t s l o w capacity to spend resources fiom donors, proposals are being discussed to reform the I A N P and establish it as a stand-alone national park service institute in charge o f the protected areas and biodiversity issues (outside INRENA and the Ministry o f Agriculture). I t i s believed that this autonomy would give the new institution the flexibility to hire qualified staff (currently INRENA has limitations on i t s human resources) and reduce the bureaucratic processes; these changes may turn it into a more efficient agency. 2.40 In 1995, a legislator proposed The National Environmental Fund (FONAM) as a means to raise funds to finance the programs being developed under the environmental agenda with the recent creation o f C O N A M (Pulgar-Vidal, 2006). Consequently, F O N A M was created in 1997 through Law No. 26793, with the purpose o f promoting public and private investment in programs, projects and activities destined to improve environmental quality. F O N A M remained for years without any resources until 2000 when, through a World Bank-GEF operation on All of the resources which PROFONANPE has either: (i) raised for the endowment find; (ii) administered as an implementing agency; (iii)channeled through debt for nature swaps; (iv) channeled as a financial management agency for INRENA (including those finds which have long closed or which are pending disbursement) add to US$90.6million. 24

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sustainable transport, received the necessary budget to begin operating. Since then, FONAM has defined i t s areas o f action, which cover: (i) energy; (ii) transport; (iii) forestry, water and waste; and (iv) mining environmental legacies. The first two areas are directly linked to climate change. As for the latter, the recently approved Law for Environmental Legacies o f Mining Activities (No. 28271) gives F O N A M the mandate for fundraising and financing for the remediation and rehabilitation o f legacies. F O N A M has very limited technical capacity on mining-related issues; thus, i t s main agenda has centered on issues related to climate change.

Pollution Control and Sectoral EnvironmentalManagement 2.41 Before 1990, activities to control water, air, noise and visual pollution were traditionally managed in a fragmented manner by different organisms including the Ministry o f Agriculture and the Ministry o f Health. To integrate these actions, Chapter XXII o f the C M A R N incorporated n o m to regulate the evaluation, enforcement and monitoring o f natural resources management. In 1991, through Legdative Act No. 757, the Framework Law for the Growth o f Private Investment abolishes Chapter XXII o f the C M A R N and formalizes the administrative distribution o f environmental management among line ministries or sectors. The Law establishes that the ministries or enforcement agencies that correspond to the activities carried out by the interested party are responsible for the environmental implications proposed. Since 1991, pollution-control activities have reflected a division o f environmental management between line ministries (Box 2.1). 2.42 Between 1993 and 1994, the regulatory framework for the promotion o f investment and a World Bank t e c h c a l assistance loan to the mining and energy sectors positioned the Ministry o f Energy and Mines to lead the development o f sectoral environmental legslation by establishing both environmental norms for the mining sector and the first sectoral environmental units in the country. These norms gave priority to key environmental management prevention and control tools which include: (i)environmental impact assessments (EIAs); (ii) environmental management and adaptatiodcompliance programs (Programas de Adecuacidn y Manejo Ambiental - PAMAS); and (iii)maximum permissible levels (Limites Mhimos Pemzisibles - LMPs) were developed to control projects and industries in the mining and energy, fishng and industrial sectors. The mining and energy sector’s initiative extended to the fisheries and transport infrastructure sectors. 2.43 The legal framework let each environmental authority in the line ministries set regulations for environmental assessment and pollution control. The regulations developed by the different sectors vary in the requirements and on the capacity to carry out an adequate enforcement. Since 1992, some ministries established environmental units for the implementation o f environmental regulations and LMPs. The first units to be created were the General Directions for Environmental Issues in Mining and Energy, in the Ministry o f Energy and Mines. T h ~ swas followed by the National Environmental Directions for Fisheries and Industry in the Ministry o f Production, the Direction for Social and Environmental Issues in the Ministry for Transport and Communications; and the Environment Office in the Ministry o f Housing, Construction and Sanitation. Likewise, Congress created by Law a Supervising Organism for Energy Investment (Organism0 Supervisor de la Inversidn en Energia OSINERG) in 1996. OSINERG i s an autonomous entity under the PCM; it i s responsible for overseeing compliance with technical and legal norms relating to environmental protection and conservation in the electricity and hydrocarbon subsectors.

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Box 2.1. The Roots of Sector-Based Environmental Management There are multiple roots t o the current scheme o f sector-based environmental management. Even before the 1991 modification o f the CMARN, which was credited w i t h legalizing the sectoral-based approach t o environmental management, there were sector-based processes and incentives already in place. The Legal Decree 757 (after the modification o f the C M A R N ) simply ratified a sector-based environmental management approach that was already in existence.

One o f the roots for this approach is the decentralization and regionalization led during 1985-1990 by Alan Garcia’s national government. During this period, many o f the government responsibilities, including environmental ones, such as regulation o f mining operations, were delegated to regional governments. This led to a number o f inefficiencies and overlaps among government agencies”. This decentralized approach was opposed by the private sector, which claimed i t was inefficient. Among the reforms established by the Fujimori administration in 1992, was the re-centralization o f many government functions, including the empowerment o f certain sectors to carry out key enforcement functions (PulgarVidal, 20065). Another source for this i s in CMARN’s first version, which established that the General Comptrollers Office (Contraloria General de la Republica) would have specialized jurisdiction to supervise national compliance with the code. This led t o an indirect environmental enforcement o f certain private sector activities (particularly for the Southern Peru Mining Company, which was associated with environmental pollution problems, during the 1980s). The comptroller’s direct involvement in environmental issues resulted in the private sector’s strong rejection o f this approach, Under CONFIEP’s leadership. The private sector successfully lobbied for a change in the enforcement methodology in favor o f one based by key sectors, t o avoid this t y p e o f situations.

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Finally, in the early 1990s, the Peruvian Government was determined t o promote investment and address key sector crises faced at that time, particularly with regards to mining and energy. These crises included the paralysis o f mining activities in rural areas due t o terrorism, the collapse o f state-owned mining operations and the decline o f investment in public enterprises due t o their costly and inefficient operational structure. Thus, by 1991 the Fujimori regime, sought the support from international agencies (including the World Bank) to encourage investment in energy and mines, modernize the sector, and strengthen the environmental sectoral approach. As a result, the World Bank assisted the Government o f Peru in i t s efforts to: (a) establish enabling conditions t o attract mineral investments; (b) reform the role o f the government from that o f owner to regulator; and (c) shift the responsibilities for operational activities to the private sector through the implementation o f first generation reforms o f the mining sector carried out under the Bank-financed Energy and Mining Technical Assistance Project (EMTAL). Initiated in 1993, this project i s credited w i t h catalyzing many key regulatory and institutional changes that promoted environmental practices in the mining sector led by the Ministry o f Energy and Mines. EMTAL also helped shift sector policy toward a strategic vision for the mining sector. The changes produced by the new regulations fostering private investment paved the way for today’s large-scale mining projects. I t i s worth noting that these processes occurred when the central environmental agency was being established with a weak structure and mandate and with the major coordinating role diffused among key sectors. According to Manuel Pulgar-Vidal (2006), n o concrete model was followed for the sector-based approach for environmental management. Depending on the resources, political will and commitment by key sectors (such as mining and energy) the sector-based approach has led to concrete results. However, it also resulted in an inherent conflict o f interest stemming from the fact that the line ministry i s supposed to be both the key promoter and the environmental regulator o f a complex sector.

2.44 The main instruments for regulation used by the sectoral environmental units, EIAs and PAMAs, differ in their scope and methodology. To homogenize EIA processes, Congress approved the National Law for the Environmental Impact Assessment System (Sistema Nacional de Evaluacidn de Impacto Ambiental - SEIA) in 2001. Regulations for the Law have not been issued for a set o f complex issues. After the approval o f the Law, Congress set a 45day period for the approval o f the Regulations. C O N A M summoned the participation o f key For instance, in 199&1991 the Ministry o f Energy and Mines and the Regional Mining Directorate in Piura had a disagreement regarding environmental problems associated with the Turmalina Mine.

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sectors to discuss and endorse the proposed Regulations for the SEIA, but omitted the participation o f NGOs, who therefore later questioned the technical soundness o f the regulations. Ths led to the establishment o f a special commission, which finished the proposed regulation after 18 months and received the final endorsement from all key sectors, civil society and the private sector (Pulgar-Vidal, 2006). After the Regulations were finally submitted in 2003, a parallel process began whereby members o f congress submitted proposals to modify the SEIA L a d 6 . These dynamics distressed the Presidency o f the Council o f Ministers (PCM), which felt it would be inappropriate to endorse the regulations o f a Law that different constituencies were questioning. 2.45 Since then, the General Law o f the Environment has been approved. This new law calls for additional modifications to the proposed regulations, including new roles for C O N A M and the establishment o f Strategic Environmental Assessment. Therefore, the EIA law i s yet to be appropriately regulated and i s currently being reviewed by the PCM, which i s proposing that the law be endorsed by consensus among different constituencies, including the Afro-Peruvian, Andean and Environmental Commissions in Congress. 2.46 The environmental management and adaptatiodcompliance program (PAMA) was designed to address pollution-producing activities that existed prior to the relevant environmental legislation. PAMAs are required for all activities but to date have been principally applied to the priority sectors o f fishing, mining, energy and manufacturing. 2.47 Regarding LMPs, in 1996, the Ministry o f Energy and Mining determined a series o f values for wastewater discharges in the hydrocarbon, mining, metallurgic and electricity subsectors. In 2002, the Ministry o f Production established L M P s for effluents in four sub-sectors: tanneries, paper, cement and beer. These limits refer to effluents in superficial water bodies and the public sewage system. With the exception o f some regulated parameters in the mining and tannery sectors, the regulated parameters refer to substances with negative aesthetic effects or to the balance o f some ecosystems. Parameters such as biochemical oxygen demand (BOD), Chemical Oxygen Demand (COD), iron, oil and greases, total suspended solids, Ph, or Temperature, however, do not impair human health through water use for agnculture, cattle, industrial or recreational ends. Mining and tanneries are the only sectors to regulate substances with negative effects on human health, such as chromium for tanneries, lead in hydrocarbons, and lead, copper, arsenic and cyanide in the mining sector. 2.48 Traditionally, air pollution problems have received little attention from environmental authorities. However, in recent years, C O N A M has established technical committees (GESTAS) responsible for the development o f ambient standards for air, water and solid waste. For example, between 1965 and 2005, the main source o f air pollution in 110 was the smelter operated by the Southern Peru Copper Corporation. In 2005, the smelter emitted an average o f 1400 TM o f SO2 by day. I t also emitted particulate matter containing arsenic and heavy metals such as copper, cadmium and lead. In 1989 (prior to the creation o f PAMAs), Southern agreed with the government (through a multisectoral committee) on investments to control pollution emissions. Southern should be in compliance with mitigation measures by 2007. 2.49 The attention o f national authorities (particularly the Ministries o f Energy and Mines, Industry and Transport), NGOs and the media focused on the approval o f EIAs and PAMAs o f large investment projects, especially the hydrocarbon and mining sectors. Projects such as the development o f the Camisea gas pipeline and the construction o f the Interoceanic Highway have received considerable attention.

The proposed changes included calling for a different institutional arrangement in the final approval o f EIAs, establishing different categories o f EIAs, and changes to the standard terms o f reference.

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2.50 As o f December 2005, discussions were underway about the need to reform the environmental enforcement and licensing framework, particularly among stakeholders who question whether the current system o f granting environmental licenses and enforcement within line ministries i s efficient, neutral and unbiased. Likewise, there was a notion that there i s an imbedded conflict o f interest when the line ministry in charge o f promoting a specific economic activity has the capacity to effectively regulate it on environmental grounds. These notions have led to two proposals being debated at the lughest levels o f government: (i) the creation o f a centralized environmental regulatory body (Procuraduiia Ambiental) to address the enforcement o f all productive sectors (as proposed by the prime minister); or (ii) the establishment o f independent environmental regulatory bodies for each sector, following the model o f the already functioning OSINERG (as proposed by the Minister o f Energy and Mines). The Ministry o f Justice has yet to assess these proposals (Castro, 2005). 2.51 Other discussions underway by December 2005 included proposals to update and improve environmental regulations for the mining sector and environmental standards for water resources. In 2005, 12 years after the issuance o f the first generation o f environmental regulations for the sector, the M m i s t r y o f Energy and Mines was proposing that, the Environmental Quality Standards (ECAs) and the LMPs be updated for 2006, and that the environmental norms o f the sector be improved. The same claims were made by key stakeholders regarding environmental standards, and there were ongoing efforts to clarify the roles and responsibilities o f government agencies, including monitoring and enforcement o f environmental standards.

EnvironmentalHealth, Waste Management and Reduction of Vulnerability to Natural Disasters 2.52 Government support and commitment for environmental health management has been mixed. In 1947, the first agency to address specific environmental health related aspects in the workplace was established. The Instituto Nacional de Salud Ocupacional - I N S 0 (the National Institute o f Occupational Health), was founded through a cooperative effort between the Peruvian and the United States governments. The Institute’s initial purpose was to reduce the high incidence o f silicosis and other occupational diseases that had been affecting Peruvian mining workers for some time. A growing public awareness o f these problems influenced the government’s decision to participate in this program and establish INSO. With time, the Ministry o f Health widened i t s environmental health responsibilities to include pollution control, food quality control and basic sanitation. 2.53 In 1985, the Health Ministry changed the name o f the National Council for Environmental Health Protection (Consejo Nacional de Proteccidn del Medio Ambiente para la Salud - CONAPMAS). T h i s was done to widen the scope o f the Council’s actions. I t s new name i s the National Institute for Environmental Health Protection (Instituto Nacional de Proteccidn del Medio Ambiente para la Salud - INAPMAS). Subsequently, Law No. 27657 phased out INAPMAS and established the National Center for Occupational Health and Environmental Protection for Health (Centro Nacional de Salud Ocupacional y Proteccidn del Ambientepara la Salud - CENSOPAS). Supreme Act No. 001-2003-SA in 2003 integrated the Center with the National Health Institute in 2003. 2.54 Currently, the General Directorate for Environmental Health (DIGESA) at M I N S A i s the only government institution with a regulatory mandate for environmental health-related issues. DIGESA’s mandate includes: (i)operating national analytical laboratories; (ii) establishing and enforcing human health safety norms and standards; and (iii) inspecting and controlling environmental health matters related to water supply, sewage, solid and medical waste, air quality, and hygiene conditions in public recreational areas. In spite o f its importance in the national environmental agenda, DIGESA has faced numerous institutional and resource challenges that have limited its overall technical and administrative capacity.

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Air pollution 2.55 Since the mid nineteen-sixties and until the beginning o f the nineteen-nineties, the Ministry o f Health had responsibilities related to environmental health that included air pollution control. Within the monitoring and control o f air pollution, activities that should be highlighted include the establishment, operation (between 1967 and 1990) and maintenance o f an air quality-monitoring network in the main urban centers o f Peru (Red Panaire). The network was dismantled at the end o f the eighties and was replaced by a newer network in Lima (including a mobile station). The Ministry o f Health, however, was unsuccessful in establishing the Environmental Quality Standards (ECAs). Thereafter, the maximum permissible levels for mining operations were passed and included the L M P s for air quality parameters (including lead, arsenic and PM) in Annex 3. 2.56 In 2001, regulations for National Environmental Standards for Air Quality were issued (D.S. No. 074-2001-PCM). These regulations set standards for environmental quality in air, sulfur dioxide (S02), particulate matter (PMlO), carbon monoxide (CO), nitrogen dioxide (N02) and ozone (03). T o establish these standards, Technical Committees (Grupos de Estudio Tkcnico Ambiental de la Calidad del Aire - GESTAs) were created. GESTAs were responsible for formulating action plans to improve air quality in Arequipa, Chiclayo, Chimbote, Cusco, Huancayo, 110, Iquitos, L a Oroya, Lima-Callao, Pisco, Piura, Trujillo and Cerro de Pasco. The Clean Air Initiative (CAI) Management Committee was created in 1998 (with support from the World Bank CAI) to assume the role o f the local Air Quality GESTA for Lima and Callao. An Air Quality Action Plan was developed for Lima-Calla0 with support from the Clean Ar Initiative, providing specific recommendations for emission reductions*’. In addition, Article 118 o f the General Law o f the Environment (which refers to air quality) establishes that specific government agencies would adopt concrete measures (such as prevention, monitoring, and environmental and epidemiologic control) to ensure improvements in air quality. 2.57 There have been recent efforts to launch an Inspection and Maintenance System in Lima-Calla0 for the vehicle fleet. However, there have been legal problems involving the concession and operating rights for this system between the municipality o f Lima, the municipality o f Callao, the Ministry o f Transport and the private company that was awarded the concession. Parallel discussions on alternatives to harmonize standards between Lima’s metropolitan region and other regions are also underway. 2.58 In addition, there are ongoing discussions (and campaigns sponsored by C O N A M and NGOs) to lower the content o f sulfur in diesel fuel before the proposed timetable established by MEM in the hydrocarbons law (No. 26221). In March 2006, Law 28694, which regulates the sulfur content o f diesel fuel, was published. Currently the law allows for more than 5,000 ppm o f sulfur in diesel fuel and mandates that diesel 1 and diesel 2 sulfur levels be reduced to 50 ppm by 2010. 2.59 T h i s section o f Chapter Two covers only air pollution from fixed and mobile sources. Indoor air pollution, which has been determined to be critical in Peru, i s not covered in this chapter, given that there has been no legal or institutional setup to address this issue. However, there are regulations for indoor pollution from construction materials such as asbestos. Solid Waste Management

2.60 The General Law for Solid Wastes (LGRS) was enacted in 2000 as a complement to CMARN’s general framework, and to existing environmental legislation. T h i s law mandates

*’

The legal framework for air quality i s perhaps one o f the most evolved in environmental legislation in Peru. Other benchmarks include the approval o f an air quality monitoring protocol by DIGESA (2005) and the promotion o f the L a w for bio-fuels (Pulgar-Vidal, 2006).

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specific institutional responsibilities and provides a framework for managing and handling solid wastes in an environmentally sound manner, minimizing waste volume, preventing potential environmental risks, and guarantying the protection o f society’s health and wellbeing. 2.61 The LGRS regulates all o f the activities and processes related to solid waste management throughout its lifecycle (fiom generation to final disposal). I t also regulates the safe containment and transport requirements. The LGRS also provides a characterization o f solid wastes according to the following: (i) domestic, (ii) commercial, (iii) public areas, (iv) hospital, (v) construction, (vi) agricultural and (vii) those requiring special treatment or installation. The key agencies with direct responsibility for solid wastes are: (a) CONAM; (b) the Ministry o f Health (and DIGESA); (c) the Ministry o f Transport and Communications; and (d) provincial and district municipalities (in charge o f waste o f domestic and commercial origin). 2.62 A year after the approval o f the Law, C O N A M began i t s mandate (under article 2.5 o f the LGRS) to produce the Methodological Guidelines for the Formulation o f Integrated Plans for Environmental Management o f Solid Wastes (Guia Metodoldgica para la Formulacidn de Planes Integrales de Gestidn Ambiental de Residuos Sdlidos - PIGARS). The PIGARS served as a guiding tool to promote health and environmental improvements in towns and cities with populations between 50,000 and 5,000,000 inhabitants through the sound coverage o f solid waste management (Pulgar-Vidal, 2006). The PIGARS establishes long-term goals and objectives (10 to 15 years), mid-range programs (3 to 5 years) and short-term action plans (2 years) for the efficient and sustainable management o f solid wastes. The PIGARS were developed in a participatory manner with input fiom, and the expertise of, private and public sectors linked to the solid waste management. 2.63 The PIGARS consequently served as the technical base for the development, four years later, o f the National Plan o f Integrated Solid Waste Management (Plan Nacional de Gestidn Integral de Residuos Sdlidos - PNGIRS). Approved through a national decree (No. 004-2005CONAM-CD), the PNGIRS was developed in 2005 by C O N A M in conformity to Law No. 27314 (General Law for Solid Waste). Since 2003, the Pan-American Health Organization (OPS) actively participated in reviewing and modifylng the original draft o f the PNGIRS. 2.64 The key objective o f the National Plan i s to reduce the generation o f solid waste in the country and control i t s associated sanitary and environmental risks. Specifically, the PNGIRS has the following goals: (i) control and reduce the per-capita generation o f wastes; (ii) increase the quality and coverage o f solid waste collection and disposal services; (iii)promote the selective recollection o f wastes; (iv) reduce, recover, reutilize and recycle wastes; (v) assess the economic value o f treating organic matter; and (vi) in a safe, sanitary and environmentally sound manner, dispose o f wastes that do not have any specific use. In conformity with the General Law for Solid Wastes, the PNGIRS supports a regional coverage for operations related to the management and handling o f solid wastes from generation to final disposal. I t also has specifications for handling wastes fiom different sources, and for transporting and disposing o f toxic and dangerous wastes. Pesticides and Persistent Organic Pollutants

2.65 Peru has more than 33 active norms and regulations for agricultural pesticides, and it has signed all the key international conventions regarding the use and trade o f chemical substances (Arica et al., 2005). The key conventions to which Peru i s a signatory, and for which specific commitments have been assumed, include: (i) Earth Summit Action Plan (Rio de Janeiro, 1992); (ii) Sustainable Development Summit Decision Plan (Johannesburg, 2002); (iii)

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Rotterdam Convention (1998); (iv) Basel Convention (1992); and (v) Stockholm Convention on Persistent Organic Pollutants-POPS (2004)28.

2.66 Peru approved the Basel Convention in 1993 (Decree No. 26234) and assigned responsibility for it to the Ministry o f Industry Tourism, Integration and Trade (currently the Ministry o f Trade and Tourism). Peru approved the Rotterdam Convention in 1998. One o f the first steps soon after signing this convention was to impose a prohibition on the use o f pesticides developed with the active ingredient ethylic parathion, and imposing the restriction o f other pesticides. The Rotterdam Convention only came into effect in 2004, and Peru ratified it in 2005 (through the decree D.S. 058-2005-RE). By the time Peru signed the Stockholm Convention in 2004, it had already prohibited the import, local production, distribution and trade o f most o f the 12 chemicals substances under the POPs convention. 2.67 A number o f key institutions and government agencies are responsible for regulating the use, transport, trade and production o f pesticides: (i) SENASA (created as a decentralized government agency o f the Ministry o f Apculture); (ii) The National Commission for Pesticides (CONAP), created in 1993 under SENASA, i s the main advising agency regarding the registry and control o f agricultural pesticides; (iii) INRENA i s responsible for preparing environmental technical reports on pesticides, as well as evaluating the environmental impacts and risks analysis; and (iv) DIGESA has the responsibility o f supervising all aspects inherent to the risks and impacts to human health, and monitoring pesticide residue in processed and industrial meals. DIGESA i s responsible for producing toxicology reports, enforcement and regulating activities and products (for domestic and industrial use) that may be harmful to human health. The health sector, however, lacks specific norms to regulate in this area. By 1999, Peru carried out a preliminary inventory o f POP pesticides considered ‘stale’, and by 2001, another survey revealed that there had been a decrease in the stock o f certain POPs ( h c a et al., 2005). Climate Change and Natural Disasters

2.68 Compared to Argentina, Brazil, Mexico and Venezuela, Peru’s overall contribution o f green house gas (GHG) emissions to the atmosphere i s low. Peru contributes less than 0.3 percent o f overall GHG emissions (CONAM, 2003). Nonetheless, climate change has gradually taken a prominent place within the national environmental agenda. In spite o f the severe impacts o f el Niiio (especially in 1983 and 1998) Peru’s efforts in climate change have focused more on the international arena (with a significant representation in different forums), on emissions o f greenhouse gases and mitigation options, rather than on vulnerability and adaptation to climate change (only until recently have taken a more prominent role). A large part o f CONAM’s climate change agenda has been supported by external sources (i.e,, GEF, Holland and Denmark). 2.69 In 1993, Resolution R.S. 359-RE established the creation o f the National Commission on Climate Change (NCCC). The Commission’s objective i s to coordinate the application o f the framework that was developed by the convention o f the United Nations on Climate Change, as well as the Montreal Protocol (ozone depleting substances). Two years later, resolution R.S. 085-96-RE established that the presidency o f the NCCC would be chaired by CONAM, and would be conformed by 13 public and non-public institutionsz9. Peru ratified the convention in 1993, and produced its First National Communication on March 2, 2001. The NCCC proposed the National Strategy on Climate Change, which was approved by Supreme Decree in 2003. ” Peru has also adhered to Decision no. 436 of the Andean Community, and the International Code o f Conduct for

the Distribution and use o f Pesticides by FAO. 29 Among the institutions that conform the NCCC are: (i) association o f municipalities in Peru; (ii) private sector National Council o f Science and Technology; (iv) Ministry o f Agriculture; (v) confederation (CONFIEP); (iii) Ministry o f Economy and Finance; (vi) Ministry o f Energy and Mines; (vii) Ministry of Production; (viii) Ministry o f Foreign Affairs; (ix) Ministry o f Transport, Communications, and Housing; (x) representative o f NGOs; and (xi) representation fiom Academia.

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2.70 In 2002, a decree (No. 095-2002-PCM) gave CONAM the responsibility to implement activities linked to the clean development mechanism under the framework o f the Kyoto Protocol, but delegated this responsibility to the National Environmental Fund (FONAM), which became the focal point for the prototype carbon fund in Peru. 2.71 A series o f technical studies have been developed that have contributed to Peru's compliance with the requirements o f the Intergovernmental Panel o f Climate Change (IPCC), and to elaboration o f its National Communication. These compliance activities are: (i)an emissions inventory o f GHGs (through Danish financing); (ii) mitigation o f GHGs in Peru's the energy, transport and forest sectors; (iii) activities bearing on vulnerability to, and adaptation to, climate change; and (iv) the climate change action plan 19942004. More recently, the French Institute for Research and Development (IRD) has conducted the Andean Glacier Monitoring Program to analyze global climate change in South America and i t s impacts in mountainous regions3'. 2.72 In addition to the proposals being submitted for Clean Development Mechanism (CDM) approval, Peru i s working on several climate change issues within the framework o f the National Agreement. For instance, CONAM directs the PROCLIM project (Peruvian Climate Change and Air Quality Program) supported with financing from Holland, which i s responsible for implementing part o f the mandate o f the NCCC. The PROCLIM Project follows an integrated approach to climate change: (i)mitigation o f GHGs; (ii) adaptation; and (iii) information dissemination, and i s responsible for implementing the National Strategy on Climate Change, and the National Program. PROCLIM's primary objective i s therefore to strengthen the country's overall national capacity via public and private sector institutions, along with over 70 partnering institutions throughout Peru's cities and regions. T h i s program aims to enhance existing national climate change capacity. 2.73 In addition to PROCLIM, the National Institute for Civil Defense (Instituto Nacional de Defensa Civil - INDECI) has traditionally focused i t s attention on response to natural disasters (not just to those with causes related to climate change such as E l Niti'o), gving low priority to preventive actions for vulnerability reduction. Since 2003, attempts have been made to correct this bias though the preparation o f a National Plan for Prevention and Attention to Disasters (Plan Nacional de Prevencidn y Atencibn de Desastres - PNPAD) approved in 2004. T h i s plan

contains guidelines, objectives, strateges and specific actions for disaster prevention. Within the plan, MDECI implements the Sustainable Cities Program, which attempts to keep population centers from being severely affected by intense natural or manmade phenomena. At the national level, 103 urban centers have participated in the Program. O f those 103, 54 urban centers have Land Use Plans and measures to mitigate disaster, and 42 municipalities have approved studies for municipal ordaining and begun their implementation.

Towards a National System for Environmental Management 2.74 Gradually, over the past twenty years, Peru has established the National System for Environmental Management (SNGA). In 1985, ONERN published the analytical work that set the bases for the system: 'The Natural Resources o f Peru." This work defmed the situation and 30

Peru contains roughly 71% o f the globe's tropical glaciers. Since the early 1980s (PCC, 2004) Peruvian glaciers have lost about 22% o f glacier surface, (500 Km2) equivalent to 7,000 million cubic meters o f water (about ten years of water supply for Lima). Peru also has over 12,000 lakes and ponds that could be destabilized from glacier melt. Furthermore, the combined impacts o f global warming, ENS0 (El Nilio Southern Oscillation), and extreme weather events on mountain hydrology are diminishing the water flow used by populations downstream (ID2004). These conditions are also likely to have devastating impacts on highland and associated downstream ecosystems, altering the ecology and livelihoods o f millions o f people, whose GHG emissions are negligible. In addition, Peru's energy sector could be affected, since 80% o f its energy generation comes from hydropower.

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potential o f natural resources in topics that included climate, soils, water, forestry resources, grasses, wildlife, water and biological resources, minerals and energy. The document proposed guidelines for natural resource management, as well as for a new legal and institutional framework. 2.75 After extensive consensus building among stakeholders, the C M A R N was approved in 1990. The Code incorporated in i t s Chapter XXII, the norms that regulated the National Environmental System. The System was integrated by all the governmental institutions dedicated to research, evaluation, command and control o f natural resources and the environment, aiming to coordinate the implementation o f a national environmental policy and to guarantee compliance to the functions assigned by Law to national, regional and local governmental agencies. However, through legislative Act 757, Chapter XXII o f the C M A R N was abolished in 1991 and environmental attributions were attributed to the line ministries, thereby establishng that each sector constituted the environmental authority for the activities at its charge. In spite o f this, an interest to coordinate environmental management activities prevailed, and C O N A M was created in 1994. As the national environmental authority, C O N A M i s a coordinating agency with a directive council integrated by representatives o f the national, regional and local governments, primary, secondary and tertiary economic sectors, the academic sector, NGOs and national professional associations. Box 2.2 below provides further details on the CMARN. 2.76 The legal void o f an articulated environmental management system began to be filled by the establishment o f the Structural Framework for Environmental Management (MEGA), aiming to guarantee intersectoral coordination. Since the creation o f the MEGA, and to increase local coordination between sectors at the regional level, C O N A M has established nine regional environmental commissions (Comisiones Ambientales Regionales - CARS) that it manages through their respective Regional Environmental Executive Secretariats. In general, C A R participants include local governments, NGOs, and university and economic sector representatives. 2.77 In addition, through MEGA, C O N A M has led the design o f the environmental agenda, structuring four programmatic fronts: (i) the green front for biodiversity conservation; (ii) the brown front for sectoral environmental management; (iii) the blue front for water resources management; and (iv) the golden front for responding to international conventions and legal agreements. The recent refon& to the environmental legal framework contributed to the redefinition o f CONAM’s responsibilities to focus on monitoring key environmental priorities and actively participate in budget allocation based on environmental results. 2.78 C O N A M has achieved steady progress in the implementation o f an ambitious and comprehensive agenda to address environmental issues. C O N A M has sought to promote consensus building for environmental management and has made major contributions to establishing a coordinating process for environmental management among the most important national- and regional-level actors. Nevertheless, its lack o f real power to monitor and enforce the application o f environmental laws and regulations i s a major handicap in the country’s environmental institutional framework, particularly gven the imbedded conflict o f interest o f enforcement carried out by sectoral units. C O N A M i s created within a framework already favoring the sectoral approach to environmental management, and thus, i s weak in i t s initial design and mandate. The initial drafts tried to adopt some o f the features o f the Chilean model (CONAMA), which i s characterized for a strong regional approach. I t was assumed that the president o f C O N A M would have a ministerial rank and with concrete functions, and that its Board Council would be integrated by high-level officials with inherence in policymalung. These suggestions were not included in the final proposal, which was presented for consideration to the Environmental Director o f Foreign Affairs, and to the vice-minister o f industry, which reflected the position o f the private sector (CONAM’s first elected president had been active in the private sector). Thereafter Congress approved the proposed norm. Since

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i t s inception, C O N A M has had a coordinating role and has taken a limited role in addressing key environmental issues (Pulgar-Vidal, 2006). Limited resources and a weak capacity have also led to the implementation o f instruments such as the MEGA. Thus, the nature o f i t s initial design, limited resources, a strong sectoral based environmental approach, and ongoing pressures from the private sector have, through time, characterized C O N A M as a frail agency that has a low profile and lacks citizen participation (Pulgar-Vidal, 2006).

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Box 2.2. The National Code for Environment and Natural Resources - CMARN The C M A R N has been one o f the key landmarks in the history o f environmental policy in Peru. C M A R N was the result o f a process started in 1986 within Congress, which called for the creation o f a Ministry o f Environment. Since there was a lack o f environmental legislation, it was opted instead t o first establish an environmental code. As a result, the C M A R N became one o f the key instruments that set in motion many the dynamics and overall structure o f the current environmental policy framework in Peru. Many o f the critics to the code also proposed different alternatives, including a sectoral-based environmental management approach, which was later adopted. One o f the key elements o f the C M A R N was the introduction o f environmental impact assessments (EIA) and its application, which previously did not exist in Peru. Likewise, the C M A R N became the first norm to recognize and legitimize the rights o f citizens to have access t o justice on environmental grounds, without having t o proof direct environmental impact (many years later the code for civil procedures and the L a w o f the General Administrative Procedures recognized this right) (Pulgar-Vidal, 2006).

T h e modification t o the C M A R N in 1991 through Legal Decree No757 illustrates the complexities that have characterized the legislative and political processes through which Peru has gradually advanced towards the adoption o f a comprehensive legal framework for environmental management (Bernales, 2006). The modification resulted from an initiative by the Presidency o f the Environmental Commission in Congress, which wanted t o b e known for passing a “significant” environmental norm in Peru. Consequently, i t proposed the creation o f a review committee to which would modify the Code as a means to revamping it (Pulgar-Vidal, 2006). This proposal faced many critics and resistance from groups claiming that it could risk the existence o f the norm and could represent a serious setback for environmental legislation. Considered at the time an innocuous law (since it only proposed the creation o f a review committee), the law was swiftly approved b y congress. Once approved, technical groups joined the review process among other things, to prevent that key concepts and principles be taken out.

2.79 In 2004, Congress approved the Framework Law for the SNGA, w h c h establishes the integration o f all sectoral entities to the System, under CONAM’s leadership. T h i s Law reinforces inter-institutional coordination. Nonetheless, one o f CONAM’s biggest challenges i s to resolve the overlapping and/or ambiguous environmental mandates between Peru’s public institutions, and to promote further inter-institutional coordination. Institutional ambiguity associated with overlapping jurisdiction often results in delays in addressing key issues with environmental and social costs. Lack o f coordination among agencies sends mixed messages to sectors and hinders the adoption o f improvements in efficiency’. Role of the Ministry of Economy and Finance 2.80 The Ministry o f Economy and Finance’s (MEF) key role has been to provide the planning for, and budgetary allocations to, key environmental agencies (CONAM, INRENA and DIGESA) for their respective operations and programs. In addition, MEF has gradually contributed to a number o f environmentally related initiatives, such as (i) providing matching funds from the national system if public investment (SNIP) to FONDEBOSQUE’s reforestation programs; and (ii) endorsed the debt for nature swaps for which PROFONANPE has served as the implementing agency. Furthermore, the Directorate for Environmental and Macroproductive Studies has been established within MEF (under the General Directorate o f 31

For example, in 1998 a decree b y initiative o f the Navy required all fishmeal plants discharging into the sea to install sub-marine outfall pipes b y the end o f the year. T h i s measure was contrary to MIPE policy, which was attempting to discourage the use o f submarine outfall pipes, as they are expensive, result in lost revenue (in the form o f raw material), and most importantly does not prevent waste (US AID, 2000).

29

I

Economic and Social affairs). T h i s Directorate’s mandate i s to (i) analyze and provide follow-up to the productive sectors in line with the country’s national development strategies; (ii) assess and monitor environmental issues in the country, in accordance with the nation’s environmental policy and productive potential; (iii) participate in formulating, implementing and evaluating o f the national economic program; (iv) identify and assess a series o f key indicators o f the national economy; and (v) prepare research studies and analytical reports on key productive and/or environmental issues related to the economy to serve as inputs to improve the government’s national However, this unit has limited influence over key sectoral policies and overall decisions regarding budget allocation. 2.81 Total public spending approved by MEFs for the environmental sector decreased by 24% from US$170 million in 1999 to US$147 million in 2003, which i s 0.14 percent o f GDP (Abugattas, 2005). This amount reflects that environmental issues have low priority in the allocation o f resources in the country. Furthermore, Peru i s one o f the few countries in the region that has not requested loans from multilateral agencies for the development o f specific projects or programs to improve the country’s environmental conditions. Rather, it has relied on grants from donor agencies, foundations, NGOs and bilateral agreements. Preliminary assessment o f public and private environmental expenditures and public investment done in 2004 illustrate that investment and operational expenditures equaled 0.25% o f GDP in 2003 (Abugattas, 2005). While a cost-efficiency assessment needs to be made o f the measures that would reduce environmental degradation, the amount required to address the key priority issues i s greater than current government expenditures. In addition, a slightly larger share o f environmental spending goes for operational expenses rather than investments, indicating that issues needing to be dealt with are most likely not being addressed

Box 2.3. Peru’s NationalEnvironmental System (SNGA)

The 2004 Law o f SNGA empowered C O N A M A to coordinate environmental management among a range o f public and private stakeholders. The Law defines a set o f orientations, norms, activities, resources, programs and institutions that allow the implementation o f general environmental principles around a model o f sustainable development. Territorial Levels (Art. 16) National n

2

-3

I1

1

CONAM

v1

e,

>

d

6 *

CL

National and Strategic Technical Groups

I11

Local

Regional Environmental Management Systems

Local Environmental Management Systems

I

] Council o f Ministers I P C M

I

Regional

Ministries, OPDs, Regional Governments, Local Governments, Private Sector, Civil Society

Source: CONAM (2005)

2.82 In October 2005, the General Law o f the Environment (Ley General del Ambiente LGA), was issued by Congress. The Law consolidates C O N A M as the leading entity o f the SNGA (Box 2.3). The SNGA Law assigns environmental control functions and the administration o f the system to CONAM. The LGA opens the possibility to establish environmental priorities at the national and regional level. A review o f the history o f environmental management in Peru 32

MEF’s website: http://www.mef.gob.pe/propuesta/DGAES/presen~ciondgaes.php

30

reveals little consideration towards priorities across environmental sectors (Pulgar-Vidal, 2006; CONAM, 2005). Although plans do exist for key areas within the environment sector (such as forestry, water, natural protected areas), no systematic periodic planning exercise exists to establish priorities across environmental programs and sub-sectors such as air pollution, disaster risk management, and water sanitation. T h i s gap has been highlighted in evaluations o f planning in the SNGA (Pulgar-Vidal, 2006).

31

Box 2.4. National Environmental Agenda 2004-2007

Transsectoral

National Level

Sectoral

Structural Objectives

Green Front

Environmental Policy: approved national environmental policy Normative Framework a new CMARN, laws and transsectoral regulations Environmental Institutional Development: implementation and strengthening o f the National System for Environmental Management and o f the environmental units at national, regional and local government levels

Implement the National Biodiversity Strategy Strengthen public management in the managing OfRRNN

Decentralization of Environmental Management: push for the decentralization process in environmental matters

Regional and Local Levels

Instruments f o r Environmental Management: complete and strengthen the instruments for environmental management at all levels o f government

National Reforestation Plan

Brown Front

Blue F r o n t

Golden Front

Annual E C A and L M P programs

Education: national priority

FTA: defend national biodiversity interest

Integrated management o f dangerous and chemical substances

Promotion o f environmental citizen stewardship

Integration of Commerce and Environment

Environmental decontamination

Capacity building for investigations

Environmental services

Regulation o f solid waste management

Application of mechanisms for the access of information and environmental participation

Promotion o f Sustainable Tourism

Promote aquaculture and adequate fishing practices Use and protection o f native knowledge and technology Regional biodiversity strategies

Improve the conditions for housing and urban living

Development o f concessions for tourism

Regional climate change strategies

Articulation o f OTA and conservation

Municipal management o f solid waste

Regional and local promotion of environmental products, ecocommerce and ecotourism

Promotion o f the P M L and support for the PYME

Regional assimilation of educational environmental projects

Promotion of biocommerce

2.83 Since 2004, the national program for decentralization o f responsibilities contemplates in i t s plan the transference o f functions related t o natural resources and environmental protection. Actions to be decentralized include sectors such as agriculture, tourism, and energy and mining. T h e Ministry o f Agriculture began the transference t o the regions o f processes o f monitoring and control to guarantee the

32

sustainable use o f natural resources and t o emit permits, authorizations and forestry concessions, as w e l l as the control o f the compliance to national forestry policy. The Ministry o f Commerce and Tourism contemplates the transfer o f functions regarding the verification o f compliance to environmental norms and regulations and natural resource preservation in tourism. The Ministry o f Energy and Mines has begun to transfer to regional governments the PAMAs’ approval and supervision functions, along with the environmental assessment for small-scale mining activities. Box 2.5. The General Law of the Environment- LGA The General L a w o f the Environment (Law No. 2861 1) approved in October 2005 builds on the consensus reached by different sectors, civil society and the private sector. The LGA, which to an extent replaces the CMARN, could strengthen trans-sectoral coordination and the regional approach to environmental management. I t incorporates a series o f new characteristics and challenges and, t o a large extent, will depend on CONAM’s capacity for its final regulation and adequate implementation. T h e LGA had a number o f controversial issues for the private sector which were extensively debated, including the precautionary principle (article VI); reparation o f damage and the burden o f civil responsibility (Article 147); and environmental quality standards and maximum permissible levels (articles 3 1-33). Among the new features the LGA includes a fiscal framework to promote sound and responsible environmental practices and behavior @reviously unknown in Peru); Likewise i t establishes C O N A M as the leading administrator in the EIA process, ensuring a more active role and participation, decreasing the sectoral role in the EIA process. Furthermore, there are clearer responsibilities concerning environmental emergencies and for the establishment of transitory environmental quality norms o f special character in critical environmental areas. This would allow C O N A M to have presence and a mandate in addressing specific environmental problems, which previously did not get involved (i.e., air pollution in L a Oroya, noise levels in Iquitos, water pollution o f key watersheds such as the Rimac). Thus, among the key challenges include strengthening the role o f CONAN, its new role in the enforcement process, and the establishment o f an autonomous enforcement agency. There are a number o f pending issues and challenges concerning the General L a w o f the Environment and its regulations, including: (a) the overall definition o f key responsibilities among government agencies (including MEF); (b) harmonizing the system o f incentives and sanctions (fines); (c) defining the methodologies and scope for environmental zoning (ordenamiento territorial); (d) defining environmental spending, from the agreement that C O N A M and MEF would carry out the yearly accountability); and, (e) empowering C O N A M with enforcement capabilities, an issue that has been linked t o the discussion on the creation o f an enforcement agency.

Conclusions and Outlook 2.84 From 1965 to 2005, Peru’s environmental management framework has gradually evolved. Among the significant milestones reached during 1950-1990 were the establishment o f OERN and DIGESA, and the issuance o f the Code for Environment and Natural Resources in 1990, which remains Peru’s most important regulation for environmental management. While Peru has greatly improved i t s environmental management capacity since the Code was approved, there are still challenges to be addressed. 2.85 Peru has advanced significantly in the sustainable use o f natural resources. INRENA has been successful in promoting the conservation agenda, as evidenced by advances such as the titling o f lands belonging to indigenous peoples and the establishment o f protected areas. Furthermore, historical events were influential in focusing INRENA’s attention on major environmental priority areas: water and forest resources management, and conservation o f biodiversity. Nonetheless, INRENA has been characterized by a weak institutional framework, since it (i) has lacked resources, adequately trained staff, and adequate data (i.e., on forestry and the status o f biodiversity); (ii) has faced excessive bureaucracy, and (iii) has been unable to address simple but key issues (e.g., not working on weekends, while illegal loggers do). These weaknesses have hampered INRENA’s capacity to adequately assess the impacts o f agtlcultural investments on the environment and natural resources (Bernales, 2006).

33

2.86 Water resource management i s o f special importance to Peru due to the critical role water plays in economic development. Responsibilities for natural resource management have been assigned to INRENA’s Intendancy for Water Resources. A national strategy for water resources has been established, and efforts are underway for i t s implementation. Decentralization efforts have been highly effective, and current discussions focus on the possible creation o f a national water authority to regulate water quality and quantity. 2.87 Natural resource management has been particularly effective in the forestry sector, where deforestation rates have been kept lower than in neighboring countries. However, this should not lead to the conclusion that deforestation i s under control and does not threaten biodiversity and fragile ecosystems. Current discussions among key stakeholders include questions as to whether the current framework and methodology for forestry concessions are adequate and realistic, since serious errors have been encountered in over 90 percent o f the concessions granted in the country. 2.88 The evolution o f the National Protected Areas System has been successful in that close to 14 percent o f the national territory has received conservation status. Nonetheless, the development o f financial strategy has not been matched by increased adrmnistrative and operational capabilities. In addition, a key challenge continues to be providing adequate staff, equipment and resources to the protected areas for their efficient use and management. Difficulties impeding an adequate and timely process for using available resources have led to proposals that the management o f protected areas be decentralized by giving that task to an autonomous agency. 2.89 There are still significant challenges for pollution control and sectoral environmental management. The existing system’s efficiency, neutrality and the possibility o f bias have been repeatedly questioned, and two alternative proposals are under discussion: (i) the creation o f an independent regulatory body; and (ii)the establishment o f independent environmental regulatory bodies within line ministries, following the model o f the OSINERG. 2.90 There i s an active interest in, and consensus for, updating and improving sectoral environmental regulations, particularly in key economic sectors such as mining, transport, housing and tourism. The Regulations for the Environmental Impact Assessment (EIA) Law have been prepared and are under discussion, and there i s a significant need for their issuance. Regulatory gaps relating to E M have led to highly publicized controversies about large investment projects. These include the extension o f the P A M A for the Doe Run, adequate enforcement and compliance for the Camisea gas pipeline, and the upcoming construction o f the Interoceanic Highway. 2.91 A number o f issues concerning the General Law o f the Environment and i t s regulations are pending: (i)the overall definition o f key responsibilities among government agencies (including MEF); (ii) harmonizing the system o f incentives and sanctions (fines); (iii) refining the methodologies and scope for environmental zoning (ordenamiento territorial); (iv) defining environmental spending (from the agreement that C O N A M and MEF would carry out the yearly accountability process); and (v) empowering C O N A M with enforcement capabilities, an issue that has been linked to the discussions about creating an enforcement agency. 2.92 Environmental management in Peru has continued to evolve rapidly, especially during 2005, when national discussions hghlighted environmental issues ranging from proposed reforms to the institutional and legal structure, to the aforementioned potential impacts o f large investment projects.’ In light o f the 2006 presidential elections, many o f these topics are gaining relevance in the political debate.

34

CHAPTER 3 ALIGNING ENVIRONMENTAL PRIORITIES WITH THE NEEDS OF THE MOST VULNERABLE I n Peru, the costs of environmental damages are estimated at 8.2 billion soles per year, equivalent to 3.9 percent of GDP in 2003. The highest cost results from outdoor air pollution and lead exposure in urban areas, and from inadequate water supply, sanitation and hygiene. Additional significant causes are natural disasters, indoor air pollution and agricultural soil degradation. Distributive analysis of environmental health impacts indicates that outdoor air pollution’s harmful effects in Lima-Calla0 are 75 percent higher for the poor than for the non-poor, even in a conservative base-case scenario. The health impacts on the poor resulting from inadequate water supply, sanitation and hygiene are nearly 3 times higher than on the non-poor. I n relation to income, the impacts are more than 10 times higher for the poor. Data are not available to estimate the relative impacts of indoor air pollution on the poor vs. the non-poor; however, most of the impacts occur among the poor because their use of solidjkels is far greater than by the non-poor. The impacts on all environmental health categoriesi.e., urban air pollution, water, sanitation and hygiene, and indoor air pollution per 1000 people-are nearly 20 percent higher for the poor than for the non-poor. Relative to income, the impacts on the poor are 4.5 times higher than on the n ~ n - p o o r . ~ ~

Introduction 3.1 Environmental pollution, degradation o f natural resources, natural disasters and inadequate environmental services (e.g., inadequate water supply and sanitation) impose costs on society in the form o f ill health, lost income, and increased poverty and vulnerability. In Peru, the costs o f these environmental damages are estimated at 8.2 billion soles per year, equivalent to 3.9 percent o f GDP in 2003 (Larsen and Strukova, 2006a). The highest cost results from outdoor air pollution and lead (Pb) exposure in urban areas, and fiom inadequate water supply, sanitation and hygiene. Additional causes are natural disasters, indoor air pollution and agricultural soil degradation (Figure 3.1). The cost o f deforestation i s estimated to be somewhat less than for soil degradation, and the cost o f inadequate household solid waste collection i s minor compared to the former costs. The cost o f lead pollution i s declining with the phase-out o f leaded gasoline.34 3.2 The costs o f environmental damage are distributed unevenly across the population. Figure 3.2 presents estimated costs per capita based on population exposure to environmental health risks. The estimated cost o f outdoor air pollution (PM) and lead exposure i s for cities with more than 100 thousand inhabitant^.^^ The cost per person in these cities i s estimated at 33 B j o m Larsen and Ernest0 Sanchez-Triana prepared this chapter. This chapter draws heavily f i o m background documents prepared by Bjom Larsen and Elena Strukova (2005b, 2006a). 34 Costs o f rangeland degradation, coastal degradation, municipal waste disposal, and inadequate industrial and hospital waste management are not estimated due to data limitations. Other than for rangeland degradation, it i s unlikely that the costs o f any o f these categories are anywhere close to the costs o f inadequate water supply, sanitation and hygiene; outdoor air pollution; natural disasters; indoor air pollution o r agricultural soil degradation. However, the cost o f rangeland degradation could b e significant. Rangelands occupy 18 million hectares in Peru, which i s more than 4 times the area o f cultivated land. For fisheries, only an estimate o f the excess fishing fleet i s plovided due to uncertainties about fish stock dynamics. The cost o f lead exposure is from all sources including leaded gasoline, industry, water soil, paint and food.

35

230 soles per year. Indoor air pollution from solid fuels i s predominantly a burden on the rural population, with an estimated cost o f nearly 100 soles per person per year. In contrast, hygene practices, and to some extent inadequate potable water supply and sanitation, affect most o f the population, causing unnecessary diarrheal illness and child mortality, with an annual cost o f nearly 85 soles per person. Figure 3.1. Annual Costs of Environmental Damage (Billion Soles)

1 ,

I

3.0

2.5 2.0 1.5 1.o 0.5

0.0 Outdoor air pollution (PM) and lead (m) exposure

Water supply, Sanitation and hygiene

Natural disasters Indoor air pollution Soil degradation

Deforestation

MunicipalWaste collection

Source: Larsen and Strukova (2006a)

3.3 Natural disasters affect large areas o f Peru, while agricultural soil degradation i s concentrated in the Sierra (erosion) and the Costa (salinity) regions. Data are not available to provide an estimate o f costs per person, but the average annual cost o f agricultural soil salinity and erosion i s estimated at 1200-1300 soles per hectare affected, representing a substantial income loss for the agricultural population. Figure 3.2. Estimated Annual Costs of Environmental Damage per Capita (Soles) 250 1 200

150 100 50 0

Outdoor air pollution (PM) and lead (Po) exposure

Indoor air pollution

Water supply, sanitation and hygiene

Source: Larsen and Strukova (2006a)

3.4 Table 3.1 presents low, high and mean estimates o f annual costs. T h i s reflects uncertainties in estimated health effects, valuation o f health effects, yield losses from soil degradation, cost o f damages from natural disasters, and how households value solid waste

36

collection services. The range in the costs associated with deforestation reflects estimates o f lost future forest benefits at a 3-10 percent annual discount rate. Table 3.1. Annual Costs of EnvironmentalDamage (Billion Soles)

I

I Environmental Categories

Outdoor air pollution (PM) and lead (Pb) exposure Water SUDD~V.sanitation and hvniene I Natural disasters Indoor air pollution Soil degradation Deforestation I Municipal waste collection

I

I

I TOTAL ANNUAL COST

I

Billion Soles per Year High Low Mean Estimate Estimate Estimate

1.71 1.79 1.05 0.55 0.54 0.28 0.09 6.01

*Erosion and salinity o f cultivated land (not including pasturehangeland) Source: Larsen and Strukova (2006a)

1

I

1

2.81 2.26 1.07 0.78 0.73 0.44 0.10 8.19

I

I

I

3.91 2.73 1.10 1.02 0.92 0.59 0.11 10.38

Outdoor Air Pollution and Lead Exposure

3.5 Particulate matter (PM) i s the urban air pollutant most often found to have the strongest association with health effects. T h l s association with health effects holds especially for particulates o f less than 10 microns in diameter (PM10) or smaller particulates such as PM2.5. The mean annual cost o f P M pollution in Peru i s estimated at 1.8 billion soles or nearly 0.9 percent o f GDP in 2003. About 62 percent o f the cost i s from mortality, and 38 percent from morbidity (Figure 3.3). Measured in lost disability adjusted life years (DALYs), mortality represents 44 percent and morbidity 56 percent.36 These estimated costs are based on the number o f people living in cities with a population o f more than 100 thousand, ambient P M concentration levels in these cities, and dose-response coefficients from worldwide studies linking P M concentrations to health effect^.^' 3.6 Nearly 75 percent o f the Peruvian population lives in urban areas, with more than 12 million people in cities with a population over 100 thousand. P M monitoring i s only available in Lima-Callao, an urban area with a population o f more than 7.5 million (Table 3.2). Table 3.3 presents population figures for Arequipa, Trujillo and other cities with more than 100 thousand inhabitants that lack P M monitoring data. These cities have a total population o f 4.5 million. Consequently, excluding them from estimating the health impacts o f urban air pollution would be a serious omission. Therefore, annual average PMlO levels were assigned to these cities based on World Bank modeling o f PMlO concentrati~ns.~~

36

DALYs combine both mortality and morbidity and is calculated from years lost to premature mortality, duration o f illness, and severity o f illness (using seventy weights). 37 Peruvian studies o f the relationship between ambient PM concentrations and health effects are not available. 38 www.worldbank.orghipr/Atrium/mapping.html.url.

37

I

I

I

I

Figure 3.3. Annual Costs of Urban Air Pollution (Billion Soles)

1.0

-

0.8

-

0.6

-

0.4 -

I

0.2

-

0.0

+

Cardiopulmonary and lung cancer mrtaiity

I

Respiratory morbidity

~~

Source: Larsen and Strukova (2006a)

Table 3.2. Population and P M Concentrations in Lima-Calla0 Key parameters

Este

Sur

Norte

Centro

Callao

Population (millions) 2002 Adult population >= 15 y r s (000) Child population <=I4 yrs (000) Annual average PM2.5 (ug/m3) 200 1-2004 Estimated annual average PMlO (ug/m3) *

0.97 0.69 0.28 45 91

1.60 1.14 0.46 39 82

2.64 1.90 0.74 57 112

1.57 1.17 0.40 84 133

0.79 0.57 0.22 31 53

Table 3.3. Population and Estimated Data for Cities without P M MonitoringData Key parameters

Total population (millions) 2002 Adult population >= 15 y r s (000) Child population <=14 y r s (000) Estimated annual average PMlO (ug/m3) Estimated annual average PM2.5 (uglm3)

Arequipa

Trujillo

Other cities

0.68 0.45 0.23 96 38

0.62 0.41 0.21 55 22

3.24 2.13 1.11 63 25

3.7 Dose-response coefficients are presented in Table 3.4. The Pope et al. (2002) study o f more than one million individuals over a period o f 16 years in the United States i s one o f the best available sources o f evidence of the relationship between ambient particulate pollution (PM2.5) and premature mortality. The dose-response coefficients from this study were applied by WHO in the World Health Report 2002, which provided a global estimate o f the health effects o f environmental risk factors. 3.8 Morbidity effects assessed in most worldwide studies are based on PM10. Doseresponse coefficients from Ostro (1994) and Abbey et al. (1995) have been applied for morbidity effects. Ostro (1994) reflects a review o f worldwide studies, and Abbey et al, (1995) provide estimates o f chronic bronchitis associated with particulates (PM10).

38

Table 3.4. Urban Air Pollution Dose-Response Coefficients

0.8%

Per 1 ug/m3. Annual Average Ambient Concentration of: PM2.5

0.9% 1.2 24 5,750 169 18,300

PMlO PMlO PMlO PMlO PMlO PMlO

Dose-Response Coefficient

Annual Health Effect

Mortality (% change in cardiopulmonary and lung cancer mortality in population over 30 years o f age) Chronic bronchitis (% change in annual incidence) Respiratory hospital admissions (per 100,000 population) Emergency room visits (per 100,000 population) Restricted activity days (per 100,000 adults) Lower-respiratory illness in children (per 100,000 children) Respiratory symptoms (per 100,000 adults)

I

3.9 Estimated health effects are presented in Table 3.5. An estimated 3900 individuals in Peru die prematurely each year from air pollution. About 2900 o f these deaths occur in LimaCallao. The estimated number o f new cases o f chronic bronchitis exceeds 3800, while hospital adrmssions are estimated at more than 12 thousand and emergency room or outpatient hospital visits at more than 250 thousand. Restricted activity days are estimated at 5 days per year per adult, and one in seven children i s estimated to get lower-respiratory illness each year. Respiratory symptoms - such as a mild cough or throat irritation - are estimated at 16 cases per adult per year. In total, more than 65 thousand DALYs are lost each year. 3.10 Estimated costs o f health effects are presented in Table 3.6, totaling 0.9-2.7 billion soles per year, with a mean estimate o f 1.8 billion. The low estimate for mortality i s based on the human capital approach (HCA), which i s the present value o f future income lost to premature death. T h i s valuation method was commonly used in the past, but has increasingly been replaced by the value o f statistical l i f e (VSL). VSL i s a measure o f people’s willingness to pay for a reduction in their risk o f death. In the absence o f VSL studies in Peru, a transfer approach from studies o f VSL in the United States and Europe provides a high cost estimate o f mortality o f 2 billion soles per year.39The cost o f morbidity i s based on the cost o f health care services, medicines, lost workdays including household work, and time spent caring for ill family members.

This i s based on a VSL in United States and Europe o f US $ 2 million (Mrozek and Taylor 2002), translating to 520 thousand soles in Peru by adjusting for the income differentialbetween these countries and Peru using an income elasticity o f 1.0 at market GDP per capita. It should be noted that even this approach i s considered conservative by many economists, who prefers to use PPP based GDP or a lower income elasticity. 39

39

Health Endpoints

Premature mortality Chronic bronchitis Hospital admissions Emergency room visits/Outpatienthospital visits Restricted activity days Lower-respiratoryillness in children Respiratory symptoms TOTAL I Source: Larsen and Strukova (2006a)

Total Cases (000)

Total DALYs

3.9 3.8 12.8 252.0 43,350.0 533.0 137,957.0

29,253 8,386 205 1,133 13,004 3,467 10,347 65.796

,

I

J

Table 3.6. Estimated Annual Costs of Health Impacts (Billion Soles) Health Categories

I

Percent o f Total Mean Cost 62%

Total Annual Cost*

Mortality Morbidity Chronic bronchitis

0.23-2.02

Hospital admissions Emergency room visitdoutpatient hospital visits Restricted activity days (adults) Lower-respiratorvillness in children Respiratory symptoms (adults) Total Cost o f Morbidity TOTAL COST (Mortality and Morbidity)

I

0.08 0.03 0.06 0.35 0.09 0.08 0.70 0.93-2.72

4%

I

~

2Yo 3% 19% 5% 4% 38% 100%

3.1 1 The annual cost o f lead (Pb) exposure i s estimated at 0.8-1.2 billion soles per year, with a mean estimate o f 1.0 billion soles, or 0.48 percent o f GDP in 2003 (Figure 3.4). T h i s estimate i s based on lead exposure from all sources (leaded gasoline, industry, and possible other sources such as water, soil, paint and food) for the population living in cities with more than 100 thousand inhabitants. These individuals total nearly 12.5 million, or about 45 percent o f the Peruvianpopu~ation.~~ 3.12 IQ losses (reduced intelligence) represent 65 percent o f the total cost, and mild mental retardation (MMR) 34 percent. Cardiovascular mortality and elevated blood pressure morbidity in adults constitute only 1 percent o f the total cost. In addition, lead exposure i s estimated to cause 1,400-23,000 annual new cases o f gastrointestinal effects in children, and 800-18,000 new cases o f childhood anemia.

40

This corresponds to the population for which the cost o f PM pollution was estimated.

40

I

Figure 3.4. Annual Costs of Lead Exposure (Million Soles) I

II

700

I

I

600

500 400 300 200

100

0 IQ loss in children

Mild mental retardation

Cardiovascular mortality

Elevated blood pressure morbidity

Source: Larsen and Strukova (2006a)

3.13 The estimated cost o f lead exposure i s based on adjustments to blood-lead level (BLL) measurements in children and adults from 1998. As little i s known about current blood-lead levels in the urban population, the cost estimates are highly uncertain. 3.14 A program initiated in the late 1990s to eliminate lead in gasoline has already brought significant benefits. Lead concentrations in the air in Lima-Callao are now quite low, averaging 0 . 1 3 4 3 0 ugh3 in five monitoring sections o f the urban area during 2000-2004. However, the health effects o f lead exposure can s t i l l be quite substantial. Lead has accumulated in soil and water, and lead exposure can come from multiple additional sources. Box 3.1 discusses some lead contamination “hot spots” in Peru, and Table 3.7 presents a summary o f health effects from lead accumulation in blood. Box 3.1. Lead Contamination “Hot Spots” in Peru Gasoline i s not the only source o f lead exposure in Peru. A 2005 analysis conducted in L a Oroya by a research team from St. Louis University’s School o f Public Health confirmed earlier findings by DIGESA. L a Oroya, a town o f 30,000 inhabitants, has a metal smelter producing gold, silver, lead, zinc and copper that is a major source o f lead pollution. About 97 percent o f children from six months to six years o f age have lead concentrations in the blood (BLL) above 10 ug/dl. About 72 percent o f the children have BLL o f 20-44 ug/dl and 9 percent in the range o f 45-69 ug/dl. Children with BLL in the latter range required urgent medical attention. There are also other cases o f elevated BLL. In 1998, Peru’s Ministry o f Health confirmed that 5,000 children living near the mining areas in the port city o f Callao had a BLL o f 2 0 4 0 ug/dl, and nearly 100 percent o f the 350 students at the Maria Reich public school had a BLL o f more than 40 ug/dl (Osava, 2002). These incidences are not characteristic o f the whole urban population. BLL in most o f the LimaCallao metropolitan area and other cities i s much lower. Nevertheless, lead contamination “hot spots” should be analyzed and mitigation measures urgently implemented. Sources: Salazar M. (2005). Grave Contaminacih en L a Oroya, 15/12/05 - L a Rep6blica, 20; http://www.pcusa.org/pcnews/2005/05677.htm;DIGESA, Osava M. (2002). Lead Poisoning I s Not a Child’s Play, http://www.tierramerica.net/2002/0929/iarticulo.shtml

41

Table 3.7. Health Effects o f Lead O u t m

Blood lead thresholdl

@!m) Adults

Relationship

Children 5

ND

Linear relationship between 520 p@dl BPbc (loss of 1.3 IQ paints per 5 W d l BPb); loss of 3.5 IQ points above 20 pgidl.

Increased systolic blood pressured

ND

5

Linear relationship assumed between S 2 0 pg/dl (increase of 1.25 mmHg per increase of 5 p@dl BPb for mates, and 0.8 mrnHg for females}; above 20 pgldl, an increase of 3.75 mmHg for males, and 2.4 mmHg for females.

Gastrointestinal effects

60

ND

20% of children are affected above these rates’.

Anaemia

70

80

20% of m o t e are affected above &e ;atese.

IQ reductionb

a

Thresholds for gastrointestrnal effects and anaemia are levels ‘at risk“. as defined by ATSDR (1999). The d w s e burden is always estimated for one particular year and the effects of previws exposures are not accounted for in the year of assessment As a result. only children aged 0-1 year old were considered in the calculations, since the effects of lead on previous cohorts were considered in previous years. BPb: blood lead level (in pg/dl). Adults aged 20-79 years only. Based on Schwartzetal. (1990); see sectmn 4.1. ND No documented effects or insufficientevidence.

Source: Fewtrell et al. (2003)

3.15 Fewtrell et al. (2003) provide a practical methodology to estimate health effects o f lead pollution using a Microsoft Excel model developed and distributed by the WHO Department o f Protection o f the Human Environment (Priiss-Ustiin et. al, 2003). The model provides an estimate o f the population shares with different BLL using a lognormal distribution o f average BLL and standard deviations from available studies. Health effects are then estimated by applying the relationships between BLL and health effects in Table 3.7. 3.16 Blood-lead level information from Espinoza et al. (2003) was applied in the Fewtrell et al. model with two major adjustments. Although this study i s the most recent large study in Peru, it dates back to 1998 and the average BLL does not reflect the recent phase-out program o f lead in gasoline. While there i s great uncertainty regarding how much BLL will decline from a lead phase-out program, international experience indicates that a program over a five-year period could lead to a 40 percent reduction in BLL. Applying this adjustment factor gives an average BLL o f 4.3 ug/dl in children and 2.0 ug/dl in adults. These average levels are below the lowest threshold (i.e., 5 ug/dl) for health effects reported in Table 3.7. Nevertheless, part o f the population may have a BLL well above this threshold. This i s reflected in the standard deviation reported by Espinoza et al. (2003). With a lower BLL today than in 1998, the standard deviation may also be lower now than in 1998. Therefore, a range was used, with a “low” equal to 60-100 percent o f the standard deviation reported by Espinoza et al. (2003).

42

Table 3.8. Estimated Health Effects per 1000 People

Notes: I Q indexes intelligence; BP = blood pressure; MMR = mild mental retardation. Source: Larsen and Strukova (2006a)

3.17 The adjusted BLL and the range in standard deviation are applied in the model to estimate population BLL. The result suggests that an estimated 44a-46 percent o f the children and 0-11 percent o f the adults have BLL > 5 ug/dl, and an estimated 5-14 percent o f the children and no adults have BLL > 20 ug/dl. Estimated health effects per 1000 children and per 1000 adults are presented in Table 3.8. It i s assumed that I Q losses take place during the first 5 years o f a child's life, while gastrointestinal effects and anemia can occur in children under 15 years o f age. In adults, the health effects are increased blood pressure (BP) and anemia. 3.18 Studies have found an average loss o f 1.3 I Q points per 5 ug/dl BLL in children. Fewtrell et al. (2003) apply a lower threshold o f 5 ug/dl BLL, below which no I Q loss occurs, and an upper threshold o f 20 ug/dl BLL, above which no further I Q losses are expected (Le., a loss o f about 3.5 I Q points for BLL > 20 ug/dl).l*For some children, an I Q loss w i l l cause mild mental retardation (MMR), occurring at an I Q o f 50-70 points. Thus, chldren with an I Q o f 7073.5 points are at risk o f MMR from lead exposure. Following the assumption o f a normal distribution of I Q in the population, the number o f children with MMR from lead exposure i s estimated by applying the results in Table 3.8 to the estimated number o f children with IQs o f 70-73.5 points. Estimated annual loss o f intelligence from lead exposure i s presented in Table 3.9, totaling about 160-235 thousand I Q points and 1750-2670 cases o f MMR. Table 3.9. Estimated Annual IQ Losses and Cases of MMR from Lead Exposure Low

I O Point Losses (thousands) I Q (1) - loss o f 0.65 points per child I Q (2) - loss o f 1.95 points per child I O_(3)_-,loss o f 3.25 Doints Der child I Q (4) - loss o f 3.50 points per child TOTAL LOSSES (THOUSANDS)

I

Number o f children with MMR

41

High

42 45 32 40 159

30 43 41 120 234

1750

2670

Fewtrell et al. (2003) apply a linear relationship through the mid-point o f each 5 ug/dl BLL interval, with a maximum loss o f 3.5 IQ points.

43

3.19 Other health impacts o f lead exposure are gastrointestinal effects in children, anemia in children and adults, and elevated blood pressure in adults, resulting in a higher risk o f cardiovascular disease and mortality. As gastrointestinal effects and anemia are found to develop at BLL exceeding 60-80 ug/dl, relatively few cases are expected in most cities in Peru:‘ For increased blood pressure, effects are only significant in the ‘‘hgh”case. Estimated annual cases o f gastrointestinal effects, anemia and cardiovascular mortality from increased blood pressure are presented in Table 3.10. Table 3.10. EstimatedAnnual Cases of “Other Health Effects” GASTROINTESTINAL EFFECTS IN CHILDREN ANEMIA IN CHILDREN

I ANEMIA IN ADULTS

I

CARDIOVASCULAR MORALITY

LOW

HIGH

1,400

23,000

800

18,000

0

0

1

0

1

40

Costs of Health Eflects

3.20 Estimated annual costs o f health effects from lead exposure are presented in Table 3.1 1, totaling 0.8-1.2 billion soles per year. The main costs are associated with IQ losses and mild mental retardation (MMR). Based on studies in the United States (Schwartz, 1994; Salkever, 1995), the estimated cost o f IQ losses reflects expected lifetime income losses, using a 1.6 percent decline in income for every one-point loss in IQ.43 Studies o f income losses from MMR are not readily available. Consequently, income losses are estimated as proportional to MMR disability, using a disability weight o f 0.36 provided by WHO. In addition, DALYs from MMR are valued at GDP per capita to reflect the cost o f MMR that i s not included in income losses. The cost o f cardiovascular mortality i s an average o f the human capital value and the value o f statistical l i f e (VSL). In the absence o f data on frequency o f healthcare visits and medication, the cost o f elevated blood pressure morbidity i s based on the valuation o f DALYs at GDP per capita. Costs o f gastrointestinal effects and anemia are not included because o f data limitations. However, in Peru’s case, these costs are not likely to be significant compared to IQ losses and MMR. Table 3.11. Annual Cost of Health Impacts from Lead Exposure (Million Soles)

IQ loss in children

Mild mental retardation (MMR) Cardiovascular mortality in adults

I I

Elevated b l o o d pressure morbidity in adults

TOTAL ANNUAL COST

I

Total cost 530-775

I

Percent of mean cost 65%

270-4 15

34%

0-10

0.7%

0-5

0.3%

800-1205

100%

There could be additional cases o f BLL > 60 u d d l in lead contamination “hot spots” (see Box 1). This reflects a mean estimate o f income losses. An annual discount rate o f 3 percent and a real increase in annual income o f 2 percent is applied. A 0.5 percentage-point income loss attributed to a reduced likelihood o f labor force i s not included because o f inadequate comparable data on factors influencing labor participation from a decline in IQ force participation in Peru vs. the United States. 42

43

44

3.21 It should be noted again that the costs presented in Table 3.1 1 are only for the urban population in cities with more than 100 thousand inhabitants, and that the estimates are based on adjusted BLL measurements fi-om 1998. As there i s great uncertainty about current BLL in the urban population as a whole (and in the rural population), new studies o f BLL in children and adults are needed to provide a better estimate o f health effects and their costs. Water Supply Sanitation and Hygiene

3.22 The annual cost o f inadequate water supply, sanitation and hygiene i s estimated at 1.82.7 billion soles, with a mean estimate o f 2.3 billion (Figure 3.5). The cost o f health impacts represents an estimated 82 percent o f the total mean cost (1.9 billion soles), and expenditures to avert mortality and morbidity represent about 18 percent (0.4 billion soles). Health impacts include mortality and morbidity, and averting expenditures include bottled water consumption and household boiling o f drinking water. Figure 3.5. Annual Costs by Category (Million Soles) 1400 1200 1000 800

600 400 200

0 Diarrheal Morbidity

Diarrheal Mortality

Boiling of drinking water

Bottled water consumption

Hep A , Typhoid, Paratyphoid

Source: Larsen and Strukova (2006a)

3.23 Diarrheal morbidity and mortality are the major health effects o f inadequate water quality and quantity, sanitation facilities and practices, and hygiene." WHO estimates that 90 percent o f diarrheal illness i s attributable to these factors (WHO 2002). The Peru Demographic and Health Survey (DHS) 2000 provides data on diarrheal prevalence in c h l d r e n under the age o f five years. I t reports a two-week diarrheal prevalence rate o f 15.4 percent. T h i s rate i s used to estimate annual diarrheal cases in children under five. Neither the DHS survey, nor any other household survey in Peru, provides information on diarrheal illness in the population above 5 years o f age. Consequently, estimates fi-om Colombia were applied, indicating that diarrheal incidence in the population above 5 years o f age i s one-seventh to one-fifth the incidence in children under five years (Larsen, 2004b) 3.24 Data fiom the Ministry o f Health indicates that 4.6 percent o f child mortality was due to intestinal diseases in 2000. T h i s serves as the lower boundary for estimating diarrheal mortality. The Global Burden o f Disease 2002 (WHO 2002) indicates that 9-1 3 percent o f child mortality could be fi-om diarrheal illness in Peru, which takes into account possible substantial underreporting o f mortality. T h i s i s the average o f AMRO B and AMRO D WHO sub-regions, reflecting that the child mortality rate in Peru approximates the average o f the two sub-regions. 44

Hygiene refers to personal hygiene (such as handwashing), domestic hygiene and food hygiene.

45

A diarrheal mortality rate o f 13 percent o f the under-5 child mortality rate serves as the upper boundary for estimating diarrheal mortality. 3.25 Sometimes diarrheal illness requires hospitalization. However, Peru has no readily available centralized records that provide data on the annual number o f diarrheal hospitalizations. Consequently, information from the website o f Peru’s Ministry o f Health on the total number o f intestinal disease hospitalizations was used, corresponding to 0.075 percent o f diarrheal cases in children under five and 0.05 percent o f cases in the population over 5. 3.26 Table 3.12 presents the estimated health impacts from inadequate water supply, sanitation and hygiene, and Table 3.13 presents disability adjusted life years (DALYs). Table 3.12. Estimated Health Impacts from InadequateWater, Sanitation and Hygiene EstimatedAnnual Cases Low Estimate High Estimate Cases o f Diarrheal illness Children (under the age o f 5 vears) - increased mortalitv Children (under the age o f 5 years) - increased morbidity Population over 5 years o f age - increased morbidity Cases o f Diarrheal HosDitalization Children (under 5 years o f age) Population over 5 years o f age

845 8,360,000 9,900,000

2.390 8,360,000 13,680,000

6,300 5,900

6,300 5,900

Table 3.13. EstimatedDALYs from Diarrheal Mortality and Morbidity Estimated Annual DALYs Low Estimate High Estimate 28,760 81,285 2,790 3,715 11,000 19,750 42,550 104,750

Children (under the age o f 5 years) - increased mortality Children (under the age o f 5 years) - increased morbidity Population over 5 years o f age - increasedmorbidity TOTAL

3.27 The annual cost o f diarrheal illness fiom inadequate water, sanitation and hygiene i s estimated at 1.5-2.1 billion soles (Table 3.14). The estimated cost o f diarrheal child mortality i s based on the human capital approach (HCA). The cost o f morbidity encompasses medical treatment, medicines, the value o f lost time, and DALYs from morbidity valued at GDP per capita to reflect the cost o f reduced well-being associated with illness. Table 3.14. EstimatedAnnual Cost of Diarrheal Illness (Million Soles)

I

I Mortality Children under 5 years Morbidity Children under 5 years Population over 5 years TOTAL ANNUAL COST

46

Estimated Annual Cost Low Estimate High Estimate

205

575

585 665 1,455

650 880 2,105

I

3.28 Cost o f illness i s presented in Table 3.15 for diarrheal m~rbidity.~' About 25-35 percent o f these costs are reflect the value o f time lost to illness (including care gving), and 65-75 percent reflect cost o f treatment and medicines. The estimated cost o f time losses i s based on 75 percent o f wage rates. Table 3.15. Estimated Annual Cost o f Illness (Morbidity)

Cost o f medical treatments (doctors, hospitals, clinics) Cost o f medicines Cost o f time lost to illness

Estimated Annual Cost (Billion Soles) Low Estimate I High Estimate 0.53 0.55 0.31 0.33 0.30 0.47

3.29 Inadequate water, sanitation and hygiene also cause other diseases. There were 39 thousand cases o f typhoidparatyphoid and 17 thousand cases o f hepatitis A in Peru in 2000, according to Ministry o f Health data. The cost o f these illnesses i s estimated at 70 million soles (Table 3.16). Table 3.16. Estimated Annual Cost of TyphoidParatyphoid and Hepatitis A Cost o f hospitalization Cost o f medication Cost o f time losses TOTAL ANNUAL COST

Estimated Total Annual Cost (Million Soles) 50 2 18 70

3.30 Averting expenditures represent an additional cost o f inadequate water supply. If people perceive a risk o f illness fiom the municipal water supply or fiom other sources o f water supply that they rely on, some o f them are likely to purchase bottled water for hnlung purposes, boil their water or install water purification filters. Economists usually consider these averting expenditures a cost o f health risks. 3.31 Estimated averting expenditures are presented in Table 3.17, based on total bottled water consumption o f about 120 million liters per year (Ministerio de la Produccion - OJicina de Estadz'stica Industrial) and boiling o f drinking water in nearly 70 percent o f households (US AID Hand Washing Survey, 2004). Table 3.17. Estimated Annual Household Cost of Averting Expenditures Total Annual Cost (Million Soles) Low Estimate I High Estimate 75 165 190 380

Cost o f bottled water consumption Cost o f household boiling drinking water

4s

These costs do not include the valuation of DALYs.

47

Indoor Air Pollution

3.32 The mean estimated annual cost o f health impacts from indoor air pollution associated with using traditional fuels (mainly fuel wood) i s about 0.8 billion soles. Respiratory child mortality i s 34 percent o f the cost, and acute respiratory illness (ART) in children represents 32 percent. Chronic obstructive pulmonary disease (COPD) and ARI morbidity in adult females, and adult female COPD mortality, each represent 17 percent o f this cost (Figure 3.6). Figure 3.6. Annual Costs of Indoor Air Pollution (Million Soles) 300 250 200 150

100

50 0

Child Respiratory Mortality

Child Respiratory Morbidity

Adult Respiratory and COPD Morbidity

Adult COPD Mortality

Source: Larsen a n d Strukova (2006a)

3.33 According to the Peru Demographic and Health Survey 2000, around 87 percent o f rural households and 11 percent o f urban households used fuel wood, charcoalkoal products or dung in 2000, constituting a major source o f indoor air pollution and respiratory health risk. Winrock International i s currently implementing a U S A I D project in the high Andean district o f Inkawasi in Lambayeque to reduce exposure to indoor air pollution fiom fuel wood used for coolung. A baseline pre-intervention monitoring o f indoor air quality (PM and CO) was undertaken in the kitchens o f 48 rural households in four communities in July-August 2005. Measurements were undertaken for 24 hours during two sessions. The first session was from 5 am to 9 pm, corresponding to the cooking period. The second session was nighttime from 9 pm to 5 am, corresponding to the non-coolung time. A summary o f the P M results are presented in Table 3.18. The average and median level o f PM4 was alarmingly high during the cooking period, and they exceeded outdoor air quality standards during the nighttime. PM4 concentrations exceeded 500 ug/m3 in 40 percent o f the households, exceeded 1000 ug/m3in more than 20 percent o f the households, and exceeded Peru’s 24-hour national air quality standard for PM2.5 o f 65 ug/m3in nearly 90 percent o f the households.& Table 3.18. Concentration of PM4 (pg/m3) in a Sample of 48 Kitchens

AVERAGE f SD MEDIAN RANGE

COOKING PERIOD* 907 f 1287

NON-COOKING PERIOD** 162 f 343

24-HOUR AVERAGE 635 f 849

408

58

280

5-6312

ND-2093

3-3880

Smoke from fuel wood consists of very fine particulates. The difference in the share P M 4 and PM2.5 in total P M can therefore be expected to be small.

46

48

3.34 These monitoring results provided by Winrock International give a strong indication o f the level o f the problem o f indoor air pollution in Peru's rural communities. PM pollution can be expected to be particularly high from the use o f fuel wood with open fire or unimproved stove, with serious respiratory health effects. 3.35 Desai et al. (2004) provide a review o f research studies from around the world that have assessed the magnitude o f health effects from indoor air pollution from solid fuels. The odds ratios for acute respiratory illness (ART) and chronic obstructive pulmonary disease (COPD) are presented in Table 3.19. The ratios represent the risk o f illness for those who are exposed to indoor air pollution compared to the risk for those who are not exposed. The range o f low to high ratios reflects Desai et al.'s (2004) review and has been applied in this chapter to young children under the age o f five years (for ARI) and adult females (for ARI and COPD) to estimate the increase in mortality and morbidity associated with indoor air pollution.47It i s these population groups who suffer the most from indoor air pollution because they spend much more o f their time at home andor more time cooking than older children and adult males. Table 3.19. Health R i s k s of Indoor Air Pollution Low

High

A c u t e Respiratory Illness (AM)

1.9

2.7

Chronic obstructive pulmonary disease (COPD)

2.3

4.8

Source: D e s a i et al. (2004)

3.36 T o estimate the health effects o f indoor air pollution from the odds ratios in Table 3.19, baseline data for COPD and ART are needed. Data on COPD mortality and especially morbidity incidence, according to international disease classifications, are not readily available for Peru. Therefore, regional estimates from WHO (2001) and Shibuya et al. (2001) for the AMRO D regon were applied, i.e., a COPD incidence rate o f 33 per 100 thousand females and a COPD mortality rate o f 2 percent o f female crude m ~ r t a l i t y . ~ ' 3.37 For ARI in chldren under five, the two-week prevalence rate o f about 20 percent from the Peru DHS 2000 was used to estimate total annual cases o f ARI in children under-5. No information on ARI in adults i s available in the DHS household survey or any other household survey in Peru. An analysis o f a database from Colombia does however suggest that ARI incidence in the population over 5 years in Peru i s about 16-18 percent o f the incidence in children under five (Larsen, 2004b). T h i s incidence differential i s used to estimate annual cases o f ARI in adult females. For ARI mortality in children under five, a range o f 12-18% o f total estimated child mortality i s applied, reflecting uncertainty over all-cause and cause specific child mortality statistics. The low bound was from the GBD 2002 for the AMRO D regon o f WHO, and the hgh bound reflected child mortality statistics in Peru. 3.38 Estimated health effects o f indoor air pollution are presented in Table 3.20. They are estimated from the baseline health data discussed above, the odds ratios in Table 3.19, and the urban and rural population shares using solid fuels. Estimated cases o f ARI child mortality from indoor air pollution represent 25-40 percent o f total ARI child mortality in Peru. Estimated ART morbidity in chldren under five i s 20-30 percent o f total ARI morbidity in this age group in the country, and estimated ARI in adult females i s 15-25 percent o f total adult female ARI. Similarly, the estimated cases o f COPD mortality and morbidity represent about 2 0 4 0 percent o f total estimated female COPD from all causes. Table 3.21 presents the estimated health effects Desai et a1 (2004) present odd ratios for lung cancer, but this effect o f pollution is not estimated in this chapter. This is because the incidence o f lung cancer among rural women i s generally very low. 48 Peru belongs to the AMRO D region of WHO, which i s one o f three WHO regions in the Americas. 47

49

in disability adjusted l i f e years (DALYs). An estimated 42-62 thousand DALYs are lost each year due to indoor air pollution.

Table 3.20. Estimated Annual Health Impacts of Indoor Air Pollution

I

I

Estimated Annual Cases Low

Acute Respiratory Illness (AM):

Children (under the age o f 5 vears) - increased mortalitv Children (under the age o f 5 years) - increased morbidity Females (30 years and older) - increased morbidity

I

911

I

1.291

2,121,400

3,102,200

546,200

825,600

Adult females - increased mortality

334

Adult females - increased morbidity

924

I

I

605 1,665

Estimated Annual DALYs (000) Low

High

31

44

Acute Respiratory Illness (AM):

Children (under the age o f 5 years) - increased mortality Children (under the age o f 5 years) - increased morbidity

3.5

5

3.8

5.8

Adult females - increased mortality

2

Adult females - increased morbidity

2.1

3.6 3.7

Females (30 years and older) - increased morbidity Chronic obstructive pulmonary disease (COPD):

3.39 Total annual cost o f indoor air pollution i s estimated at 0.55-1.0 billion soles, with a mean estimate o f 0.78 billion (Table 3.22). The cost o f mortality for adults i s based on the value o f statistical life (VSL) as a high bound and HCA as a low bound, and on the human capital approach (HCA) for children. The cost o f morbidity includes the cost o f illness (medical treatment, and value o f lost time for adults) and DALYs from morbidity valued at GDP per capita to reflect the cost o f reduced well-being associated with illness. The value o f time for adults i s 75 percent o f urban and rural average hourly wages, which are 3.8 SI. and 2.5 SI. respectively. 3.40 There i s very little information about the frequency o f doctor visits, emergency visits and hospitalization for COPD patients in any country in the world. Schulman et al. (2001) and Niederman et al. (1999) provide some information on this from the United States and Europe. Figures derived from these studies are applied to Peru in this chapter. Estimated lost work days per year i s based on frequency o f estimated medical treatment plus an additional 7 days for each hospitalization and one extra day for each doctor and emergency visit. These days were added to reflect time needed for recovery from illness. 3.41 T o estimate the cost o f a new case o f COPD, the medical cost and value o f time losses have been discounted over a 20-year duration o f illness. An annual real increase o f 2 percent in medical cost and value of time has been applied to reflect an average expected increase in annual labor productivity and real wages. The costs were discounted at 3 percent per year, a rate commonly applied by WHO for health effects.

50

I

High

I I

I

Low

High

220

311

200

302

84

130

Acute Respiratory Illness (AM):

Children (under the age of 5 years) - increased mortality

Children (under the age of 5 years) - increased morbidity

Adult females - increased morbidity

I I

Chronic obstructive pulmonary disease ICOPD):

I I

Adult females - increased mortality Adult females - increased morbiditv

TOTAL

22 19 545

I I

244 33 1,020

Land Degradation 3.42 The mean estimated annual cost o f agricultural land degradation i s 0.7 billion soles, o f which soil erosion represents about 65 percent and soil salinity about 35 percent (Figure 3.7). These costs are the value o f crop yield reductions associated with salinity and erosion. Data limitations have prevented an estimate o f the cost o f pasture (rangeland) degradation, and while the cost o f reservoir sedimentation from soil erosion i s likely to be significant, it i s not estimated in this chapter.

0.50 0.45 0.40

-_

0.35 0.30

-

0.25

0.20 0.15

0.10 0.05

0.00

I

Source: Larsen and Strukova (2006a)

3.43 An estimated 5.5 million hectares are under cultivation in Peru o f which about 1.7 million hectares are irrigated. Permanent pasture constitutes nearly 18 million hectares (Peru Statistical Yearbook 2003). There i s a general perception that the Sierra region i s overexploited due to difficulties o f agricultural production on the mountain slopes and improper land use practices, and that major salinity problems occur in the Costa region due to improper irrigation and drainage (Umali, 1993). There are however very few studies o f the extent o f land degradation and how degradation affects agricultural productivity in Peru. No systematic and comprehensive studies have recently been undertaken o f soil salinity levels in the Pacific Region. Statistics (http://www.inei.gob.pe/) indicate that about 307 thousand hectares in Peru are salt affected. The problem i s particularly widespread in the departments o f Piura, Lambayeque and Ica.

51

I I

3.44 In the absence o f precise data, it i s assumed in t h i s chapter that 1/3 o f saline lands are abandoned due to their low quality. That means 350-1000 S/. in annual income i s lost per hectare, reflecting an approximate estimate o f the economic return to cultivated land. On the remaining 2/3rd o f salinity-affected lands, i t i s assumed that crop yields are reduced by 10-25 percent for cotton and by 15-30 percent for rice due to ~alinity.4~ O f land affected by salinity, an estimated 70 percent i s used for cultivation o f rice and 30 percent i s used for cotton cultivation. Estimated apcultural losses due to soil salinity are presented in Table 3.23, with a mean annual loss o f 0.26 billion soles. Table 3.23. Annual Cost o f Soil Salinity

Source: Larsen and Strukova (2006a)

3.45 As major studies indicate, the Sierra region i s the one most affected by soil erosion. Peru Statistical Yearbook 2004 indicates that 66 percent o f severely eroded soils are in Sierra. Major reason for soil erosion i s degradation and abandonment o f agricultural terraces. In the absence o f data on the share o f land area that i s eroded due to agricultural activity, it i s assumed that 60 percent o f agricultural cropland i s eroded in Sierra (CONAM, 2001). I t i s also assumed that only 45 percent o f cultivated land i s used annually, which corresponds to the share o f land under cultivation in Costa and Sierra from the Peru Statistical Yearbook 2003. The main practice to cope with erosion i s construction o f terraces (Valdiva, 2002). Valdiva presents yield estimates for potatoes, corn and barley for the Northern (Cajamarca), Central (Lima) and Southern (Cuzco) regions o f Peru with and without terraces. On average, yeld gains from apcultural terraces are 5 4 0 % for potato and corn, which are the major crops in Sierra. Based on these data, the average annual revenue loss due to agricultural terrace degradation i s estimated at 392-553 million S/. per year, representing the cost o f soil erosion (Table 3.24). Total estimated annual cost o f land degradation i s presented in Table 3.25, ranging from 0.54 to 0.92 billion soles per year, with a mean estimate o f 0.73 billion soles (0.35% o f GDP in 2003). 3.46 Clearly, these estimates o f agricultural land degradation suffer from the limitations o f available data. Soil salinity surveys are needed to provide better estimates o f the effects on crop yield and the scale o f degradation. Similarly, soil erosion surveys and studies on magnitude o f crop losses are needed to better understand the costs o f erosion in the Sierra and elsewhere. The poor are likely to be most affected by soil erosion, and implications for income and vulnerability need to be better understood. Table 3.24. Estimated Annual Cost of Soil Erosion in Peru (Million Soles) REGION NORTHERN CENTRAL SOUTHERN TOTAL

392

Source: Larsen a n d Strukova (2006a)

472

553

International experience indicates that yields o f cotton start declining i f soil salinity exceeds about 7.7 dS/m, and that yields o f rice start declining if salinity exceeds about 3.0 dS/m (FAO, 1998; Kotuby-Amacher et al., 1997; and Resources Science Centre, 1997). 49

52

1 soil erosion I s o i l salinity

TOTAL ANNUAL COST

I I

Low

High

I I

392 152

I I

553 365

544

918

Natural Disasters 3.47 Peru i s annually afflicted by natural disasters such as floods, landslides, avalanches, and storms and severe earthquakes occur periodically. The total mean annual cost o f natural disasters i s estimated at 1 billion soles, or 0.5 percent o f GDP. Impacts o f natural disasters are presented in Figure 3.8 and Table 3.26 for the period 1995-2003. Floods, earthquakes and landslides are causing the most impact. Deaths are h g h e s t fiom landslides. Floods are among the leading causes o f damages to houses and agricultural losses. Figure 3.8. Impacts of NaturalDisasters in Peru (Thousands, 1995-2003)

I

500 7

1

1

450 -

I

400

-.

350

-

/

300 -

I

250 200

150 100

50 0

1995

1996

1997

1998

1999

IPeople affected

2000

2001

2002

2003

Houses affected

Source: INDECI (2005)

Table 3.26. Natural Disasters and Impacts in Peru, 1995-2003 1995 Total natural disasters Deaths Affected people Affected houses Destroyed houses Destroyed hectares

1996

1997

1998

1999

2000

2001

2002

2003

TOTAL

393

311

480

687

522

1116

1110

1376

3316

9311

218

832

254

305

229

210

474

198

213

2933

54507

180074

255813

261712

232614

239903

448813

266904

62347

2002687

7354

20537

36191

76157

53753

42489

82534

38938

34679

392632

2961

7070

6676

62693

4332

2643

27030

2801

8525

124731

21272

32589

E13658

121718

59977

13381

42873

38822

13615

457905

53

,

3.48 There are no systematic and comprehensive estimates o f the cost o f damages from natural disasters in Peru. The only estimation available i s from Bambaren Alatrista (2002), which was developed to evaluate damages from El Niiio. T h ~ sstudy allowed coming up with damage cost by category. Some cost categories, such as houses affected and destroyed were not presented explicitly in the study. Therefore, estimations from Columbia were applied (Larsen, 2004b). 3.49 The cost categories presented by Bambaren Alatrista (2002) are adopted in this chapter and applied to provide an order o f magnitude o f the annual cost o f natural disasters. The cost of annually occurring disasters i s based on annual averages for the 15-20 year period 1985/902003. T h i s period was selected because o f more detailed and comprehensive data were available. Total estimated annual cost o f natural disasters i s presented in Table 3.27. The largest cost i s associated with damages to housing, infrastructure and public buildings. In total, the annual cost i s estimated at 1075 Million soles. These estimates likely underestimate the full effects o f natural disasters. This i s due to several factors: the conservative estimates stemming from the H C A methodology; the lack o f incorporation o f broader dynamic multiplier effects on regional and national economic development stemming from natural disasters; and the fact that using 1985/90-2003 averages neglects the increasing trend o f natural disasters and their resultant effects over this period (Bernales, 2006). Table 3.27. Estimated Annual Cost o f Natural Disasters

I I

IDeaths* Injured Missing persons

Million Soles

45 30

I I

10

Houses destroyed

I

kouses affected

325 535

Hectares destroyed

70

Roads destroyed, affected

35

Railroads destroyed, affected IBridges destroyed, affected TOTAL COST

I

5

20 1,075

I I

Deforestation 3.50 The estimated annual cost o f deforestation i s 0.3-0.6 billion soles, with a mean estimate o f 0.44 billion (0.2 percent o f GDP in 2003). These costs represent the net present value o f direct and indirect use forest values lost to annual deforestation in Peru. 3.51 Origmal forest cover in Peru i s estimated to have been 59 percent o f total land area. Today’s forest cover i s about 50 percent. W h i l e this i s s t i l l above the world average o f 30 percent, forest cover in Peru i s distributed extremely unevenly across the country. About 80 percent o f remaining forest area in Peru i s located in three departments to the east o f the mountain chains with about 50 percent in Loreto.” These departments represent 43 percent o f Peru’s total land area and have less than 5 percent o f the country’s total population. Forest cover in these departments averages almost 96 percent. The six departments at the foot o f the ’O

Loreto, Ucayali and Madre de Dios.

54

mountain chains, extending from north to south in Peru, with about 18 percent o f the country’s population, have now an average o f 52 percent forest cover.51T h ~ srepresents 20 percent o f Peru’s forest area. Forest cover in these departments was reduced by about 25 percent in the last 10 years. Some o f these departments have the highest annual rate o f deforestation (Figure 3.9). Hectares o f annual deforestation are presented in Figure 3.10.” Annual average deforestation in these nine departments totals about 123 thousand hectares. Figure 3.9. Annual Rate of Deforestation 1990-2000

1

1.2% 1 .O%

0.8% 0.6% 0.4% 0.2%

0.0%

Amazonas

Junin

cuzco

Huanuco

Pasco

San Martin

Source: Elgegren (2005)

Figure 3.10: Hectares of Annual Deforestationin Peru 1990-2000 40,000

I

I

35,000 30,000 25,000

20,000 15,000

10,000 5,000

0

Source: Elgegren (2005)

3.52 The cost o f deforestation i s very difficult to estimate. Some costs are already included in the cost o f natural disasters and soil degradation to the extent that deforestation contributes to increased frequency and severity o f flooding and landslides and increased agricultural land erosion. Deforestation may also have impacts on water resources quality. However, from a practical standpoint, it i s very difficult to identify and isolate these deforestation costs at the national level, and they are not included in the estimated cost in this chapter. 3.53 There i s a large literature that reflects different approaches to tropical forest valuation. This chapter uses background studies by Pearce et al. (1999) and Lampietti and Dixon (1994) 5 1 Amazonas,

Cusco, Huanuco, Junin, Pasco, ad San Martin.

’*Forest in the departments not presented in Figure 7.2 constitutes about 2.2 percent of total forest area in Peru. 55

that provide extensive literature overviews. Several recent studies describe deforestation costs in the Brazilian Amazon. Margulis (2004) and Seroa da Motto (2002) analyze direct forest use values o f sustainable forest management for the Brazilian Amazon. A value o f US$28.5 per hectare was used. Schneider et al. (2002) apply about 10 US$ per hectare, since the study was done at the municipal level, where higher transportation cost had a large influence on financial returns. Gram (2001) presents non-timber values for the Peruvian tropical forest. They are in the range o f US$9 to US$17 per hectare. These values are consistent with the magnitude o f estimates in Lampietti and Dixon (1994) for non-timber values in Central and South America equal to US$9 to US$10 per hectare. Smith et al. (1999) present estimated willingness to accept compensation for forestland that would be partially transformed into preserves and the rest transformed into agroforestry in the Peruvian Amazon’s Ucayali region. The latter implied about US$18 per hectare o f lost annual profit from direct use values, including profit from slash-and-burn agriculture and non-timber products. T h i s value i s consistent with the s u m o f the two lower direct use values (US$9 and US$lO) from (Schneider et al., 2002) and (Gram, 2001). Other direct use values include ecotourism. Pearce et al. (1999) estimate these values in the range o f US$5 to US$lO per hectare o f tropical forest and stress their local specific character. Margulis (2004) estimates these values as approximately US$9 per hectare o f Brazilian Amazon forest. 3.54 Indirect use values o f forest include watershed protection, nutritional and erosiodflood prevention, and waterhtrient recycling. Although there i s no definite agreement in the literature about the magnitude o f this forest value, Smith et al. (1999) derive a willingness-topay (WTP) o f US$4 per hectare in Peru as an indicator o f the tropical service ecosystem value. Pearce et al. (1999) present a higher end estimation o f US$30 per hectare o f tropical forest generalized from the literature review. Pearce et al. also give a wide range for the option value o f forest bio-prospecting (ie., the prospects for future development o f new drugs using rich tropical forest biodiversity) in the range o f US$O.Ol to US$0.21 per hectare. Existence value o f forest associated with tropical forest preservation i s estimated for the Brazilian Amazon in Margulis (2004). Margulis utilized the results o f the recent Horton et al. (2002) study WTP. Afier adjusting for the indirect use values, the resulting value i s equal to US$3 1.2 per hectare o f forestland. Pearce et al. (1999) present US$13 to US$27 per hectare, derived fi-om the literature review.

3.55 The annual values o f lost forest benefits per hectare in Peru are summarized in Table 3.28. The direct use values in the range o f US$24 to US$56 per hectare per year reflect the local private forest value, which includes the value from sustainable logging, non-timber products and tourism and recreation. “Lowyyand “high” non-use values presented in Table 3.28 differ by a factor o f three, reflecting the nature o f value techniques. The non-use forest values are therefore not included in the estimate o f the cost o f deforestation for Peru in this chapter.

56

Table 3.28. Annual Values o f Rainforest Benefits (US% Per Hectare) FOREST SERVICE DIRECT USE VALUES SUSTAINABLE FOREST MANAGEMENT NON TIMBER PRODUCTS TOURISM AND RECREATION INDIRECT USE VALUES NON-USE VALUES OPTION VALUE (BIOPROSPECTING) EXISTENCE VALUE DIRECT INDIRECT USE VALUE

+

TOTAL VALUE

LOW ESTIMATE 24

ANNUAL VALUE HIGH ESTIMATE 56

MEAN ESTIMATE 40

10 9 5 4 13

29 17 10 30 52

19 13 8 17 33

0 13 28 41

21 31 86 138

11 22 57 89

I

3.57 Thts chapter refrains from including carbon storage value o f forest as a cost o f deforestation due to the uncertain magnitude o f the carbon price now. Carbon markets are only emerging and deforestation reduction i s currently not eligible for any compensation. However, the situation could change in the near future. Forest values should then be updated using carbon market prices and the eligible share o f the carbon sequestration.

Municipal Waste Management 3.58 The estimated annual cost o f inadequate municipal waste management i s 90-110 million soles, with a mean estimate o f 100 million. T h i s represents an estimate o f the number o f urban households without adequate municipal waste collection multiplied by an estimate o f their willingness to pay for waste collection service. 3.59 Information fiom CONAh4 indicates that about 70 percent o f municipal waste i s collected in urban areas.54T h i s figure i s used in this chapter as an approximation o f the percent o f households with municipal waste collection. The average household size in Lima i s 4.4 and 4.5 in other urban areas (Peru DHS 2000). The number o f households in Lima without adequate collection i s then about 530 thousand. An adjusted rate o f inadequate waste collection for the other urban areas o f Peru was applied. In other major cities, with a total population o f nearly 6 million, there are an estimated 375 thousand households without adequate waste collection. 3.60 A common technique for estimating the cost o f not having waste collection services i s to apply a household’s willingness-to-pay (WTP) for such services. However, there i s no readily available information about households’ WTP for municipal waste collection in Peru. This reflects an annual discount rate o f 3-10 percent over a period o f 30 years o f lost benefits. Evaluacibn Regional de 10s Servicios de manejo de Residuos Sblidos Municipales. Informe Analitico de Peni EVAL 2002 - CONAM/OPS. 53

54

57

Consequently, a benefit transfer approach was applied t o Malaysian WTP t o estimate WTP for waste collection services in Peru (Table 3.29). By adjusting for GDP per capita differentials and solid waste generation per household, the transfer approach results in a W T P in the range o f 120-150 soles per household per year in Lima and 60-75 soles per year in Peru’s other cities. Multiplying these figures by the number o f households without adequate solid waste collection gives a cost estimate or welfare loss o f 90-110 m i l l i o n soles per year f r o m inadequate solid waste collection. T o provide a more reliable estimate o f the cost o f inadequate waste management, a study o f households’ WTP i s needed in Peru’s urban areas. Table 3.29. WTP for Improved MunicipalWaste Collection in Malaysia

WTP FOR IMPROVED SOLID WASTE COLLECTION WTP FOR IMPROVED SOLID WASTE COLLECTION MALAYSIA GDPKAPITA HH SIZE AVERAGE GENERATION OF SOLID WASTEPERSON AVERAGE GENERATION OF SOLID WASTE PER HH

MYR/HH/MON TH US$/HWEAR US$ PERSONS KG/PERSON/D AY KG/HWDAY

http://web.idrc.ca/es/ev-29989-201-1-DO-TOPIC.htm1

LOW ESTIMATE

HIGH ESTIMATE

37

45

117 3,640 4.9

142 3,640 4.9

1

1

4.9 4.9 me1998/poptab05.htm;

Overfishing

3.61 Peru’s fish stock i s highly uncertain; it seems t o be in the process o f r e g m e change and bears significant adaptation cost to climate change (El Nifio). Therefore, i t i s very difficult t o estimate any impact o f fishing levels on Peru’s fish stock. However, excess fishmg fleet capacity does seem t o aggravate the negative impact o f El Nifio, further deteriorating the fishing sector’s financial prospects. 3.62 By using data o n the fish catch for the last 34 years and o n the fishing fleet’s size, it i s possible to estimate the maximum sustainable, maximum economic and open access points for a “normal” year not affected by El Nifio. The Gordon-Schaefer model i s used for this purpose (Gordon 1953; Schaefer 1954, 1957). The maximum sustainable point i s the level o f fishing fleet that gives the highest sustained fish catch. The maximum economic point i s the level o f fleet that gives the highest economic profit. In addition, the open access point i s the level o f fleet at which economic profit i s zero, i.e., profits for fishery are at levels comparable to other competitive sectors in the economy. 3.63 Table 3.30 suggests that the current fishing fleet is, after a substantial increase in the 199Os, exceeding the maximum sustainable point by 2 5 4 0 percent. Estimates indicate that maximum sustainable fish catch could be achieved with a fishing fleet in the range 150-180 thousand MT, compared to the current level o f about 220 thousand MT. These estimates also indicate that fleet capacity in 2003-2004 was almost twice as large as the economically optimal level o f 110-120 thousand MT. The current fishing fleet capacity, or any further increase in fleet, i s likely t o result in further hardship in the fishery sector. The current fleet i s very close to the estimated open access point o f 225-240 thousand MT. Therefore, the average annual predicted fishery sector profit i s n o w quite low.

58

BEST FIT CASE

BASE CASE

MAXIMUM SUSTAINABLE

POINT MAXIMUM ECONOMIC POINT OPEN ACCESS POINT FISHING FLEET (2003-2004)

I

PREDICTED VOLUME OF CATCH (MILLION TONS)

9.4

I

8.4

FISHING FLEET MT

PREDICTED VOLUME OF CATCH (MILLION TONS)

FISHING FLEET MT

180,000

9.6

150,000

120,000

I

8.9

I

110,000

8.2

240,000

7.7

225,000

8.8

220,000

7.9

220,000

Poverty and EnvironmentalDegradation in Peru 3.65 Poverty incidence in Peru was 55 percent in 2002, ranging from 34 to 83 percent across departments (Peru Statistical Yearbook, 2003). These estimates are based on the national poverty line. For international comparisons, World Bank (2005~)reports that 18 percent o f the population lived on less than US$1 per day and 38 percent lived on less than US$2 per day in 2000, adjusting for price differences across countries. This level o f poverty i s higher than in many low-income countries. Environmental conditions are increasing the burden o f poverty. Consequently, it i s important to gain a better understanding o f how, and to what extent, the poor are affected by the environment with respect to health effects, natural resources degradation and natural disasters. The cost o f environmental damage in Peru i s estimated at 8.2 billion soles per year, or 3.9 percent o f GDP in 2003. O f this estimate, nearly 6 billion soles are from environmental health impacts. Therefore, the focus o f this section i s environmental health.” 3.66 The poor, or low-income households, have fewer resources to cope with environmental health effects, and a loss in income from environmental impacts i s often more detrimental to their livelihood than to the livelihood o f h g h e r income groups. Often, the poor are also exposed to higher levels o f environmental health risk than the non-poor population. T h i s i s especially the case for risk o f respiratory illness and mortality o f indoor air pollution from solid fuels, and for risk o f diarrheal illness and mortality from inadequate water supply, sanitation and hygiene. The severity o f illness and fatality rate can also be higher among the poor if proper health services are lacking or if their general health i s weak. For urban air pollution, the situation may differ from city to city and depends largely on air pollution levels in relation to the distribution o f poverty in the city. As it i s children and the elderly population that are most vulnerable to air pollution’s health effects, the impacts among the poor and non-poor will also depend on their respective age distributions. ~

55

Lead exposure i s not included in this section because o f lack o f data on health effects by socio-economic group.

59

3.67 The annual cost o f health impacts o f Peru’s urban air particulate pollution (PM) i s estimated at 1.8 billion soles. Lima-Callao bears nearly 75 percent o f the estimated cost. Therefore, the analysis presented here o f the health impacts among the poor and non-poor population focuses on Lima-Callao. Ambient concentrations are highest in Centro and lowest in Callao (Figure 3.1 1). Norte has the second highest PM2.5 concentration and i s the zone with the largest population, Ambient concentrations o f PMlO follow a similar pattern. Figure 3.1 1. Ambient Concentrations of PM2.5 (ug/m3) for 2001-2004 90 80

70 60

50 40 30

20 10 0

Este

Sur

Norte

Centro

Source: DIGESA (2005)

3.68 Poverty incidence i s lowest in Centro and in the range o f 35-40 percent in the other zones (Figure 5.12). Very few o f the poor people live in Centro and Callao, which are the zones with the highest and lowest PM2.5 ambient concentrations (Figure 3.13). In contrast, many o f the non-poor live in Centro and Norte, which are the zones with the h g h e s t PM2.5 ambient concentrations. The weighted concentration exposure among the non-poor i s about 10 percent higher than among the poor population, suggesting that the health effects o f air pollution might be higher among the non-poor population (Figure 3.14). However, age distribution and agespecific health impacts o f pollution need to be taken into account to estimate the overall health effects in each population group. Figure 3.12. Poverty Incidence 1997-2000 by Air Quality Monitoring Zone 45% 40%

,

I

35% 30 %

25% 20% 15 % 10% 5% 0%

Este

Sur

Norte

Centro

Callao

Source: Calculated from district poverty-incidence data 1997-2000 by National Institute of Statistics, presented in Perez and Yamasato (2002)

60

Figure 3.13. Distributionof Poor and Non-Poor (MiIlions in 2003) 2.5

I

2.0 1.5

I

1.o 0.5

4

0.0

Sur

E 3 te

Norte

Centro

Calla0

I O Poor populatmn INon-poor population

Source: Based on estimates o f district population from Peru Statistical Yearbook (2003) and o f poverty incidence from the National Institute o f Statistics, presented in Perez and Yamasato (2002)

Figure 3.14: Population-WeightedPM2.5 Concentrations

50 40 30

20 10

0

Non-Poor

Poor

Source: Larsen and Strukova (2006a)

3.69 Pope et al. (2002) provide strong evidence that most premature deaths from PM2.5 in the urban environment are from an increase in cardiopulmonary mortality. The predominant share o f cardiopulmonary mortality occurs among the elderly population. The age distribution among the poor and non-poor population i s therefore an important factor in estimating mortality from air pollution. The age distribution o f the poor and non-poor population in Lima i s presented in Figure 3.15. As much as 37 percent o f the poor population i s children under the age o f 15 years. More importantly for the mortality effect o f urban air pollution, more than 12 percent o f the non-poor are in the age group 60 years and up. Only 5.5 percent o f the poor are in this age group. Figure 3.15. Age Distributionof Lima-Callao's Poor and Non-Poor Population

i

1

70%

60% 50% 40%

30% 20% 10%

0%

A g e e 15 years

Age 15-59 years

61

Age 6 0 + years

I

3.70 Figure 3.16 presents the estimated health impacts per 1000 people for the poor and nonpoor population in Lima-Callao. In the base-case scenario, the impact on the non-poor i s 70 percent higher than on the poor. T h ~ outcome s mainly results from the larger share o f non-poor people in the age group 601- years o f age and from the fact that the cardiopulmonary mortality rate i s substantially higher in this age group than in other age groups. 3.71 The base-case scenario assumes that the age-specific cardiopulmonary death rate and incidence rate o f respiratory disorders are the same among the poor and non-poor. However, it i s very possible that the age-specific death rate, the respiratory incidence rate, or both are higher among the poor. Consequently, a mid-case and high-case scenario i s presented in Figure 3.16. The mid-case scenario i s based on 50 percent higher death and respiratory illness rates, and the high-case scenario on 100 percent higher rates. Only in the high-case scenario are the health impacts per 1000 people higher among the poor than the non-poor.

The incidence o f health impacts among the poor and non-poor i s not the only relevant 3.72 indicator o f the burden o f environmental disease. Health impact in relation to income i s also a useful indicator, because illness and premature mortality result in medical treatment costs and lost income in addition to pain, suffering and activity restriction. Thus, high health impact relative to income i s an indication o f the burden on the living standard o f a household. Figure 3.16. Health Impacts per 1000 People 160 140 120 100 BO

60 40

20 0

Base-case scenario

"Mid-case" scenario

€2Poor

'"High-case" scenario

INon-Poor

Note: Health impacts are indexed to 100 for the poor in the base-case scenario. Therefore, impacts per 1000 people show the relative magnitude o f impact on the poor and non-poor. Source: Larsen and Strukova (2006a)

3.73 Figure 3.17 presents the estimated health impacts per unit o f income in Lima-Callao. This portrays a very different situation than simply health impacts per person. In the base-case scenario, the health impacts relative to income are nearly 75 percent higher among the poor than among the non-poor. In the high-case scenario, the impacts relative to income are more than 3 times higher among the poor than among the non-poor.

62

Figure 3.17. Health Impacts per Unit of Income in Lima-Callao

I

300

7

1

250 200

150 100 50 0

Base-case scenario [=J

"Mid-case'' scenario

"High-case" scenario

INon-Poor

Poor

Note: The health impacts are indexed t o 100 for the non-poor in the base-case scenario. The health impact per person is divided by income per person, normalized t o 100. Source: Larsen and Strukova (2006a)

3.74 The annual cost o f health impacts o f inadequate water supply, sanitation and hygiene i s estimated at 2.25 billion soles. About 80 percent o f this cost i s diarrheal illness and mortality. The remaining cost i s associated with the boiling o f drinlung water and the purchase o f bottled water to reduce or avoid risk o f illness. %s section's analysis focuses on the distribution o f health impacts.

3.75 Diarrheal prevalence rates in children under five years from the Peru Demographic and Health Survey (DHS) 2000 were analyzed in relation to poverty incidence for each department in Peru. For every one percent increase in poverty across departments, diarrheal prevalence increases by 0.9 percent. The correlation between poverty and child mortality i s even stronger. For every one percent increase in poverty across departments, child mortality increases by 1.1 percent.56A strong correlation between diarrheal prevalence and child mortality can also be observed. 3.76 The estimated cost o f inadequate water supply, sanitation and hygiene includes approximately 1000-2000 diarrheal deaths in chldren under five years o f age. Figure 3.18 presents child mortality rates by living standard quintiles from the Peru DHS 1996 and 2000. The mortality rate among the poorest 20 percent o f the population was about 5 times hgher than among the richest 20 percent in 1996 and in 2000.

56

The relationships are estimated by log-linear OLS regression using data from 2 4 departments, and are statistically significant at 99 percent. Source: Larsen and Strukova (2006a).

63

Figure 3.18. Child Mortality Rate by Living-Standard Quintile

100 80

60 40

20

0

Poorest

Second

Middle

Fourth

Richest

IPeru DHS 1996 I3 Peru DHS 2000

Source: Peru Demographic and Health Surveys 1996 and 2000. Child mortality rates are for a 10-year period prior to the survey.

Figure 3.19 presents the diarrheal prevalence rate in children in 1996. The rate i s more 3.77 than two times higher among the poorest population compared to the richest pop~lation.~' Figure 3.19: Child Diarrheal Prevalence Rate by Living-Standard Quintile 25%

1----

^_-____I____-

_ I

_ i _ _ _ _ _ _ _ _ i l _ i _

I

20% 15% 10% 5%

I

0%

Fvorest

Second

Fourth

Middle /I Peru DHS 1996

Richest

!

Note: The diarrheal prevalence rate refers to the percentage o f children with diarrheal illness at any time during a two-week period prior t o the survey.

3.78 For 2003, it i s estimated that the child mortality rate among the poor i s around 42 per 1000 live births, compared to 17 among the non-poor. This estimate i s based on a national child mortality rate o f 34 in 2003 and the child mortality rates by living-standardquintiles from the Peru DHS 2000. Similarly, based on an average child diarrheal prevalence rate o f 15 percent in 2000 (Peru DHS 2000), the rate among the poor i s estimated at 18 percent, and at 12 percent among the non-poor (Figure 3.20).

57 Diarrhealprevalence rate by living standard quintile was not obtained for

64

Peru DHS 2000.

Figure 3.20. Chifd Mortality and Diarrheal Prevalence

Diarrheal prevalence rate In children US

Child rnortalrry rate

w

mor INon-Poor

Source: Larsen and Strukova (2006a)

3.79 The health impacts per 1000 people are presented in Figure 3.21. The impacts are nearly three times higher in the poor population than in the non-poor population.” This estimate i s based on the child mortality rates and the diarrheal prevalence rates in chldren presented in Figure 3.20, and estimates o f the diarrheal prevalence rate in the population above the age o f five years.jg There are many reasons why the diarrheal disease burden i s higher in the poor than in the non-poor population. First, the poor have much lower access to improved water supply and safe sanitation. Second, hygiene conditions are likely to be worse.

3.80 The difference in health impacts relative to income i s even larger. Health impacts are more than 10 times higher in the poor than in the non-poor population per unit o f income (Figure 3.21). T h i s i s because the income o f the non-poor is nearly four times higher than the income o f the poor.6’ Figure 3.21. Health Impacts per 1000 People and per Unit of Income

I

1100 1000 900 800 700 600 500 400 300 200 100 0

Health Impacts per 1000 people

Health Impacts per unit of income

Note: Health impacts per 1000 people and per unit o f income are indexed to 100 for the non-poor population. Source: Larsen and Strukova (2006a)

58

This i s a larger difference than the difference in child mortality and diarrheal prevalence. The main reasons for this are that the share o f children in the poor population i s much higher than in the non-poor population, that diarrheal mortality is largely among chddren, and diarrheal incidence rate is much higher in children than in adults. 59 It i s assumed that the relative difference in diarrheal prevalence between the poor and non-poor population is the same for the age group 5+ years as for children under-5. Source: Larsen and Strukova (2006a). 60 This i s from t h e same income data used in the urban air pollution analysis.

65

3.8 1 The annual cost o f the health effects o f indoor air pollution from solid fuels i s estimated at 0.8 billion soles. Around 10 percent o f the urban population and more than 85 percent o f the rural population use solid fuels indoors (Peru Demographic and Health Survey, 2000). However, n o data are readily available on the percentages o f the poor and non-poor populations that use fuel wood. With an urban poverty rate o f about 40 percent, it i s likely that almost all the 10 percent o f the urban population using solid fuels are poor. The poverty rate in rural areas exceeds 65 percent. Therefore, it is plausible that 20 percent o f the rural population using fuel wood is non-poor while 65 percent i s poor. If so, then about 43 percent o f the poor population and 11 percent o f the non-poor population in Peru uses solid fuels. In thls case, based on the estimated health effects from solid fuel use in urban and rural areas separately, 80-85 percent o f the total health effects are among the poor population. 3.82 However, the share o f health effects on the poor may be larger, depending on the characteristics o f wood stoves and ventilation, which may be different in poor and non-poor households. It i s plausible that poor households are more likely to use more polluting stoves than non-poor households. Health effects o f solid fuels can also be influenced by the general health o f those exposed to the pollution. In this respect, the poor may be more vulnerable to health effects from indoor air pollution.

The impacts for all the environmental health categories (i.e., urban air pollution, water, 3.83 sanitation and hygiene, and indoor air pollution per 1000 people) are nearly 20 percent higher for the poor than for the non-poor. Relative to income, the impacts on the poor are 4.5 times higher than on the non-poor (Figure 3.22) Figure 3.22. Total Health Impacts per 1000 People and per Unit of Income 500 450 400 350 300 250

200 150 100 50 0

Impact per unit of income

Impact per 1000 people

1 I3 Poor I

Non-Poor

Source: Larsen and Strukova (2006a)

Conclusions 33 4 The annual costs o f Peru’s environmental pollution, degradation o f natural resources, natural disasters and inadequate environmental services are estimated at 8.2 billion soles, equivalent to 3.9 percent o f GDP in 2003. This represents a substantial loss for society, particularly for the poor. The estimates in thls chapter indicate which areas o f the environment are associated with the most negative impacts on society; however, an evaluation o f the benefits and costs o f interventions i s needed to identify priority actions. Chapter Six provides such an evaluation for the major environmental health issues analyzed in this chapter. For natural resource degradation and natural disasters, the benefits and costs o f interventions can be properly assessed only at very local levels; consequently, additional data and surveys are needed. Similarly, an analysis o f the benefits and costs o f further reducing exposure to lead

66

requires an assessment o f remaining sources o f lead exposure, n o w that lead i s being eliminated from gasoline.

67

CHAPTER 4 REDUCING DISEASE AND DEATH CAUSED BY ENVIRONMENTAL DEGRADATION The health impacts of environmental pollution are the largest single source of environmental damages. Interventions to reduce such damages have been evaluated for water supply and sanitation, indoor air pollution and urban air pollution. The analysis shows that water supply and sanitation improvements in rural areas can be justlfied on environmental-economic grounds, especially when time saving is taken into account. Handwashing programs to improve hygiene have benefts substantially greater than costs, as do programs to increase drinking water disinfection. For indoor air pollution, the benefts of movingflom unimproved stoves to improved stoves or LPG are generally higher than the costs, while those of moving from improved stoves to LPG are less justiJiable. For urban air and other pollution, a range of transport-related measures is recommended, including egective inspection and maintenance programs, retrofitting high-use vehicles with better particulate-control technology and low-sulfur fuels, and action on sources of lead other than gasoline. I n addition, attention should be given to modernizing the bus fleet to larger, cleaner buses and possible phase-out of two-stroke engines in “baby taxis ”. For stationary sources, introducing abatement technology may be justrJied for a number of industries and plants, but a more detailed assessment is needed to decide where and when.61

Introduction 4.1 O f all the impacts o f environmental degradation, those related to health are the most significant. The study o f the costs o f degradation carried out as part o f this review estimates the annual damages from environmentally related sources at S/.8.2 billion (US$2.45 billion). Over 70 percent o f that-around S/.5.85 billion (US$1.75 b i l l i o n F i s attributable to environmental health, arising from poor quality water supply, sanitation and inadequate hygene, outdoor and indoor air pollution, and lead (Pb) exposure (Figure 4.1). 4.2 Given the costs o f environmental degradation, the prima facie case for loolung carehlly at measures to reduce environmental health damages i s strong. However, before particular interventions can be recommended, the measures’ costs and benefits need to be compared in terms o f reduced damages. 4.3 This chapter (a) looks at the environmental health damages related to urban air pollution, indoor air pollution, and water and sanitation; and (b) compares reductions in such damages from various actions relative to the costs o f undertaking these actions.62I t concludes with some recommendations for government policy reforms in this area in the short, medium and longer terms.63

61 This chapter was prepared by Ani1 Markandia, Ernest0 Sinchez-Tnana, and Yewande Awe. The chapter draws heavily o n background documents prepared by Bjom Larsen and Elena Strukova (2006a) and ECON Analysis (2005). A s lead in gasoline is phased out, further assessment o f other sources o f lead exposure is needed to evaluate the benefits and costs o f mitigating measures. 63 I t is also important to take into account who bears the costs and who benefits from the actions. If the state bears the costs o f providing health care, which is the case to a significant extent, then the actions recommended here will also provide financial benefits to the government. T o the extent that individuals themselves bear the costs o f the policy reforms recommended here. there will be direct financial benefit to them.

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Figure 4.1. Cost of Environmental Health Damage in Peru (Billion Soles per Year)

I

,I

2.5

2.0 -. 1.5 -

1.0 -0.5

I

0.0

_I

Water supply, sanitation and hygiene

Outdoor air pollution

Source: Larsen and Strukova (2006a)

Lead exposure

hdoor air pollution

I

Urban Air Pollution 4.4 Because o f i t s adverse impacts on health in the form o f premature deaths and illnesses, air quality i s one o f the most widespread and serious environmental problems in Peru’s urban centers. The major air pollutant o f concern to health in Peru i s particulate matter (PM) and associated small particles created from chemical reactions involving sulfates and nitrates. Lead (Pb)-as an air pollutant and from other sources such as paint, water pipes, and food-is a major health threat. Other pollutants, including sulfur dioxide and hydrogen sulfide, have become local health threats in sites with fixed pollution sources, such as smelters in the cities o f L a Oroya and 110, or the fishmeal plants in the city o f Chimbote (Bemales, 2006) Health Effects of Lead

4.5 The case for eliminating lead in fuels and other sources i s overwhelming on health and other social grounds. It was established as far back as the 1980s for the U S and has been repeatedly confirmed in studies in many countries, some much poorer than the U S (Barde and Pearce, 1991). Larsen and Strukova (2006a) confirmed these calculations for Peru. As a result, the decision to ban lead in gasoline in Peru effective January 2005 (following a long period o f phase-out since the early 1990s) should be applauded. As a result, lead in the air i s down substantially overall since the early 1990s, although levels in Lima have been constant during the period 2000-2004. 4.6 The impacts o f the ban on lead in gasoline will take some time to be felt, since substantial amounts o f lead have accumulated in the soil and water, and the impact o f these deposits i s significant. The remaining problem to be addressed i s that o f lead from other materials such as paints, food cans and some food and water sources (including lead pipes). Action to address these sources i s important. In most cases, it would pass the benefit-cost test. However, this analysis has not been done in Peru. The reason for taking this view i s that similar actions in OECD countries have very high benefit-cost ratios. Even allowing for Peru’s lower living standards, it i s highly unlikely that the costs would exceed the benefits. However, research to establish t h s i s warranted, to make the case in public. Health Effects of Particulate Matter Pollution

4.7

Particulate matter that has a diameter size less than 2.5 microns (PM2.5) has the most significant effects on health. Urban air pollution i s responsible for 3,900 premature deaths

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annually in Peru. In addition, such pollution accounts for the loss o f approximately 65,000 disability adjusted l i f e years (DALYs) annually (Table 4.1).

Table 4.1. Estimated Health Impacts of Urban Air PolIution from Particulate Matter

I

Health End-Points

Premature mortality Chronic bronches Hospital admissions Emergency room visitsioutpatient hospital visits Restncted actinty days Lower respiratory illness in children Respiratory symptoms GRAND TOTAL OF DALYsNEAR

~

Total CasesNear 3,900 3,812 12,834 25 1,765 43,347,360 5 33,45 7 137,957,686

I

~

I

1

Total DALYsNear 29,253 8,386 205 1,133 13,004 3,467 10,347 65,796

I

4.8 The problem o f urban air pollution i s most critical in the country’s industrial corridors, such as Lima-Callao, which accounts for almost 75 percent o f the estimated cost o f health impacts o f urban air pollution in Peru. Furthermore, the pollution levels in all zones exceed the concentration threshold o f 7.5 ugim’ (annual average) set by the World Health Organization (WHO, 2002a). In comparison to other countries in the region, the levels o f air pollution in parts o f Lima are higher than in Mexico City and Santiago, where air pollution i s also severe. Ax pollution levels in Lima are considerably higher than in cities such as Los Angeles, Tokyo and Rome, which have larger industrial and transportation sectors than Lima and have successfully reduced ambient concentrations o f air pollutants (Figure 4.2). Figure 4.2. PMlO Average Annual Concentrations in Selected Cities (ug/m3) WHO Standard i s 7.5 ug/m3

Source: The World Bank, 2005c

Valuation of Mortality Impacts of Environmental Health

4.9 A key variable in the valuation o f environmental health impacts i s the valuation of premature mortality. Hence, valuation issues merit some discussion. The values associated with mortality are derived from either a human capital approach or a ‘willingness to pay to reduce

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risks approach.’ In the ‘human capital’ approach (HCA), the value o f a lost life is measured in terms o f the discounted earnings the person would generate over a lifetime. The second approach values a loss o f life in terms o f the willingness to pay to reduce the risk o f death. For example, if a group o f 100,000 persons i s each willing to pay US$10 to reduce their individual risk o f death by 1:100,000, then the group will collectively pay US$l million and the measure, if enacted, will save one life. Consequently, the value o f a l i f e saved i s put at one million U S dollars. Such a value i s also referred to as the value o f a statistical life (VSL), emphasizing the fact that no specific life has been saved.

4.10 For Peru, the H C A value o f a life i s estimated at around 240 thousand soles. At 0.3 1 dollars for one sol, this amounts to US$74,000. The other (VSL) approach i s derived from a comparison with V S L values in the United States and other high-income countries, combined with an “income elasticity” o f 1.0 (implying that the VSL in a country with an income 50 percent lower than the U S would also be 50 percent lower). The range o f VSL values in the U S and other industrialized countries i s US$1.5-2.5 million (Mrozek and Taylor, 2002). Based on these values, the estimated V S L for Peru lies in the range o f 390,000 to 650,000 soles.64 In general, the H C A approach i s considered as a lower bound for the value o f a premature death. Interventions to Reduce Urban Air Pollution

4.1 1 As part o f the preparatory work for the Peru CEA, a study was commissioned on urban air pollution control, which looked at 12 options (ECON Analysis, 2005). Evaluating different options that reduce urban air pollution i s difficult, as data on the responsiveness o f different agents to the range o f possible measures are hard to gauge. Therefore, judgments on the optimal selection o f instruments w i l l rely on a combination o f cost-benefit analysis and experience in the application o f these instruments in other countries. The following options were considered 1. Introduce low-sulfur diesel. 2. Encourage use o f gasoline cars at the expense o f diesel through various tax incentives. 3. Convert some gasoline/diesel cars to natural gas. 4. Convert some vehicles to ethanol or biofkel. 5. Develop a new public transport system in Lima. 6. Provide tax incentives to scrap older high-use cars (e.g., taxis). 7. Strengthen inspection and maintenance programs. 8. Retrofit catalytic converters on cars and particle control technology on diesel vehicles. 9. Ban imports o f used cars for taxi use. 10. Ban use o f diesel cars andor two-stroke engines as taxis. 11. Implement various city planning interventions such as “green traffic light waves” and bike lanes. 12. Introduce measures to reduce emissions from industry sources. 4.12 Most o f these options are either in the process o f being implemented or considered by the authorities. I t i s also important to note that some o f them may not primarily be considered for environmental reasons, for instance option 5. More generally, most policies have implications for the welfare o f transport users and other affected sectors (e.g., an increase in the price o f cars or a limitation on their use). For such options, a full cost-benefit analysis that takes into account all benefits and costs should be carried out. T h i s has not been done; hence, the analysis presented here i s only a partial input to the final decision regarding which instruments to deploy.

The lower value o f mortality can misleadingly be seen as implying that a life in Peru i s worth less than one in the EU o r US. This i s incorrect in that (a) we are not referring to a specific l i f e and (b) i t is really a willingness to pay to reduce a risk o f death, which i s genuinely lower in poor countries. 64

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4.13 As a general guide in evaluating each o f the options, the damage costs associated with a ton o f emissions o f P M and other particles can be compared to the cost o f a specific option for abating that ton. The background study conducted as part o f this review estimated damages per ton fiom PMlO (Table 4.2). The cost ranges are wide, with the h g h e s t costs arising from mobile sources (23,00&85,000 soles per ton, or US$7,00&25,000 per ton)65. Costs from stationary sources are around half (40%) o f those from waste burning. It should be noted that the estimated damage cost per ton o f secondary particulates i s just as hgh as the cost per ton o f particulates from mobile sources. It should also be noted that these figures are for 2005. As the population grows and as real incomes rise, these costs will increase. This has to be taken into account when comparing benefits and abatement costs. Table 4.2. Estimated Damages Associated with PMlO Emissions for Various Sources in Lima-Callao

Source: ECON Analysis (2005)

L o w sulfur diesel 4.14 The Ministry o f Energy (MINEM) has determined that the sulfur content o f diesel fuel in Peru should be reduced from today’s 5,000-10,000 parts per million (ppm equivalent to 0.51 percent) to 50 ppm (equivalent to 0.005 percent) by the beginning o f 2010. For imported diesel, the sulfur limit i s 2,500 ppm today. T o reduce the sulfur content to 50 ppm will require substantial investments in Peru’s refineries: MINEM has indicated that the two largest refineries w i l l have to invest around US$300 million. The intervention would reduce PMlO directly by about 1,425 tons and sulfates by about 715 tons. Therefore, the average cost o f the reductions would be about US$18,000 (58,000 soles), which i s around the same value as the mid-point o f the l o w and high damage costs; t h s i s on average 54,000 soles, between 24,000 soles in the low case and 85,000 soles in the high case (Table 4.2). 4.15 These calculations support the program. First, the higher values, based on a VSL approach, are probably more appropriate for Peru. Second, by the time the program i s effective, the damage costs will have increased because o f economic and population growth. Third, the damages reported are based on emissions from Lima-Callao. The measures introduced w i l l generate benefits in other cities, raising the estimated figure for benefits by 60 percent. T h i s would make the case much stronger. As a measure, it i s relatively easy to introduce and has relatively low impacts on the poor.

One reason for the wide range i s the problem o f deriving an inventory o f emissions for Peru. The data vary by source (CONAM versus PISA), resulting in very different estimates o f overall emissions and, hence, overall damages. The figures given in Table 4.2 are the averages f?om the two sources. The other reason for the differences i s the valuation o f mortality: the H C A versus VSL approaches discussed later. T h i s i s reflected in the difference between the low and high cases in the table. 65

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Encourage use o f gasoline cars at the expense o f diesel cars through various tax incentives 4.16 The present taxation system favors diesel over gasoline; however, diesel cars are more polluting as far as P M emissions are concerned. Detailed analysis o f the impacts o f a switch in taxes in favor o f gasoline has not been carried out for Peru. The taxation o f these fuels has a dynamic in industrialized countries toward reducing the previous advantage that favored diesel. Furthermore, the justification that applied in the UK and other EU countries to make t h i s shift would apply to some extent in Peru. A more detailed study would be needed to assess the likely benefits in terms o f air quality. Against these, account would have to be taken o f the fact that increases in diesel prices lead to higher expenditure increases for poor households (Kojima, 2001). T h i s would lead to the need to introduce measures to mitigate these negative distributional effects (e.g., compensating use o f diesel in mass transport and agriculture). Conversion o f gasoline/diesel cars to natural gas 4.17 Natural gas in the form o f compressed natural gas (CNG) has been used as a vehicle fuel for years. Compared to low-sulfur diesel (<50 ppm) P M emission would be virtually eliminated for smaller CNG-dedicated vehicles and reduced by more than 70 percent for dedicated heavy-duty vehicles (Cleaner Vehicles Task Force, 2000). N O x emissions would be reduced by 85-90 percent, and SO2 emissions would be almost eliminated. 4.18 Notwithstanding these factors, the conversion o f gasoline vehicles to CNG i s not an attractive environmental option when all factors are taken into account. Although existing gasoline vehicles could be converted to CNG using conversion kits that cost around US$8001,500, there would be almost no direct benefits through P M emission reductions, since gasoline cars have almost no P M emissions. In addition, the indirect P M reductions through reduced SO2 and N O x emission reductions would be very low. Thus, converting gasoline cars to run on CNG i s not an appealing P M emission reduction option. 4.19 Converting existing diesel vehicles to natural gas would practically eliminate P M emissions fiom these vehicles. However, as a rule, this i s not economically attractive, although it can be a viable option for high-usage vehicles such as taxis and light duty vehicles. Still, conversion i s relatively costly for diesel engines and the remaining lifetime o f the vehicles must be carefully considered. Since the age o f the car fleet in Lima i s rather high, the cost-benefit ratio for this option might not be so favorable. For large buses, conversion i s also not likely to be an option, due to hgh conversion costs and/or the estimated short remaining lifetime o f many o f the buses. 4.20 CNG appears more favorable for new vehicles like taxis, light duty vehicles, large buses and other heavy-duty vehicles. CNG buses are being considered for the new public transport system in Lima. According to the Clean Air Initiative (2005), P M reductions could be 60 to 97 percent compared to the present conventional diesels with high-sulfur fuel. However, when lowsulfur diesel (<50 ppm) i s introduced in 2010, emissions reductions associated with CNG use would be much less than this 60 to 97 percent figure-see below. 4.21 A cursory assessment o f the costs and benefits o f introducing new dedicated CNG buses in Lima shows the calculations to be finely balanced and dependent on which cost figures apply. Data fiom local sources indicate incremental investment costs o f US$8,000-20,000 for the purchase o f a CNG bus compared to a diesel-fueled one. T h i s g v e s annual costs o f US$9402,345 per bus. On the other hand, data from Sierra Research (2000) indicate annual investment costs in California o f around US$4,100-8,200. Given that CNG prices are likely to follow international oil (and natural gas) prices, no price advantage in fuel terms is built into the calculations.

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4.22 Emission data from 2000 for Lima (Infras, 2002) show that urban buses emitted a total o f 2,985 tons o f P M in 2000. Assuming 20 percent o f this i s reduced because low-sulfur diesel i s introduced, and apportioning this across all buses in Lima (25,000) indicates that each bus emitted around 0.096 tons P M that year. I t i s being assumed here that 80 percent o f these emissions are removed if a bus i s replaced by a CNG bus. This yields annual benefits o f around US$1,690 per vehicle. 4.23 Benefits from reductions o f nitrates should also be accounted for. It i s being assumed here that 90 percent o f N O x emissions are removed from each bus that runs on CNG compared to low-sulfur diesel, and that they have the same share o f the nitrates formed by the N O x emissions. This results in an annual benefit o f around US$l,OlO/bus. Thus, total annual benefits from using CNG instead o f low-sulfur diesel are US$2,700/bus. 4.24 This i s lower than the estimated total annual costs o f CNG introduction reported in California data, but slightly higher than the costs o f CNG introduction provided by local sources. However, the latter must be considered surprisingly low, since much o f the equipment i s internationally traded. 4.25 If low-sulfur diesel i s not introduced, the situation changes considerably. The direct benefits from P M reduction would then be around US$2,100/vehicle annually plus the above nitrates reduction, giving an annual total o f US$3,llO/bus. The calculations would then also have to take into account reduced SO2 emissions and the consequent formation o f sulfates. Assuming that SO2 emissions would be eliminated, the annual benefit o f this would be US$1,246/bus. The total benefits from running on CNG would then be around US$4,356 per vehicle per year. Thus, the benefits o f introducing CNG would be slightly larger than the lower bound o f the higher cost interval above. 4.26 The preceding figures suggest that, if low-sulfur diesel i s introduced, the case for CNG i s much weaker, although there may still be one depending on how a more detailed assessment works out. At present, there i s also substantial uncertainty regarding the costs o f introducing and providing CNG in Peru. These issues have to be cleared up before a firm decision can be made. Conversion to ethanol or biofuel 4.27 Ethanol and biodiesel are biofuels used as vehicle fuels in many countries, and they are expected to be used in Peru. A new law requires 7.8 percent o f ethanol to be blended in the gasoline, and up to 5 percent o f biodiesel to be blended in the diesel (CONAM, 2005). There are some investments under way for the production o f ethanol, and the production o f biodiesel i s being considered. 4.28 For ethanol used instead o f diesel, data from Sweden show some reduction in emissions o f N O x and P M (Akzo Nobel). However, a detailed quantitative case on these grounds for ethanol is hard to make; consequently, ethanol i s not considered here as a serious option for reducing local air pollutants such as PMlO. There may be a case for ethanol on cost grounds; however, that i s a private matter involving considerable controversy. At present, gasoline prices in Lima are around US$1.80/gallon, which compares with some estimated production costs o f around US$1.6&2.50/gallon (ECON, 2005). Since P M and SO2 emissions from gasoline cars are almost zero today, local environmental benefits from this option for such vehicles would be very low. 4.29 The case for biodiesel has three components: the potential private cost savings, the savings in greenhouse gas emissions and the benefits o f reduced particulate emissions. O f the three, the last i s probably the least important, although considerable effort has gone into estimating such benefits. USEPA has surveyed more than 80 prominent biodiesel emissions

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studies (see www.eva.gov/otaa/models/biodsl.htm), and the level o f such emissions compared to conventional diesel has been estimated (Table 4.3).

According to these calculations, P M emissions could be almost halved if the vehicle r u n s entirely on biodiesel. However, the reductions are considerably smaller if biodiesel i s blended 20 percent with ordinary diesel. N O x emissions tend to increase, but sulfates will be reduced at the same rate as biodiesel i s blended with ordinary diesel. T h i s shows that biodiesel has less impressive environmental performance than CNG. P M emissions are not reduced as 4.30

much as for CNG (70-100 percent o f CNG reductions) and NOx-emissions actually increase compared to an 85-90 percent reduction for CNG. Only sulfates (S02) show the same performance for both CNG and biodiesel. Thus, with respect to PM, CNG seems to be a better alternative than biodiesel. However, if the costs o f production and transportation are low enough, then biodiesel could be a cost-efficient option for reducing P M emissions. Table 4.3. Average Biodiesel Emissions Compared to Conventional Diesel. Percentage Change Compared to 100 Percent Petroleum Diesel

PM

-47

-12

NOx

+10

+2

Sulfates

-100

-20

4.3 1 The benefits o f P M reductions are estimated at US$0.23/gallon and US$O.O57/gallon for the 100 percent biodiesel and 20 percent biodiesel cases, respectively. In addition, benefits from reduced SO2 and sulfates formation should be added (US$0.20 and US$0.05 for the two cases, respectively). In addition, the environmental costs for increased N O x and nitrates emissions should be subtracted. The latter are US$0.17 and US$0.08 for the two cases. T h i s yields total benefits o f US$0.26 and US$0.03, respectively, for a 100 and 20 percent blend o f biodiesel in ordinary diesel. As shown below, this may be relevant, but it i s likely to be dwarfed by the difference in private costs o f production. 4.32 The costs o f producing biodiesel vary substantially among countries and regons. W h i l e cost data for total biodiesel production in Peru are not available, there are estimates from the US. Radich (2005) reports that production costs based on soybean oil were US$2.54/gallon in 2004-2005, and based on yellow grease, they were US$1.4l/gallon. These compare to a production cost o f ordinary diesel o f US$0.67/gallon in the U S in the same period. The net diesel price in Lima in June 2005 was US$1.84/gallon. If these cost estimates are representative for Peru, then biodiesel based on yellow grease might be competitive with present oil prices, while biodiesel made o f soybeans has a cost disadvantage o f US$0.70/gallon compared to ordinary diesel. 4.33 The above figures indicate that the case for biodiesel i s only marginally affected by urban pollution considerations, and that private costs will dominate the decision. Only cost figures for biodiesel production from Peru can give the final answer to this. New Dublic transport system in Lima

4.34 There are comprehensive plans to restructure Lima’s entire public transport system. Lima’s present bus route system, which consists o f a very detailed grid o f small- and mediumsized buses, i s intended to be transferred into nine new, main lines. Special corridors will be made for these lines, including new stops where passengers can change routes. This should reduce dependence on smaller minibuses so that these types o f vehicles can be used as feeders, having passengers transfer to larger buses to go to Lima.

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4.35 Fully developed, this system could lead to the scrapping o f 15,000-20,000 small buses. The new buses could be run on natural gas. 4.36 The background for this plan i s to improve the quality o f the public transport system and o f the environment. The fares are not supposed to be increased, but remain at 0.5-1.5 soles. 4.37 Total costs o f the plan are estimated at US$34.5 millionflun, including new infiastructure and the scrapping o f old buses. There are preparations for a tendering process for one line (Blue Line), which should lead to scrapping around 4,000 old vehicles. Even if new buses run on diesel, the P M emissions would be substantially reduced, because o f the very high emissions o f the old, existing buses. If the new buses run on natural gas, P M emissions would be practically eliminated. Tax incentives to scrap older high-use cars (ex., taxis) 4.38 Today, a large share o f the high-use car fleet (e.g., taxis, small buses and lorries that are frequently used within Lima-Callao) consists of old, relatively high-emitting vehicles. Scrapping these and replacing them with new, more energy efficient and less polluting vehicles could contribute substantially to improving the city’s air quality. 4.39 These vehicles could be removed by setting rather strict emission standards and imposing strict vehicle control, with those not complying banned from operating (see next section for an analysis o f this). Additionally, for distributional reasons, it might be useful to supplement this approach with incentives for owners o f such vehicles to voluntarily scrap them. 4.40 A permanent scrapping program could be designed as a deposit-refund system, where buyers o f new or used imported vehicles pay a deposit that i s refunded to the owner when the vehicle i s delivered to an authorized agency or company dealing with car wrecks. Such schemes have been in operation in many European countries and are working very well. The deposit would be reflected in the prices o f used cars on the domestic market, and form a price floor for the used cars. However, such a program would only have a long-term effect, since the average age o f vehicles in Lima i s over 12 years. Moreover, the costs o f enforcement for such a scheme could be quite high in a country like Peru. Still, t h s scheme i s worth considering further for its positive long-run environmental effects. InsDection and maintenance programs 4.41 Periodic inspections o f the existing vehicle fleet would contribute to reduced emissions and improved air quality if such inspections result in better maintenance and the eventual scrapping o f old, heavily polluting vehicles. Modern vehicles depend on properly functioning components to keep pollution levels low. Minor malfunctions in the air and fuel or spark management systems can significantly increase emissions. Major malfunctions can cause emissions to skyrocket. According to OECD (1999) and the Clean Air Initiative (2005), a relatively s m a l l number of vehicles with serious malfunctions frequently cause most o f the vehicle-related pollution problem. Effective inspection and maintenance (I&M) programs are essential to identify these problem-vehicles and ensure their repair or scrapping. Unfortunately, so far, such controls have been lacking in Peru. Although there were emissions regulations on paper for vehicles, very few checks were carried out. Only 12,000 vehicles have been inspected since 2001, and there have been no fines. The need for a more rigorous enforcement regime i s clear, and Peru has decided to implement a new vehicle inspection and maintenance program for the entire Peruvian vehicle fleet, starting with Lima in April 2006 and becoming countrywide by 2007 (see CONAM, 4.42

2005).

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4.43 The Clean Air Committee (2004) has estimated that the new program will result in emission reductions from buses and heavy-duty vehicles o f almost 2,900 tons o f PMlO in Lima in 2010. These reductions will increase to almost 4,600 tons in 2020 and 5,900 tons in 2025 in Lima-Callao. These are considerable reductions, taking into account that total emissions from mobile sources today are estimated at a little more than 7,000 tons. The emission reduction i s high because many vehicles have not been tuned or repaired for years. I t i s likely that the effects o f other measures like the introduction o f low-sulfur diesel are not accounted for in the Committee’s estimate. The Lima program i s having some difficulty in i t s startup phase, so i t s effectiveness remains to be seen. However, it i s obvious that this program has great potential to substantially reduce emissions. 4.44 The Clean Air Committee (2004) estimates the specific abatement costs at US$4,096/ton o f PM10. Ths cost estimate i s significantly lower than the costs o f similar programs in Europe. T h i s estimate i s lower than the estimated range o f the benefits o f emissions reductions at US$6,000-28,000 per ton o f PM10, indicating that this intervention i s socially profitable for the society. Retrofit catalytic converters on cars and/or retrofit particulate-control technologv for diesel vehicles 4.45 Buses and trucks operating on diesel are responsible for a large part o f the P M emissions from mobile sources in Lima. New vehicles emit less than old buses, but scrapping them i s a costly alternative. Instead o f removing these vehicles from the fleet through various means, retrofitting old trucks and buses with particulate-control technology could be an option. 4.46 The technology for retrofitting i s really only effective with low-sulfur fuel. Hence, this measure will have to wait until low-sulfur diesel i s introduced in Peru in 2010. 4.47 Regarding costs and benefits, the figures look quite encouragmg. Costs were around US$5,000-17,000 per vehicle in 2000 (Cleaner Vehicles Task Force, ZOOO), but estimates are that they have fallen significantly by 2005 (to US$2,500-3,500). On the benefit side, i t i s difficult to predict how the vehicle fleet w i l l develop by 2010. As a rough guide, it i s being assumed here that year 2000 P M emissions from buses will be reduced 20 percent by 2010 through the use o f low-sulfur diesel. On this basis, emissions per vehicle w i l l be approximately 0.1 todyear. Reducing these by a maximum o f 90 percent (which the retrofitting would provide) gives an emissions reduction o f 0.09 ton and a benefit o f US$1,980 per vehicle annually. If device cost has dropped to US$3,000, the annual costs are around US$350, which i s far below estimated benefits. The investment cost would have to be more than US$17,000 for this option to have a negative benefit-cost ratio, which i s highly unlikely. 4.48 These benefit-cost calculations are based on average emissions per vehicle. If the most polluting vehicles are removed from the fleet through other measures (for instance an I&M program), benefits from retrofit technology may be substantially lower. However, even allowing for this, the simple calculation presented shows that retrofitting P M control technology after 2010 should have a positive benefit-cost ratio. Ban on imports o f used cars for taxi use 4.49 According to available statistics, more than 85 percent o f all imported passenger cars and station wagons in Peru in 2003 were used vehicles. T h i s has been encouraged by the authorities, who have reduced import duties for used cars compared to the duties for new ones. This was done for social reasons, enabling average-income families to have their own car. 4.50 The imported cars have often been old, with high mileage and high pollution emissions. Today, the import o f diesel passenger cars that are more than two years old i s not allowed, while

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gasoline cars can be up to five years old. Still, the imported cars have high mileage; thus, their catalytic converters are not functioning properly, resultingin relatively high emissions o f PMlO and other harmful substances. Therefore, the municipality o f Lima-Callao i s considering a ban on the use o f imported used cars as taxis. T h i s could result in lower P M l O emissions, since most o f these cars have diesel engines. 4.51 Bans are a more drastic alternative to adopting stringent I&M requirements on all imported vehicles to ensure they have a functioning catalyst, as was done in Poland. Another alternative i s to impose higher taxes on such vehicles; Romania and Hungary are examples o f countries using that approach. OECD (1999) argues that all three o f the primary approachesstringent emissions requirements ban on imports; or heavy taxation on imported, used vehicles-can be successful if designed properly. 4.52 In Peru, for social reasons, it seems difficult for the authorities to impose special taxes on the import o f used cars for taxi use or other purposes. The I&M program currently being introduced could pay special attention to imported used vehicles to ensure compliance with the new emission standards. If the I&M program i s not effective, a ban on imports o f used vehicles for taxi use could be an effective solution. Taxis are high-usage vehicles, so measures targeted towards them could be efficient. It has not been possible here to estimate the emission reduction that could be acheved through this measure. Ban on use o f diesel cars and/or two-stroke engines as taxis 4.53 Most passenger cars employed as taxis are diesel fueled. In poorer areas o f LimaCallao, the use o f three-wheeled, two-and-four-stroke gasoline motorbikes as taxis i s common. These vehicles are heavy emitters o f PM, both because o f the high emissions per kilometer driven and their high annual mileage. Therefore, removing these vehicles from use could yield substantial environmental benefits. 4.54 In Dhaka, Bangladesh, similar measures have been considered. In Delhi, India, a progressive replacement o f two-stroke motorbike taxis with gas-fueled ones has been very effective. T h s type o f vehicle (so-called "baby-taxis") i s a major source o f PM, partly because o f incorrect use o f lubricant and excessive use o f the wrong type o f lubricant, called straight mineral oil. Because commercial two-stroke engine three-wheel vehicles contribute significantly to particulate emissions, Dhaka's ESMAP program, "Reducing Emissions from Baby-Taxis in Dhaka," included the education o f drivers and owners o f such vehicles. This educational programming consisted o f training mechanics, a "baby-taxi" auto clinic, meetings, dissemination o f information, and informational meetings with auto mechanics and gasoline station owners who regularly come into contact with drivers o f these vehicles. The program also sought to restructure the market for lubricants through both private voluntary action and government policy reform. 4.55 An outright ban on diesel cars and/or two-stroke engines as taxis would be a rather dramatic action, since these vehicles would be forced out o f traffic in a relatively short time. However, implementing the program gradually over a 3-to-5 year period, following Delhi's example, i s a real option and should be considered seriously, along with an education program like the one introduced in Bangladesh. Various city planning interventions

4.56 Various steps to promote the use o f bicycles instead o f cars could contribute to reducing emissions and, indeed, there are several plans for promoting bicycle use in Lima. Several positive experiences with such measures can be cited from around the world. For example, the experiences o f some local communities in California are encouraging (CaVEPA, 2005). Up to

78

20 percent o f the residents o f some communities go to work by bicycle, and 41 percent consider the bicycle their primary mode o f transportation. 4.57 CaliEPA (2005) claims that the promotion o f bicycling has been a cost-efficient measure to reduce emissions o f PMlO and other h 6 l substances. For each percent replacement o f light-duty vehicle trips by bicycle trips, PMlO emissions are reduced by a total o f 0.65 tons/day in all the California communities that have promoted bicycling. People choosing to pedal rather than dnve usually replace short automobile trips that are disproportionately high in pollutant emissions. 4.58 Experiences from California and other areas show that on-street bike lanes along principal roads raise bicycle usage by providing official accommodation for the needs o f cyclists and addressing concerns about their safety. Nationally, US cities with at least one mile o f bike lane for every three miles o f arterial roadway have 3 to 10 times higher average bicycle commuting rates than cities with lesser ratios (CaVEPA, 2005).

Thus, various measures to promote bicycle use in Lima, notably construction o f bike lanes, should be considered to see if this could be a cost-efficient measure to reduce P M emissions, although t h s approach may not be as successful there, due to the high level o f outdoor pollution. An assessment should be made o f the impact o f various factors, including studying commuting patterns o f various population segments, lengths o f average trips, areas or routes where bike lanes could be efficient to promote bicycling, the kind o f transport mode that increased biking would replace, the costs o f establishing bike lanes and related measures. 4.59

Measures addressing emissions from industry sources Several industry and non-industry sources emit PM. Data are not available on emissions and abatement costs for the industry plants in Lima. International studies show that the costs o f P M abatement tend to be highly site-specific; furthermore, those costs and are generally not precisely known until an installation i s complete (Rabl, 2000). However, international abatement cost data may give some indications o f the extent to which actions, mostly end-of pipe measures, may be cost efficient (Table 4.4). 4.60

4.61 Most o f the industries for which costs have been estimated internationally are represented in the Lima-Calla0 area. All these abatement costs fall within the range o f the estimates for the damage costs for stationary sources (US$7,OOO-l6,00O/ton) that are presented in t h i s analysis. P M and SO2 controls sometimes yield mercury (Hg) control as a co-benefit (Sobin, 2004) (Table 4.4). 4.62 One industry not represented in the international estimates o f abatement costs i s cement, which i s by far the largest stationary source o f P M emissions in Lima-Callao. Ths generates emissions o f PM, N O x and S02, among other substances (Portland Cement Association, 2005). Rabl (2000) estimates abatement costs for retrofits o f existing lulns to be between US$27,000 and US$213,000 per ton o f P M reduced; this i s based on experiences with various retrofits in Belgium and France. The large cost interval i s due partly to different abatement levels. The larger the emissions reductions that are achieved, the lower the costs per ton. However, Rabl (2000) also cites some Dutch reference values o f US$3,000 per ton o f P M reduced, which i s based only on a limited number o f existing Dutch industrial operations and thus may not be representative. 4.63 These estimates show that actions to curb P M emissions from cement production may be cost efficient. However, a more detailed investigation i s needed to find out where the measures should be introduced and at what level o f abatement.

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Table 4.4. Average Abatement Costs for P M in Some Industries. US$/TonP M Reduction

I Power production

I

I

Eelglass

Petroleumrefining Paper production

I Chemicals

I

I Metals

I

Mining

13,005 2,747 6,745 7,725 1,627 1,202 2,747

I

I I I

Ranking of Urban Air Pollution Control Options

4.64 Ranking options along a cost-effectiveness curve-to show how much reduction each option can make and at what cost per ton-provides the policymaker with a clear description o f the complex analysis needed to evaluate different alternatives (Figure 4.3). Unfortunately, this cannot be carried out for all options. O f the 12 measures reviewed in this section, five can be analyzed in this way. They are (a) introduction o f l o w - s u l k diesel; (b) inspection and maintenance programs; (c) retrofit particle-control technology; (d) a shift, in due course, from low-sulfur diesel to CNG; and (e) reduction o f emissions from industry sources. 4.65 Estimates have been made o f the annual reductions in emissions that can be expected after 2010 from each o f these sources. To avoid double counting, each action has been adjusted for the effects o f the others. The reductions they estimate and a best estimate o f the cost per ton for that reduction are reported below (Table 4.3). The resulting cost-effectiveness curve has then been estimated (Figure 4.3). The same curve also presents an average damage estimate over all mobile sources o f PM emissions o f US$16,000, which i s the average o f the l o w and high estimates for mobile sources (Table 4.4). A much lower figure o f US$8,000 applies for stationary sources, and this should be taken into account for when looking at industry reductions. 4.66 The data show that the retrofit for particle control, the I&M program and reductions in industry sources are well below their respective damage cost estimates. The adoption o f lowsulfur diesel i s not below the average damage costs. However, as argued earlier, it i s probably justified because (a) the higher estimate o f damages i s US$25,000 and i s more likely to be the correct figure; and (b) increases in damage costs between now and 2010 will, in any case, bring the damages up to the estimated costs. The further shift to CNG i s not justified on PM reduction grounds. 4.67 While useful, this analysis has important limitations that should not be ignored. First, it leaves out those options that can only be assessed qualitatively. Second, there are considerable simplifications involved. The costs are dynamic and vary over time-as do the benefits. What i s shown i s a rough picture o f somewhere in the fkture. Nevertheless, this analysis i s usefkl because it eliminates some o f the more seriously wrong options, and because i t shows the scope o f reductions that each alternative can make. Recommendationsfor Actions on Urban Air Pollution

4.68 The analysis reported here i s often unclear about the potential benefits o f different measures and indicates that most options need some further work in terms o f detailed design. However, there are a number o f directions for policy. First, as far as lead i s concerned, action

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should be taken to examine the outstanding sources o f such pollution, including lead in paint and lead in water and food. Based on that examination, a plan should be prepared for the phaseout o f all such emissions where justified. Second, as far as other air pollutants are concerned, the focus should be on PM, and particularly on PM2.5, which i s most associated with health effects. Peru urgently needs to establish ambient standards for P M in priority urban areas and, based on those, establish technology-specific standards for PM and i t s precursors. Ground-level ozone i s monitored in a significant number o f urban areas in the world because i t i s the primary constituent of smog and, in high concentrations, it has been linked with different health impacts, including premature death (Bernales, 2006). For these reasons, Peru needs to implement a PM and ozone monitoring program in priority urban areas. In addition, present knowledge justifies the following actions: a) The government should devote enough resources to ensure that the new I&M program i s really effective. The past record is not good. T h i s i s an area where costeffective reductions in emissions can be made.

b) The retrofitting o f buses to control particles i s a low-cost option. A program to implement retrofitting should be designed for introduction in the near future.

c) The low-sulfur diesel program, to w h c h the government i s committed, should be kept on track for introduction in 2010. While such a program i s only marginally justifiable in current circumstances, i t will be justifiable by 2010.

4.69

Other options regarding urban air pollution that need further evaluation are a)

The use o f CNG for buses and taxis.

b) Changes in the bus fleet to larger cleaner buses. c) A phase-out o f two-stroke engines in “baby taxis” or replacement by fourstroke engines.

d) The introduction o f abatement technology may be justified for a range o f industries and plants, which may include smelters and fishmeal plants. Table 4.5. Amounts of P M Reduction Feasible and Cost Per Ton for Selected Options Reduction Feasible (in Tons) 360 2900 1750 3400 500

Option

Cost US$/Ton

Retrofit particle-control technology 3888 Inspectionand maintenance programs 4096 Reductions in industry sources 5114 Adoption o f low-sulfur diesel 18000 Shift from low-sulfur diesel to CNG 80000 Notes: 1. Costs o f retrofitting are based on annual costs per car o f US$350 and emissions reductions o f 0.09 tons. 2. The I&M program cost estimates are taken from the Clean Air Committee study. They give a central estimate o f US$4,096/ton. 3. Reductions in industry sources are taken from Table 4.4, as a simple average o f the costs. 4. The ‘adoption o f low-sulfur diesel’ estimates are from MINEM data on costs and ECON estimates o f reductions in emissions. 5. The shift to low-sulfur diesel estimates are based on average costs o f conversion o f US$6,200 per vehicle and a reduction in PM per bus o f 0.0768 tons per year.

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EnvironmentalDamages Related to Water and Sanitation Water and Sanitation Infrastructure Programs

4.70 The WHO (2002) estimates that the vast majority (88%) o f diarrheal disease in the world i s attributable to ingestion o f unsafe water; lack o f access to water; lack o f access to sanitation; contact with unsafe water; and inadequate management o f water resources and systems, including in agriculture. Based on studies from several countries, estimates o f the benefits associated with different measures to reduce damages arising from unsafe water and sanitation have been developed. These international studies estimate the percentage reductions in the incidence o f diarrheal morbidity and mortality following interventions to improve the infrastructure that provides drinking water or basic sanitation, or interventions that improve personal hygiene. The results are applied to Peruvian health data and to Peruvian estimates o f the costs o f providing improvements in the areas described above. Each intervention i s considered independently o f other possible interventions, with the aim o f providing benefit-cost ratios for each intervention that the Government o f Peru might consider implementing. 4.71 The aim o f the infrastructure interventions i s to improve water supply and sanitation, largely in rural areas. Two programs are investigated: one that provides 3.6 million people with improved sanitation, and one that provides 3 million people with an improved water supply.66 Local data indicate that annualized per capita costs amount to 28 soles for improved sanitation (improved latrines) and 25 soles for improved water supply (protected well or bore hole).67 4.72 The benefits are derived from a range o f studies and are calculated separately for different categories o f individuals in rural Peru6' (Table 4.6). The key assumptions in deriving the benefits relate to the costs o f morbidity and mortality and to the value o f time saved. The morbidity costs, based on the costs o f treatment and value o f lost time, are 50 soles per case o f diarrhea. The mortality costs are calculated based on the 'Human Capital Approach' (HCA) as presented in the previous section. However, there are strong reasons to believe that the H C A approach underestimates the value o f a lost life; hence, the figures reported here should be taken as lower bounds. Finally, the programs generate savings in time, which i s an important ingredient in the calculations. It i s based on data for households more than a 15-minute walk from a water source (approximately 210,000 households are in this category). Time saved i s valued at 75 percent o f the average rural wage (20 soledday, or 2 soleshour). 4.73 The data reveal that programs to improve water supply have a benefit-to-cost ratio marginally greater than 1.0 when the time savings o f improved water are excluded. However, the ratio increases to over 2.0 when time savings are taken into account. A similar conclusion holds for the sanitation program (Table 4.6).

This i s the population in rural areas that lack improved sanitation and water supply according to the Peru DHS 2000. 67 Per capita investment costs represent average costs in south America (WHO - UNICEF, 2000). O&M i s operations and maintenance based on local data. Preliminary data suggest that the majority o f benefits are to be derived from improved rural provision. 66

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Table 4.6. Benefits of Reductions in Diarrheal Morbidity and Mortality in Rural Peru

* 5 1 percent o f the rural population. ** 42 percent o f the rural population-households using surface water (40%), tanker truck (1%) and “other” water sources (1%). This i s likely to be conservative, as some water wells and pit latrines may not be considered improved water supply and sanitation. Source: Larsen and Strukova (2006b) 4.74 Care should be taken in interpreting these results because the benefits are averages for all o f rural Peru. There will be circumstances where the benefits w i l l be substantially greater (and conversely where they will be much less) than these averages. Assessments that are more detailed need to be carried out to determine where the programs are most needed and effective. Second, the estimated benefits are probably low. The low value attached to the loss o f a child’s l i f e has already been mentioned. From the perspective o f social choices, it i s important to note that the benefits o f such programs would be preponderantly for the poor. Improving the living standards o f the poor i s itself a goal o f social policy. These two factors would suggest that a large number o f programs for improving the water supply and sanitation facilities in rural Peru would be amply justified. Hygiene Programs

4.75 The single most effective hygiene intervention i s handwashing after defecation, before preparing meals, and before eating. Peru initiated a handwashing program in 2005 (Box 4.1), which looks promising although the impacts o f this are not yet available.

I

Box 4.1. The Handwashing Program in Peru The Handwashing Public Private Partnership was established in Peru in 2003 to promote and institutionalize handwashing among low-income families to significantly reduce the incidence o f childhood diarrhea. With financing from the Japan Social Development Fund, USAID, the private sector and local and regional governments, the program started with the training o f field personnel and measurement o f a baseline against which the program’s impacts would be judged. In the first phase, 3,500 health professionals w i l l be trained and they, in turn, w i l l reach a target audience o f 117,000 mothers and 57,000 children in the first phase (2005-2006). So far, this component i s being implemented in five regions o f the country. Funding i s being sought to extend the program to another six regions. The program has a media campaign that includes a ‘soap opera’ in which the benefits o f the use o f soap feature prominently, radio and newspaper advertisements, and poster contests. In addition, a door-to-door sales force representing a private company i s promoting handwashing. This initiative is to be welcomed and holds much promise for reducing diarrheal disease in rural areas. However, it needs to be extended to more areas, and to include in situ disinfection.

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I

4.76 Estimates o f possible benefits are reported based on studies in other settings. Curtis and Cairncross (2003) provide a meta-analysis o f about 20 handwashmg studies and report a mean reduction in diarrheal illness o f about 47 percent. Fewtrell and Colford’s (2004) meta-analysis reports a mean reduction in diarrheal illness o f about 45 percent from handwashing interventions. Based on these studies, the following estimates assume a reduction o f 45 percent in diarrheal illness in all age groups. The analysis o f handwashing programs i s based on a number o f data requirements and assumptions about effectiveness: a. Percentage o f the targeted uopulation that change behavior as result o f the urogram. In previous studies in Guatemala, Thailand and Burluno Faso, this has been found to range from 10 to 18 percent.

b. Cost per targeted household. There i s a wide range for h s variable based on previous studies-ffom US$0.40 to as much as US$5. Clearly, the benefit-cost ratio w i l l depend on which cost figures apply. 4.77 Private costs w i l l be incurred because o f the program. More water will be used, along with soap and other hygiene products. Estimates o f these costs have been made from Peruvian data and surveys and are estimated at 38 soles per mother or caretaker. 4.78 A summary o f the benefits and costs o f a rural and an urban handwashing program has been calculated (Tables 4.7 and 4.8). The assessment i s made for a program targeted only at children under five that additionally benefits those over five at no incremental cost. For children under five, three levels o f effectiveness are evaluated: 10 percent, 15 percent and 20 percent. These are combined with three program costs: the lowest effectiveness rate assumes a unit cost o f 1.5 soles, the middle effectiveness program a unit cost o f 4 soles and the highest effectiveness program a cost o f 18 soles per targeted household. The benefits are based on the reductions in diarrheal morbidity and mortality. Table 4.7. Benefits and Costs of a Rural Handwashing Program

I

Rural Households with Children

I

* There are about 1 million rural children under the age o f five years in Peru. It i s assumed there is one child under five in each household (thus the program target i s 1 million households). However, the estimated benefit-cost ratio is higher for households with more than one child under five. ** Private Costs per Household are estimated t o be equal in the three scenarios, but total private costs would increase as the response rate increases. The private total costs under the “high” scenario would be twice those under 84

the “low” scenario, since the “high” scenario assumes a percentage o f households with behavioral change that i s twice that o f the “low” scenario. Private costs per household on water and hygiene products are estimated to be the same across all scenarios because it i s assumed that households’ spending on these items i s independent o f response rates. ***The Benefit-Cost Ratios only consider the costs and benefits o f households with behavioral change. Benefits and costs in the second and third years are discounted at an annual rate o f 10 percent.

****

4.79 The data show benefit-cost ratios significantly greater than 1.0 in all cases. They also show how the benefit-cost ratios vary in the period during which the program brings about behavior changes. Naturally, the longer people maintain the better habits, the higher are the benefits.69 Finally, urban programs are uniformly lower than rural ones, because diarrheal incidence per person and mortality rates are generally lower in urban areas.” 4.80 Lastly, the benefits o f the same program to households without young children are evaluated (Table 4.9). The costs o f the program are allocated to the main program, so these benefits are ‘additional’ to the ones given in Tables 4.7 and 4.8. However, even allowing for that, the benefits are less than the private costs, because diarrheal incidence i s so much lower in these ho~seholds.~~ Table 4.8. Benefits and Costs of an Urban Handwashing Program

** The benefit-cost ratios

* There are about 1.9 million urban children under the age o f five in Peru. consider only the costs and benefits o f households with behavioral change. second and third years are discounted at an annual rate o f 10 percent. Source: Larsen and Strukova (2006b)

69

*** Benefits and costs in the

One might expect some attrition over time, but behavior changes should continue for more than one year. Programs

that last longer may also have a higher cost that i s not analyzed here. 70 Disease and hygiene conditions in poor pen-urban areas bear similarities to rural areas as indicated in Prisma’s (2004) handwashing study. Therefore, the benefits o f a handwashing program in these areas are likely to be higher than in other urban areas. 7 1 The fact that the benefit-cost ratio i s less than one here i s not particularly important because i t i s a comparison o f private benefits and costs. If the private benefits are less than the costs, then individuals will not adopt the program

(or will not adopt i t for long).

85

Table 4.9. Benefits and Costs of a Handwashing Program: Householdswithout Children

* Private costs per household for water and hygiene products are estimated to be independent of response

rates in both urban and rural programs. **The benefit-cost ratio i s independent of duration o f sustained handwashing improvement because the upfront handwashing program cost i s allocated to the primary

target of the program, i.e., to households with young children. Source: Larsen and Strukova (2006b)

Drinking Water Disinfection

4.81 The U S A l D Handwashing Survey (2004) reports that about 70 percent o f households disinfect their drinking water (point-of-use disinfection). According to the survey, the most common method o f disinfection i s boiling water. Therefore, this i s the method considered in the benefit-cost analysis here (Table 4.10). Fewtrell and Colford (2004) report from their metaanalysis that disinfection o f dnnking water at point-of-use reduces diarrheal illness by 47 percent in rural areas and 23 percent in urban areas. 4.82 There are no estimates o f program costs to promote drinking water disinfection at pointof-use. The same program costs and behavioral change rates as for hand-washing programs are therefore applied. The private cost o f boiling drinlung water i s estimated at 75 soles per year for households using commercial fuels and 35 soles for households using fuelwood. In rural areas, the program i s estimated to avert 160-320 thousand cases o f diarrhea and 20-40 deaths in children per year (Table 4.10). The benefit-cost ratio for the central estimate i s 5.4, corresponding to a 15 percent program response rate with dnnking water disinfection sustained for two years. Even for the “high” program cost, and with improved hand washing only sustained for one year, the benefit-cost ratio i s 2.4.

86

Table 4.10. Benefits and Costs of a Rural Drinking Water Disinfection Program

*Private Costs per household are estimated to be equal in the three scenarios, but total private costs would increase as the response rate increases. The private total costs under the “high” scenario would be twice those under the “low” scenario, since the “high” scenario assumes a percentage o f households with behavioral change that is twice that o f the “low” scenario. Private costs per household for water and hygiene products are estimated to be the same across all scenarios because it i s assumed that households’ spending on these items i s independent o f response rates. ** The benefit-cost ratios consider only the costs and benefits o f households with behavioral change. *** Estimate based on efficiency o f L P G and wood stoves, cost o f LPG, fuelwood collection time o f 30 minutes per day and 10% o f fuelwood i s used for boiling water, and per person water consumption o f 0.75 liter per day. ** Benefits and costs in the second and third years are discounted at an annual rate o f 10 percent.

ItMediumIl

“Hi h”

1.24

1.24

1.24

23% 120 4 0

23% 180 4 5

23% 240 <20

1.o 1.1 1.2

0.8 1.0 1.1

0.5 0.7 0.8

11Low9t

Target households - urban population not practicing disinfection (millions) Percent reduction in diarrheal illness per (Fewtrell and . person Colford, 2004) Cases o f diarrheal illness averted per year (thousands) Deaths in children averted per year Benefit-Cost Ratios LOW: If behavioral change lasts 1 year MEDIUM: If behavioralchange lasts 2 years* HIGH: If behavioral change lasts 3 years*

4.83 The benefit-cost ratio for urban areas i s only above 1.0 for the “low” program cost, or for “medium” program cost if disinfection i s sustained for at least two years (Table 4.1 1). The benefits are so much lower in urban areas because o f the substantially lower percent reduction in diarrhea expected from disinfection and because o f the lower diarrheal incidence per person in such areas.

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Summary Assessment of Interventions Related to Water and Sanitation

4.84 The different interventions discussed above can be summarized in terms o f their contribution to reduced environmental damages and the ratio o f benefits to costs (Figure 4.4). This i s unlike the earlier conventional cost-effectiveness rankings for urban air pollution, but it serves a similar purpose. Figure 4.4 shows the amount o f reduction o f environmental damage on the horizontal axis (in millions o f soles) and the benefit-to-cost ratio on the vertical axis. The graph then plots the relative values o f these two pieces o f information for a number o f interventions. Rural drinking water disinfection (i.e., household boiling o f drinking water) has the highest ratio o f benefits to costs, but makes a relatively small reduction in environmental damages. I t i s followed by rural handwashing by mothers or caretakers o f young children; this yields a slightly higher reduction in damages. Next i s urban handwashing, and then provision o f improved water supply and safe sanitation facilities in rural areas. Both o f the latter reduce damages the most. Disinfection o f urban drinking water at point-of-use i s also estimated to provide higher benefits than costs, but i t contributes only a small reduction in damages. Finally, the benefits o f handwashing among adults, unless caring for young children, are estimated to be significantly lower than the In total, the measures with a positive benefit-to-cost ratio could reduce the cost o f health effects by 350 million soles per year.73 Figure 4.4. Water Supply, Sanitation and Hygiene Interventions

B

6

5

4

3

2

1

0

0

50

I00

200

150

250

300

350

CED reduction (mllllon Soles per year)

ote: B/C = benefit-cost ratio. CED = cost o f environmental damage (i.e., cost o f health effects).

Recommendationsfor Actions on Water Supply and Sanitation

4.85 From the analysis presented here, it i s clear that most measures to improve the water supply and sanitation facilities in rural areas yield benefits in excess o f costs 72 The benefit-cost ratios for handwashing and drinking water disinfection are based on behavioral change being sustained for two years. The ratios would be higher (lower) if, as a result o f promotion programs, households sustain improvedbehavior for longer (shorter) than two years. 73 This figure does not consider the possible interaction effects between different interventions (i.e., how the impacts o f a first intervention affect those o f a second intervention), because data constraints preclude a sound analysis o f such effects.

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under most assumptions. The programs are also justified because the benefits are concentrated primarily among the poor. These measures include drinking water disinfection, handwashing, improved rural water supply and safe rural sanitation. The highest priority should be given to the drinking water disinfection and handwashing programs. I n d o o r Air Pollution

4.86 I t i s well documented fiom studies around the world that air pollution f i o m solid fuels used for cooking and heating the indoor environment has substantial respiratory health effects. Women and young children appear to bear these effects the most, because they tend to spend more time indoors andor closer to the cookmg areas. 4.87 Smith et al. (2004) and Desai et al. (2004) report results o f health effects from biomass smoke (e.g., fuelwood) and coal smoke based on a meta-analysis o f available studies (Table 4.12). The relative risks (RRs) represent the risk o f health effect or illness relative to the use o f clean fuels such as LPG. Therefore, RR for households using L P G i s 1.0. The strongest evidence o f health effects i s for acute lower respiratory illness (ALRI) in children under five years, COPD in adult females, and lung cancer in adult females from coal smoke. Table 4.12. Relative Risks for Strong and Moderate Health Outcomes Evidence

Strong Moderate4 Moderate4

Group

Health Outcome

ALRI COPD Lung cancer (from coal smoke) COPD Lung cancer (from coal smoke) Lung cancer (from biomass smoke) Asthma Asthma Cataracts Tuberculosis

Children <5 yrs Women >30 y r s Women > 30 y r s Men > 30 y r s Men > 30 y r s Women > 30 yrs Children 5-14 y r s All > 15 y r s All > 15 y r s All > 15 y r s

RFt

CI

2.3 3.2 1.9 1.8 1.5 1.5 1.6 1.2 1.3 1.5

1.9-2.7 2.3-4.8 1.1-3.5 1.0-3.2 1&2.5 1.c-2.1 1.0-2.5 1.0-1.5 1.0-1.7 1.0-2.4

4.88 Five scenarios were selected that represent five stylized situations commonly found in most developing countries (Table 4.13). These stylized situations reasonably well represent the pollution loads fiom solid fuel use. However, actual pollution exposure can vary substantially in each scenario, and depend on additional factors such as household ventilation practices, housing characteristics and household behavior. As national-level data on these factors i s not readily available, a sensitivity analysis o f relative risk will need to be undertaken to assess the llkely influence o f these factors on the benefit-cost ratios o f interventions. BeneJit-Cost Analysis for Indoor Air Pollution Interventions (IAP)

4.89 A benefit-cost analysis i s undertaken for four household interventions and two community kitchen interventions for rural areas o f Peru. The analysis i s based on the stylized situations described in Table 4.13. The estimated benefits o f these interventions are presented in Tables 4.14 and 4.15. Avoided cases o f ARI and COPD are estimated from the relative risk ratios for ARI and COPD in women, as estimated across a number o f studies in Latin America and elsewhere, combined with baseline estimates o f annual cases o f ARI and COPD. More

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details are provided in Chapter 3 and in Larsen and Strukova (2006b). The monetary benefits o f avoided cases are calculated from the estimated unit costs o f ARI and COPD morbidity and mortality. Unit costs o f morbidity include medical treatment cost, value o f time losses (at 75 percent o f rural wages), and the value o f a ‘disability adjusted life year’ (DALY), valued at GDP per capita as a proxy for the cost o f reduced ~ e l l - b e i n g . ~ ~ 4.90 Regarding the valuation o f loss o f life, child mortality i s valued using the human capital approach (HCA) o f discounted l i f e earnings losses as described earlier. However, for adult loss o f life, both approaches to the valuation o f mortality have been included. As a lower bound, HCA-based value has been used. An upper bound has been derived based on the willingness-topay approach, which provides an estimated value o f statistical life (VSL). As reported earlier, this value lies between 390,000 and 650,000 soles. The choice o f valuation technique for adult mortality affects the total health benefits o f the interventions by only 20 percent. Table 4.13. Fuels, Stove Technology, and Pollution Scenarios Stylized Situation

Stylized Description

I.Unimproved wood stoves or open fire

L o w energy efficiency. N o chimney or ventilation device. Very high indoor pollution load.

Very High

11. Improved wood stoves

Relatively low energy efficiency. Chimney (or other ventilation device) taking much o f the smoke outdoors. Still, relatively high indoor pollution load if stove/chimney i s not maintained well.

High

Relative Risk

111. Unimproved wood stoves Pollution load reduced in proportion t o the use o f and L P G (or other clean fuel) LPG (relative to situation I.).

Medium

IV. Improved wood stoves and LPG (or other clean fuel)

Pollution load reduced in proportion to the use o f LPG (relative to situation 11.).

Medium to L o w

V. LPG or other clean fuel

Absence o f smoke from solid fuels.

Low

4.91 An estimate o f the value o f time savings fiom reduced fuelwood collection i s included for each intervention (Tables 4.14 and 4.15). As a base case, it i s assumed that a household using an unimproved wood stove spends on average o f 30 minutes per day on fuelwood collection. It i s assumed that household substitution from an unimproved to an improved stove provides a 33 percent time savings, because o f the higher energy efficiency o f improved stoves. A substitution from an improved stove to LPG would then provide a 67 percent time saving. Time i s valued (as before) at 75 percent o f average rural wages. In total, the estimated benefits o f time savings are 35-70 percent o f health benefits, or 25-40 percent o f total benefits. The estimated time benefits o f community kitchens with LPG are larger than the health benefits because o f time savings in coolung in addition to avoided fuelwood collection.

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DALYs are an alternative measure o f loss o f well-being resulting from illness. As an approximation that has been used in other studies, they have been valued at GDP per capita-see Larsen and Strukova (2006a).

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Table 4.14. Benefits and Costs of Rural Indoor Air Pollution Control LPG from Mix of Improved Stove and LPG 0.35 0.05 20 15 C

J

12 8

2

25 Annual cost of LPG (million soles) 380 25 Benefit-CostRatio (health benefits only) 5.1 0.4 0.9 0.4 0.7 Benefit-Cost Ratio (health and time benefits) 6.8 0.7 1.3 *This i s from using VSL for COPD adult mortality. Using the HCA approach gives 20% wer health benefits. ** Substitution from unimproved to improved stoves i s assumed to reduce health effects by 50 percent, and substitution from improved stoves to LPG i s assumed to avert the remaining 50 percent o f health effects from IAP.

Table 4.15. Benefits and Costs of Rural Community Kitchens

* This i s from using VSL for COPD adult mortality. Using the HCA approach gives 20% lower health benefits. 4.92 The estimated annual costs o f interventions have also been estimated (Tables 4.14 and 4.15). A tentative estimate o f the program cost o f promoting, implementing improved stoves and LPG fuel switching, and sustaining a stove inspection and maintenance program i s included in the table. Annualized stove costs (improved stove or LPG stove) are about the same as the program cost. For the LPG fuel-switching interventions, the fuel (LPG) represents around 90 percent o f the interventions’ total costs. 4.93 Eight benefit-cost ratios are estimated for the household interventions. Four ratios include only the health benefits, and four ratios include both health benefits and benefits o f time

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saving from reduced fuelwood collection, i.e., total benefits. The estimated benefit-cost ratios o f adopting improved stoves far exceed unity, even without the value o f time saving. The benefitcost ratio for switchng to LPG from unimproved stoves, or from a mix o f unimproved stoves and LPG, i s higher than unity when time savings are included in the benefits, but less than unity if only health benefits are included.75The ratios for switchmg from improved stoves to LPG, or for switching from a mix o f LPG and improved stoves to LPG alone, are lower than unity (Table 4.14). 4.94 Substitution from unimproved and improved stoves in individual households to community htchens with LPG i s found to have substantially higher benefits than costs (Table 4.15). The benefit-cost ratio i s estimated at 3.6 for substitution from unimproved stoves to LPG, and 2.5 for substitution from improved stoves to LPG when time benefits are included. The reasons for the high benefit-cost ratios are substantial L P G efficiency gains from larger pots used for cooking in community kitchens compared to pots used in individual households, and substantial time savings o f one kitchen cooking for many households. However, for households with improved stoves, the health benefits alone are not large enough to outweigh the cost o f switching to community kitchens with LPG. 4.95 While promotion o f improved stoves i s a very attractive intervention, the merits o f promoting L P G in individual rural households are uncertain. LPG prices would have to be reduced by as much as 25-30 percent for the estimated benefits to exceed costs. Moreover, the benefits include both health improvements and time saving from reduced fuelwood collection. Time savings are valued at 75 percent o f rural wages. However, if rural households value their time at only 50 percent o f rural wages, then LPG prices would need to be reduced by 40 percent for benefits to exceed costs. Therefore, it seems that LPG will have a chance o f success only in better-off households and community kitchens. Summary Assessment of IAP Interventions 4.96 The different interventions discussed above can be summarized in terms o f their contribution to reduced environmental damages and the ratio o f benefits to costs, as was done for the water and sanitation programs (Figure 4.5). The benefit-cost ratios reflect both health benefits and the value o f time savings. Household substitution from unimproved to improved stoves has the highest ratio o f benefits to costs and the largest reduction in damages. T h i s i s followed by switching to community htchens with LPG from use o f unimproved or improved stoves in individual households, and household switchmg to LPG alone from a m i x o f unimproved stove and LPG.76 Each o f these measures contributes an increasingly smaller amount o f reduction in environmental damages; in total, they reduce the cost o f health effects by 250 million soles per year. T h i s reflects a substitution to improved stoves in 33 percent o f rural households, use o f LPG in community kitchens for 15 percent o f rural households, and switching to LPG alone from a mix o f unimproved stoves, and LPG in 5 percent o f rural households. Recommendationsfor Actions on Air Pollution 4.97 The analysis presented here supports the unqualified recommendation to shift households who have unimproved stoves to improved ones. The results o f other improvements, such as from unimproved stoves to L P G or f i o m improved stoves to LPG, depend on the cost figures and benefit figures used. Hence, a more detailed analysis needs to be carried out for such changes, looking at specific cases and tahng into account other benefits. The benefit-cost ratios for switching to LPG from unimproved stove are not presented in Table 4.14. A substitution fiom unimproved stoves to LPG i s not included in the graph. This would represent a double counting o f reductions in health effects from indoor air pollution because substitution from unimproved stoves i s already reflected in the substitution to improved stoves.

75

76

92

Figure 4.5. Indoor Air Pollution Interventions BIC

8.0 7.0

6.0

5.0

fuel from unimproved

4.0

3.0

2.0

I.o 0.0

0

50

100

150

200

250

300

350

CED reduction (million Soles per year)

Iote: B/C = benefit-cost ratio. CED = cost o f environmental damage (Le., cost o f health effects).

Overall Short-Term Recommendations 4.98 Overall recommendations for actions relating to environmental heath are summarized below in Table 4.16. To address air pollution, urgent attention i s needed to establish national ambient standards for PM and to implement a program to monitor air quality. These are both low-cost actions. Steps to determine the sources o f lead pollution and to prepare an action plan for dealing with them are also urgent and low cost. Other actions that have been identified have modest-to-high costs and include strengthened I&M programs, retrofitting o f diesel-operated buses and reduced sulfur content o f diesel. Regarding water supply and sanitation, the priority short-term actions o f handwashing for children and disinfection o f water are low cost. Finally, to address indoor air pollution, priority actions with modest costs are the promotion o f LPG and other cleaner fuels to those predominantly dependent on fuelwood, and the implementation o f a program to promote improved stoves for those who do not have them.

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400

Table 4.16. Recommended Short-Term Actions for EnvironmentalHealth Objective Reduce health risks associated with ambient air pollution

Recommended Short-Term Actions Establish national binding Maximum Permissible Levels (LMPs) for PM2.5 and PMlO in priority urban areas and strengthen technologyspecific emission standards for PM and i t s precursors (particularly sulfur and nitrogen oxides) (Cost: low) Implement an air quality monitoring program to monitor PM2.5, PMlO, and ozone in priority urban areas (Cost: modest) Prepare an action plan to reduce lead pollution from sources other than gasoline, particularly in localities where lead concentrations exceed the national Air Quality Standard. (Cost: modest) Implement interventionsfor air pollution control, including (a) promoting retrofitting of diesel-powered vehicles; (b) implementinga program of testing vehicle exhausts; (c) reducing sulfur content in diesel to less than 500 parts per million, along with increasing clean imports of diesel with low-sulfur content. (Cost: modest to high)

Reduce health risks associated with inadequate water supply, sanitation and hygiene Reduce cost o f environmental degradation associated with indoor air pollution

Promote handwashing programs that target children under the age of five. (Cost: low) Promote safewater programs that include disinfection of drinking water at point-of-use. (Cost: low) Promote the use of LPG and other cleaner fuels in areas that predominantlyuse fuelwood, and implement actions to improve availability and affordability for fuelwood users in a safe and costeffective manner (Cost: modest) Implement a programto promote improved stoves with a chimney or other ventilation device. (Cost: modest)

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CHAPTER 5 REDUCING VULNERABILITY TO NATURAL DISASTERS Peru is one of the Latin American countries most highly prone to natural disastersearthquakes, jloods, landslides, drought, the periodic impacts of E l Niiio, and other events. The impacts in terms of human lives, homes destroyed and damaged, and destruction of the social and economic infrastructure have been severe. Aside from natural causes, the effects of these disasters have been exacerbated by influences from human activities, including deforestation, soil erosion, and poor land use practices. Historically, the country’s civil defense institutions, notably the National Institute for Civil Defense (INDECI), have emphasized disaster mitigation and relief; rather than disaster prevention and the analysis of disaster risk. Only in the past j h e years have these institutions begun to evolve toward a set of integrated policies and practices that emphasize disaster prevention, risk assessment, and the reduction of vulnerability. Signijkant tasks remain before these policies and practices are fully integrated into the plans and budgets of national, regional, and local institutions. 77

Introduction 5.1 Over i t s long history, Peru has suffered profoundly from natural disasters. Located o n a continent that i s one o f the most disaster-prone regions on earth (IADB, 2000), Peru i s characterized by i t s proximity to major earthquake faults, a highly mountainous topography, and increasingly urbanized development that has concentrated a growing proportion o f the population. A review o f disaster exposure indicators in Latin America shows that Peru’s incidence o f natural disasters i s nearly twice that for Latin America as a whole, while i t s rate o f fatalities i s the highest on the entire continent (CharvCriat, 2000). These disasters have many causes: earthquakes, tsunamis, floods, landslides, volcanic eruptions, and others. Periodic occurrences o f the E l Niiio phenomenon, most recently in 1997-1998, have caused major flooding, landslides, and associated devastation, especially in the co~ntry’snorthern parts. Together, these conditions have made the Peruvian population highly vulnerable to natural disasters. Although some o f these disasters have distinct natural sources, the effects o f others-notably, flooding and landslides-are greatly exacerbated by human activities that modify environmental conditions and create a greater predisposition to more severe effects, particularly in response to heavy rains, including those associated with E l Niiio. T h i s suggests that strategic interventions to assess sources o f risk, ameliorate the effects o f natural disasters, and target public investments to reduce human vulnerability hold the potential for significant payoffs for the Peruvian population.

Current Situation 5.2 Statistics show that the incidence o f natural disasters increased in Peru over the 2000-2004 period, according the National Civil Defense Institute (Instituto Nacional de Defensa Civil, INDECI). The frequency o f specific types o f disasters varies annually. However, in most years as well as the five-year period as a whole, the three most prevalent types o f natural disasters were strong winds, floods, and heavy rains. Together, these accounted for nearly two-thirds o f the total number o f natural disasters during this period. However, it should be emphasized that the incidence o f natural disasters i s not necessarily 77

This chapter was prepared by David Lee, based in part on a backgrounddocument prepared by Lenkiza Angulo (2005) for this study.

95

correlated with their impact (see discussion below). Other common disasters include landslides, huaycos (a local t e r m for gully-type landslides), and frost. During the 2000-2004 period, the incidence o f natural disasters increased more than threefold.

Source: Regional Offices, National Operations Office, INDECI, 2005

5.3 T h e increase in natural disasters seen during 2000-2004 (Table 5.1) i s also evident over the lengthier period o f 1990-2004 (Table 5.2) (Angulo, 2005). By these measures, flooding increased from 521 events in 1970-1980 to 840 events in 1990-2000, which i s more than 60%. Huuycos increased from 172 events in 1970-1980 to 682 events in 1990-2000, which i s nearly fourfold. In fact, this increased frequency o f natural disasters in 1970-2000 represents a continuation o f a longer-term trend over the second half o f the 20th century in Peru, and i s independent o f the fact that the registry o f natural disaster events i s increasing in coverage and quality ( h g u l o , 2005). Moreover, this trend i s characteristic o f Latin America as a whole, as it i s globally (CharvCriat, 2000). As discussed below, there are several reasons for this, including increasing deforestation in the Andean highlands and increasing degradation o f many o f Peru's river basins. 5.4 Care must be taken in interpreting trends over the longer term, since INDECI data currently include several categories o f natural disasters that were excluded from official statistics in the 1990s and before: volcanic activity, avalanches, thunderstorms, strong winds, and drought. However, even when these changes in the official statistics are taken into account, the measured incidence o f natural disasters has increased significantly in recent years. The situation in Peru i s similar to that o f other nations. In the decade preceding 2004, the Secretariat o f the International Strategy for Disaster Reduction (ISDR) estimates that natural disasters affected 2.5 billion people and caused $690 billion (US) in economic losses, the vast majority stemming from hydro-meteorological hazards (UNEP, 2005).

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Table 5.2. Incidence of Earthquakes,Floods and Huuycos, by Department and Decade, 1970-2000

Source: DESINVENTARNatural Disaster Data Base, ITDG Network. www.desinventar.org

5.5 Although this chapter focuses principally on human-induced natural disasters, it i s important to emphasize that many o f Peru's most catastrophic disasters have been due to natural phenomena like earthquakes and El N i i o . Peru i s in one o f the most seismically active areas o f the planet, and the cities and populations o f the coast and neighboring Andean areas are particularly vulnerable. Earthquakes often occur in the southern Coastal region, particularly in the area near the Peru-Chile border and in the Arequipa area between Atico and Camani. Recent earthquakes that have been particularly devastating were those in Huaraz in 1970, which caused 70,000 deaths, more than 150,000 injuries, and total damages exceeding US$500 million; the 1966 and 1974 Lima earthquakes; and the earthquake and tsunami in southern Peru in June 200 1. Estimates from the President's Cabinet (PCM) are that 62 provinces in Peru, located all over the country, have a high or very high seismic danger, and that 71.3% o f the national population lives in those provinces (Angulo, 2005).

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5.6 N o t only i s Peru highly prone t o natural disasters-earthquakes, floods, landslides, drought, El Niiio, and other events-but the impacts in terms o f human lives, homes destroyed and damaged, and destruction o f the social and economic infrastructure have also been severe. Aside from natural causes, the effects o f these disasters have been exacerbated by influences f r o m human activities, including deforestation, soil erosion, and poor land use practices. Historically, the country's c i v i l defense institutions, notably the National Institute for Civil Defense (INDECI) have emphasized disaster mitigation and relief-ften following periodic disasters like earthquakes or flooding caused by El Niiio-rather than disaster prevention and the analysis o f disaster risk. Only in the past five years have these institutions begun t o evolve toward a set o f integrated policies and practices that emphasize disaster prevention, risk assessment, and the reduction o f vulnerability. Significant strides have to be made before these policies and practices are fully integrated in the plans and budgets o f national, regional, and local institutions. 5.7 Even beyond the periodic El Niiio events, the damage t o the human population, houses, public infrastructure, and productive agricultural land stemming f r o m natural disasters has been considerable. Official estimates o f these impacts over just the recent 2000-2004 period include 635 deaths, 9,840 injuries, 40,941 houses destroyed, and 187,385 cultivated hectares lost to disasters (Table 5.3). The greatest effects o f natural disasters in terms o f deaths, disappeared persons, houses destroyed, and houses damaged were reported in 2001, the year o f the major earthquake and tsunami in southern Peru. In 2002 and 2004, adverse climatic phenomena produced significant damage to agricultural production.

Year

Total Number of Disasters

Deaths

Injuries

Disappeared Persons

Victims*

Cultivated Houses Houses Hectares Affected Destroyed Lost

* Includes deaths, persons directly injured and persons affected.

Source: Regional Civil Defense Offices, National Operations Center, INDECI, 2005

5.8 Collectively, between 1985/1990 and 2005, it i s estimated that natural disasters caused an annual average cost o f 1.075 billion soles in Peru, or about US$325 million (Chapter 3 and Table 5.4). This amount was derived from estimating the annual values o f agricultural, housing, and infrastructure losses, the costs o f injuries to humans (including medical treatment costs and the values o f lost w o r k time and time caring for ill family members), and the average values o f human mortality calculated using two different approaches. The first, a lower value, stems f r o m the Human Capital Approach (HCA), which estimates the present value o f future income lost to premature death. The second uses the value of statistical life (VSL) methodology, which estimates willingness t o pay for a reduction in the r i s k o f death (Chapter 3, and Larsen and Strukova, 2006a). By far the t w o largest categories o f annual economic costs due t o natural disasters, accounting for 80 percent o f the total cost, are those associated with damage t o and destruction o f housing. The effects o n a p c u l t u r e and human life are the next most important. These estimates likely underestimate the full effects o f natural disasters due t o several factors: the conservative estimates stemming from the HCA methodology; the lack o f incorporation o f broader dynamic multiplier effects o n regional and national economic development stemming f r o m natural disasters; and the fact that using 1985/90-2003 averages neglects the increasing trend o f natural disasters and their resultant effects

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over t h i s period. Nonetheless, these estimates clearly demonstrate the order o f magnitude o f total losses as well as the relative contributions. T o put the Peruvian losses in context, total natural disaster impacts in Latin America and the Caribbean during 1990-1998 have been estimated at $24.2 billion (US) (OFDNCRED, 1999).

'Valuation o f mortality i s an average o f HCA and V S L (Larsen and Strukova, 2006a).

* Includes deaths, persons directly injured and persons affected. Source: Regional Offices and National Operations Office, INDECI These effects on Peru's population were caused by numerous different types o f natural disasters during 2000-2004 (Table 5.5). The events with the greatest effects on victims were floods, earthquakes, frost and snow, and drought. The damage produced by flooding was distributed throughout the period, but was especially heavy in 2003. The damage caused by earthquakes took place largely during the 2001 earthquake in southern Peru. Damage caused by snow and frost took place mainly in 2002 and 2004, with

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extreme temperature drops and snow that affected poor communities in southern Peru at high altitudes above 3,500 masl. 5.9 The effects o f natural disasters in Peru vary widely by geographic location (Table 5.6), makmg it difficult to generalize about causes and effects for the nation as a whole. A s one would expect, the frequency o f specific types o f disasters differs markedly by location in the country. Heavy winds are particularly severe in the Onente (Loreto, San Martin and Amazonas), two Departments in the Sierra (Puno and Cajamarca) and o n the northern Coast (Piura). Heavy rains are severe both in the Sierra (Apurimac, Cajamarca, Huancavelica and Puno) and in lower elevations both in the Oriente (Amazonas) and o n the Coast (Arequipa). The flooding caused by those heavy rains has been particularly severe in highland areas (Cuzco and Puno) and in the lowland regions fed by those rains: Madre de Dios, Loreto and San Martin. Predictably, landslides are especially problematic in the Sierra and Onente regions, which are also characterized by heavy rains and/or flooding: Cuzco, Amazonas, Cajamarca, Huancavelica and Apurimac. Other natural disasters are more geographically specific. Overall, INDECI's national disaster plan estimates that nearly h a l f (46.2%) o f the natural disasters occurring between 1993 and 2002 were caused by floods (INDECI, 2004). Importantly, a PCM study has identified 89 provinces with high or very high vulnerability to multiple natural disasters; more than 17.65 m i l l i o n people, representing more than 76% o f Peru's population, l i v e in those provinces (Angulo, 2005). These include areas in several Departments-Ancash, Junin, Huancayo, Cuzco, Cajamarca, Lima, and Arequipa-that exhibit high vulnerability to landslides, huaycos, floods, and avalanches due to earthquakes and/or heavy rains associated with El Nifio.

Causes o f Natural Disasters 5.10 While the underlying causes o f many natural disasters stem f r o m natural forces, the effects o n human populations are frequently exacerbated by human actions. Natural causes include the periodic recurrence o f El Nifio, earthquakes and heavy winds. However, the incidence and severity o f the impacts o f some natural disasters-including flooding, landslides and huaycos-are all exacerbated by human interventions affecting the environment. T w o causes in particular stand out: soil erosion and deforestation. As discussed in Chapter 7, soil erosion i s a widespread problem in Peru, affecting at least 128 million hectares nationally, particularly in the Sierra and Oriente. Erosion exacerbates the effects o f heavy rainfall by reducing the absorptive capacity o f the soil, thereby worsening flooding and sedimentation problems downstream during periods o f heavy rain. Soil erosion, in turn, stems from a variety o f factors, many o f which are influenced by human actions: deforestation and removal o f ground cover; poor cropping and irrigation management practices; the frequent lack o f use o f basic soil conservation practices; widespread overgrazing o f cattle, particularly in the Sierra; and poor watershed management practices in general. In addition to i t s indirect effects vis-a-vis soil erosion, deforestation also directly contributes to the severity o f runoff by altering the hydrological regime, decreasing the capacity for humidity retention in dry years and decreasing the land's vegetative cover, particularly in higher altitude areas o f watersheds, makmg them more vulnerable t o intensive rainfall and erosive processes. As noted in Chapter 7, deforestation in Peru has recently been estimated at about 150,000 hectares annually. However, this i s primarily a problem in Peru's Oriente region, where it i s o f course not linked t o the flooding and landslides in the Sierra and Coast. Deforestation and associated loss of ground cover fostering soil erosion have occurred over many years. It should also be noted that a recent international report from the U N ' s Food and Agricultural Organization and the Center for International Forestry Research, while acknowledging the link between deforestation and flooding at small geographic scales, has questioned the link at larger scales (FAO-CIFOR, 2005).

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Table 5.6. Location o f Natural Disasters in Peru b y Department, 2000-2004 Department

5.11 Whether caused by soil erosion, deforestation, or other factors, increased runoff and accompanying sedimentation often have severe downstream effects, increasing river volume and flood risk in exposed and low-lying areas. Deforestation and erosion also allow rainwater infiltration and supersaturation o f the soil, which in turn, create conditions for mass soil movement resulting in landslides and huaycos. On the Coast, intense rains associated with El Niio on barren or deforested soils cause periodic heavy runoff, gully erosion and huaycos. If rivers are not properly channeled and river banks not reinforced in critical areas, or if vegetation and building construction have interfered w i t h or occupy natural channels, the effects downstream can be critical, causing damage to agriculture, water and power sources, transportation, and human health. For example, the devastating effects o f El Niio in 1997-1998 in the area surrounding Piura resulted from this type o f interlinked series o f events. As shown above (Table 5.4), the economic impacts on the housing stock are particularly devastating.

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5.12 Another key factor contributing both directly and indirectly to the impacts o f natural disasters in Peru i s climate change. Some o f these processes are well understood; others are not. One o f the direct links i s through increased glacial melt. Peru contains roughly 71% o f the globe's tropical glaciers. Since the early 1980s (PCC, 2004) Peruvian glaciers have lost about 22% o f their glacial surface (500 krn'), equivalent to 7,000 million m3o f water (about ten years o f water supplies for Lima). Peru also has over 12,000 lakes and ponds that could be destabilized by glacier melt. Furthermore, the combined impacts o f global warming, ENSO (El Nifio Southern Oscillation) and extreme weather events on mountain hydrology are diminishing the water flow used by populations downstream (IRD, 2004). T h i s i s likely to have devastating impacts on highland and associated downstream ecosystems, altering the ecology and livelihoods o f millions o f people, whose greenhouse gas emissions are negligible. In addition, Peru's energy sector could be affected, since 80% o f i t s energy generation comes from hydropower. 5.13 While the above effects are relatively direct, the underlying connections between greenhouse gas (GHG) emissions, global warming, and ENSO are less clear. There i s some evidence that increases in GHG emissions caused by human actions are possibly linked to the increased frequency and severity o f ENSO events (Trenberth and Hoar, 1996). If confirmed in future research, this would establish a direct linkage between human actions affecting the global environment and one o f the largest sources o f disaster risk in Peru. However, these hypothesized relationships are based on simulation analyses that exhibit a high degree o f variability and unpredictability, making it difficult to establish clear linkages (AchutaRao et al., n o date; Toniazzo, 2006). Regardless, as discussed in Chapter 2, Peru's contributions to overall GHG emissions are very modest; they are estimated at 0.3 percent (CONAM, 2003). Furthermore, various governmental agencies and projects-CONAM, the National Environmental Fund (FONAM), the Intergovernmental Panel on Climate Change, INDECI, and the PROCLIM Project-are working toward supporting Peru's compliance with the U.N. Convention o n Climate Change and the Kyoto Protocol. 5.14 UNDP's recent global report on Reducing Disaster Risk (2004) emphasizes the close relationship between economic development, urbanization, and disaster risk globally. In Peru, the urban population grew from 2.2 million (26% o f the national population) in 1940, to about 19 million (72.6% o f the population) in 2004 (Angulo, 2005). The Lima-Callao metropolitan area alone accounts for an estimated 45% o f Peru's GDP, 59% o f i t s public budget and 84% o f i t s national tax base (Galarza, 2001). The potential effects o f natural disasters are intensifiedby this progressive urbanization and associated factors: the concentration o f people and housing in urban centers; a concomitant concentration o f private business assets and public infrastructure investments; and an increase in economic interdependence, which inflates the costs o f disaster-related business interruption. Together, these increase the human and economic exposure to potential disasters in specific areas. 5.15 Conditions o f poverty and marginality o f the population further worsen the situation. The National Statistics and Information Institute (INEI, 2004) estimates that, in 2004, more than h a l f (5 1.6%) o f Peru's population lived in poverty, and 19.2% o f the population was under conditions o f extreme poverty. Poverty increases vulnerability to disasters in many ways (IDB, 2000): construction o f housing where land i s cheap, frequently on flood plains, river banks, steep hillsides, or reclaimed land; the lack o f land use controls in these areas; poor quality construction; lack o f basic mitigation measures, such as retention walls and adequate surface drainage; and the marginal livelihoods and limited capacity for economic resilience o f many o f the extreme poor. T h i s vulnerability has been demonstrated many times in the past, such as in Lima's 1966 and 1974 earthquakes and in Ica's 1963 and 1998 floods. 5.16 As this discussion shows, the causes o f natural disasters in Peru are many, the relationships between causes and effects are complex, and the solutions are diverse. At least two common elements surface throughout this discussion. One i s the role that human actions have in helping cause some natural disasters and contributing to worsening the impacts o f others. The second i s the important role o f r i s k assessment and disaster prevention in helping to avoid, or at least lessen the impacts o f natural disasters

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on people, homes, agriculture and infrastructure. T o date, the government's approach to natural disasters has been largely focused on mitigating the effects o f disasters once they have occurred, rather than assessing ex ante the sources o f greatest risk, preventing disasters, and establishing priorities for disaster prevention and mitigation through a consistent assessment o f past effects. Although there have been some movement in the latter direction, especially over the past five years, the progress has been slow and intermittent.

Institutional and Policy Framework 5.17 The first two parts o f this section discuss the policy framework and institutional network, respectively, which comprise Peru's national system o f disaster mitigation, prevention, and response. This system i s evaluated in the final section.

Policy Framework 5.18 The National Plan for the Prevention of, and Attention to, Disasters (Plan Nucional de Prevencidn y Atencidn de Desastres), approved in 2004, defines national strategies, objectives, and

governmental programs for disaster prevention and risk reduction, for disaster preparations to reduce long-term vulnerability to natural disasters, and for reconstruction and rehabilitation when disasters occur. The Plan incorporates six specific strategies relating to 1) risk estimation, 2) preventive activities, 3) the incorporation o f disaster prevention in public planning, 4) institutional strengthening, 5) community participation, and 6) optimizing the response to disasters. For each o f these strategies, the Plan defines programs, indicators and responsible institutions. However, it fails to define terms, specific operational roles and responsibilities o f individual institutions, implementing mechanisms, or monitoring plans and protocols. All o f these operational details are needed to successfully translate the National Plan into action. The Plan also provides for the approval o f sectoral disaster plans at the national level within 30 days and regional plans by each regional government within 60 days, an unduly ambitious schedule. L a w No. 28551 (May 2005) requires the preparation o f sectoral and governmental contingency plans consistent with the National Plan.

5.19 National disaster planning i s also a key part o f the July 2002 National Agreement (Acuerdo Nucional), a broad-based participatory reform agenda among key political and civil society groups that identifies national and regional development priorities. Policy No. 10 o f the National Agreement covering poverty reduction includes a specific policy to "develop a culture o f prevention and control o f r i s k s and vulnerability to natural disasters, assigning resources to prevention, assistance and reconstruction." Specific goals include having, by 2006, (1) the National System o f C i v i l Defense (SINADECI), which i s responsible for coordinating the national response to (and prevention of) disasters, functioning at 100%; (2) 100% o f public infrastructure projects incorporating risk control and prevention mechanisms; (3) 80% o f Civil Defense Committees and offices o f regonal and local governments and public and private institutions being h l l y organized and trained (100% by 2011); and (4) incorporating risk control and prevention cumcula into 100% o f public education. Most o f these goals appear unrealistically ambitious in view o f actual operations as o f December 2005. In addition, Policy No. 15 o f the National Agreement on Food Security contains a concrete goal o f taking measures to confront threats to national food security, including drought, desertification and disease. 5.20 W i t h the purpose o f formulating a national strategy for risk reduction, the government in 2000 created a Multi-sectoral Commission for Risk Reduction in Development, presided over by a representative o f the President's Cabinet (PCM) and composed o f scientific experts and public sector representatives. T h e Commission proposed a national effort to identify the main disaster threats in the country, sources o f social and economic vulnerability, ways to institutionalize risk assessment and

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control, and the production and use o f scientific risk information as a basis for the national strategy. It stimulated similar regional efforts in Piura and Arequipa, which have proceeded with support from the Geman government and initiated a study on incorporating risk analysis into public investment projects. However, before the Commission was able to complete i t s work, it was deactivated in October 2004 (reportedly to prevent turf battles with INDECI), with i t s functions to be assumed by a yet-to-be-created National Center o f Strategic Planning (Centro de Planeamiento Estratigico Nacional- CEPLAN). 5.21 Following the deactivation o f the Multi-sectoral Commission, the Ministry o f Economy and Finance has assumed leadership in incorporating r i s k analysis into the formulation o f public investment projects, and there has been some progress. A recent General Directive (Resolution 012-2002 EF 6801) o f the National System o f Public Investment (SNIP) establishes the minimum requirements for feasibility studies for public investments. Methodological guidelines have been developed to incorporate risk analysis. Workshops to train public officials on guidelines for public investment projects have been carried out in the Departments o f Piura, Arequipa, Lambayeque and San Martin. Guidelines for public investment projects in the health and education sectors, incorporating risk reduction criteria, have been developed. T h e Andean Community's Program on Promoting Prevention in Andean Country Development 5.22 (Promocidn de la Prevencidn en 10s Procesos de Desarrollo de 10s Paises Andinos - PREANDINO), supported by the Andean Development Corporation (CAF), has charged the C A F with incorporating risk assessment and prevention broadly into the Community's development projects and processes. T h i s effort stemmed from earlier regional evaluation o f the impacts o f the 1997-1998 El NiEo disaster and, given the ineffective prevention o f major impacts from the 1997-1998 El NiEo (not just in Peru), a major emphasis on risk prevention (CAF, 2000). The PREANDINO strategy prioritizes risk reduction in development planning and seeks to have r i s k assessment methodologies incorporated by institutions like the PCM, Ministry o f Economics and Finance (MEF), the National Environmental Council (CONAM), and INDECI. The program's previous activities are currently o n hiatus, with progress continuing to be monitored from i t s central office in Caracas, emphasizing promotion, transfer o f methodologies, information exchange, and facilitating events in conjunction with the Andean Committee for Prevention and Attention to Disasters (CAPRADE), the Andean regional project on Support for the Prevention o f Disasters in the Andean Community (PREDECAN), and with MEF, with i t s focus on risk analysis in public investment projects. The Sustainable Cities Program (Programa Ciudades Sostenibles), executed by I N D E C I with 5.23 support from the UN Environment Program, i s focused on improving urban environmental planning and management in over 30 countries by strengthening local capacities and participatory stakeholder involvement (UNHSP, 2005). In Peru, a major emphasis has been on the prevention and mitigation o f natural disasters in urban areas that have experienced unplanned growth. Activities include the mapping o f urban land uses and soils, the development o f disaster mitigation measures, and the translation o f these plans into local approval through municipal ordinances. Given Peruk rapid urbanization in recent years, the activities o f the Sustainable Cities Program have been particularly important. Through October 2005, the program had activities in 18 regions and 104 cities in Peru; 93 o f those cities have urban hazard maps and 59 also have completed land use and disaster mitigation plans. O f these, 50 municipalities have approved them with f o m a l decrees. 5.24 Other major ongoing programs dealing with risk assessment and disaster mitigation have arisen in recent years. The Ministry o f Education and INDECI's Learning Prevention Program (Aprendiendo a Prevenir), operating since 2004, i s trying to introduce a "culture o f prevention" into primary, secondary and adult educational programs. The Andean Community's Andean Strategic Plan for Prevention and Attention to Disasters 2005-20 10 (Plan Estratigico para la Prevencidn y Atencidn de Desastres 20052010), approved in April 2005, has the goal o f incorporating the themes o f risk assessment and

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monitoring, and disaster prevention into national and regional development plans, civil society programs, and educational and training programs throughout the region, including Peru. Since 1999, the European Commission-supported DIPECHO Program has supported training, the development o f early warning systems, and disaster preparation and mitigation plans in 12 areas o f high risk in Peru. The European Commission has also supported the Prevention o f Disasters in the Andean Community Project (Proyecto Apoyo a la Prevencibn de Desastres en la Comunidad Andina - PREDECAN). This recently established (2005) project began with the objectives o f promoting risk assessment and disaster prevention through institutional strengthening and coordination, improved policies for disaster planning, development o f an infomation system, and development o f methods and guidelines to incorporate risk analysis into regional land use planning and development planning. Institutions

5.25 The National System o f Civil Defense (Sistema Nacional de Defensa Civil - SINADECI), created in 1972, provides the institutional framework for natural disaster planning and response in Peru. The functions o f this system are to protect the population, prevent damage, and provide timely response and rehabilitative assistance in the event o f natural disaster. SINADECI i s constituted by both public and nongovernmental entities, including the National Institute o f C i v i l Defense (INDECI), and i t s regional offices; regional systems o f civil defense; and offices o f civil defense associated with individual sectors, institutions and public agencies. In tum, regional civil defense systems are composed o f Civil Defense Committees at regional, provincial, and district levels; and offices at the levels o f regional and local governments. Many o f these offices, particularly at the local level, exist mostly "on paper." 5.26 I N D E C I i s the central coordinating mechanism o f the national c i v i l defense system. I t i s in charge o f planning, organization, direction and coordination o f SINADECI's activities; and supervising and coordinating the activities o f all organizations that receive public funds for civil defense purposes. I t s leadership has historically come from the military, and it has had the reputation o f being a hierarchical institution. I t s functions are evolving, though, in the current environment o f governmental decentralization. The ministries also participate in civil defense activities under SINADECI and the National Plan for Prevention and Attention to Disasters, which obliges the ministries to develop sectoral plans for the prevention of, and attention to, disasters; this includes emergency plans, and plans for rehabilitation and reconstruction activities. 5.27 The National Environmental Council (Consejo Nacional del Ambiente - CONAM), according to Decree No. 048-97-PCM, has overall responsibility for coordinating national environmental management, including land use planning studies and management. Environmental studies and management plans constitute an important first step towards disaster prevention because they include analysis o f the environmental conditions that exacerbate the impacts o f natural disasters. C O N A M i s in charge o f approving the National Environmental Action Plan, regional environmental action plans, the National Report on the State o f the Environment, and the National Plan for Environmental Management. 5.28 The GoP's ministries are responsible for developing operational plans for dealing with natural disasters affecting their specific spheres o f interest. The Ministry o f Agriculture has the greatest expertise when it comes to the management o f natural resources and river basins. According t o the L a w No. 25902, this sector i s obliged to promote agricultural development within a watershed management framework emphasizing socioeconomic and environmental sustainability. The Ministry's 2006 Strategic Plan prioritizes the objective o f institutional strengthening and "implementing a system o f prevention and attention to natural phenomena to lessen their effects on agricultural activity." Within this sector are, among others, the National Food Safety Service (SENASA), the National Institute o f Natural Resources (INRENA), the National Institute o f Agncultural Research (INIA), and the National Program o f Watershed Management and Soil Conservation (PRONAMACHCS). INRENA i s the governmental

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authority responsible for environmental and natural resource management, including areas relevant to natural disaster protection: regional watershed planning and land use mapping (through i t s OGATEIRN office); proposing measures for ecosystem conservation and recuperation; and through i t s PERPEC program, river channeling and water storage structures. 5.29 The Ministry o f Housing, Construction, and Sanitation, according to Decree No. 002-2002VIVIENDA, i s responsible for housing and urban development. Included in i t s mandate are the formulation, proposal and execution o f policies and plans for risk prevention against natural disasters and coordinating regional and municipal government efforts for urban housing and environmental management. As noted above, the two most important economic effects caused by natural disasters in Peru are housing damage and destruction. Accordingly, this Ministry has a key role to play in planning and policymaking to prevent and mitigate disaster risk. 5.30 The National Meteorological and Hydrological Service (SENAMHI), through i t s 13 regional offices, provides meteorological, hydrological, and other environmental and climatic data, information, and forecasting to regional governments and civil defense systems. 5.31 Non-governmental institutions (NGOs) play an important role in natural disaster planning and response. They continue to fill many o f the gaps in GoP efforts, interact closely and directly with regional and local governments, and have played a major leadership role in recent years to put disaster prevention and risk assessment on the national agenda. Major NGO efforts include those o f PREDES, Red CrossPeru, OXFAM, GTZ (Germany), Save the Children, World Vision, ITDG and CARE.

Evaluation of Policies and Institutions 5.32 Numerous international venues-from the June 1999 Hemispheric Meeting o f the International Decade for Natural Disaster Reduction in Costa Rica, to the January 2005 International Conference on Disaster Reduction in Japan-have emphasized that national governments must give greater priority to disaster prevention, the reduction o f vulnerability, and ex ante disaster risk assessment. A fundamental reason for this policy recommendation i s that government support for risk assessment and disaster prevention can be viewed as an investment-an investment in a country's economic development (Clarke, 2000) without which the resultant costs o f natural disasters could, and have, set back a country's economic progress. Consequently, it i s appropriate to consider where the greatest payoffs from public funding exist in reducing risk, vulnerability and the destructive effects o f natural disasters, and what the priority areas should be for the GoP's focus and attention. 5.33 As discussed previously, multiple public initiatives exist in Peru, begun mostly over the past five years, which are addressing these priorities. However, the organization and integration o f these concerns at the operational and budgeting levels in national, regional and local governments i s s t i l l far from adequate. A major weakness i s the lack o f a functioning National Center for Strategic Planning to articulate and help organize an effective long-term strategy for incorporating disaster prevention and r i s k assessment in national and regional development planning and management; accomplishing these objectives awaits the planned imminent formation o f CEPLAN. 5.34 Poverty and environmental degradation are primary factors in generating conditions o f vulnerability to natural disasters. The effects run in both directions (UNDP, 2004). However, the interrelationships between these three elements are not adequately understood or acted upon. Environmental deterioration, including soil erosion and deforestation, contributes to the increased likelihood o f natural disasters (especially floods, landslides and huaycos) and to amplifying the severity o f these and other types o f natural disasters. Poverty, by i t s e l f and in conjunction with uncontrolled land uses, greatly increases human vulnerability to natural disasters. Thus, reinforcing efforts to address both

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the environmental causes o f disasters (see Chapter 7) and the problems o f poverty that exacerbate calamities, i s key to improving the effectiveness o f r i s k management and mitigating the impacts o f disasters.

Addressing the root causes o f natural disasters requires dealing effectively with soil erosion and 5.35 deforestation. Although the agricultural sector has the greatest availability o f resources t o deal with river basin and natural resource management, that sector’s efforts are diffuse, partial and not integrated. The Ministry highlights some aspects (e.g., irrigation management), but neglects others such as soil erosion and land use management. The Ministry o f Education’s recently initiated “Learning to Prevent” educational program represents only a start in integrating issues o f prevention and r i s k into the educational culture and requires monitoring o f i t s progress and impacts. The National Plan for Prevention and Attention to Disasters has several key limitations. First and 5.36 most importantly, i t fails to adequately define terms, implementing mechanisms, and monitoring plans and protocols for dealing with natural disasters. Operational and logistical plans for dealing with natural disasters have yet to be developed at many regional, provincial and local levels o f government. L a w No. 2855 1 (May 2005) defines the requirements for disaster contingency plans so broadly that it has created widespread confusion. The provision for the development o f sectoral disaster prevention plans has only partially been complied with. As o f October 2005, only eight sectoral plans had been formulated and approved (Ministries o f Commerce, Economy and Finance; Justice; Production; Health; Energy and Mines; Transport and Communications; and Housing, Construction and Public Health); four were finished and three were in the preparation process. At the regional level, as o f the same date, only four regional plans had been approved (Amazon, Tacna, Arequipa and Moquegua), three were finished, four were in revision and 15 were in formulation.

5.37 The National Plan should be reviewed and revised with broader participation by the public and civil society institutions involved in i t s execution. This should be done to better define the terms, mechanisms and resource allocations necessary for the Plan’s implementation and monitoring. Doing so i s important, because c i v i l society groups were not involved in the development o f the original plans. Simply issuing directives from I N D E C I and approving sectoral and regional disaster plans-for both prevention and response4oes not guarantee that the institutions involved will actually incorporate these plans into their strategic and operational plans. N o r does it guarantee that they will include budgetary requirements in their annual budget programming. The Sustainable Cities Program has made some progress in this regard, but i t has been limited by the lack o f management capacity o f many local governments, lack o f commitment by many municipal authorities, and insufficient citizen participation. 5.38 Regarding disaster and emergency preparation, many serious weaknesses exist; in particular, emergency operating plans and protocols are widely laclung. PREDES estimates that only 5 0 4 0 % o f Peru’s 194 provinces have technical secretaries for civil defense, and that at most 5% o f 1,821 districts have effectively functioning civil defense systems (PREDES, personal communication). Local Committees o f Civil Defense have many limitations in staff, resources, organization, management and training. The impacts o f these limitations have been demonstrated recently in emergencies such as the June 2001 earthquake in southern Peru and the September 2005 earthquake in San Martin. Even worse, cities such as Lima and Arequipa, with enormous risks o f natural disaster, do not have operational plans for disaster preparation and emergency action. In Peru, national, regional, and provincial levels o f government typically approve plans, laws, and 5.39 regulations with little attention to those existing at other levels o f government. The result i s significant overlaps, gaps and inconsistencies. During the 1990s, a sectoral emphasis existed; with respect t o risk management, most changes centered on the central organization o f SINADECI. T h i s model i s being significantly modified in the context o f decentralization. Nevertheless, it i s occurring without clear plans

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and orderly adjustment. The sectors (ministries) only indirectly count on specific mandates regarding prevention and other areas. However, i t i s possible to improve mandates and directives to allow clearer integration o f reduction o f risk and vulnerability in the context o f national and regional policy. Given i t s legal and historic responsibilities, INDECI has the task o f generating instruments and regulations to better promote and monitor the changing functions o f the different elements in the national c i v i l defense system. 5.40 Progress towards the goals o f the National Agreement has been mixed. Some progress has been made in incorporating risk analysis and prevention into public infi-astructure projects (Measure 2) and in building awareness o f risk and disaster mitigation into the educational curricula (Measure 4). Progress toward Measure 1 (incorporating a focus o f risk prevention and control throughout SINADECI) has been limited by the traditional lack o f focus on risk and protection (versus that o f response to natural disasters) in SINADECI (notably, INDECI) and by the lack o f specified indicators. T h i s i s confirmed by the small proportion o f INDECI's total budget in 2003-2005 that i s accounted for by prevention and risk analysisrelated expenditures (Table 5.7). Although the percentage o f the budget devoted to "risk analysis" declined sharply in 2005, this was due to a transfer o f these responsibilities-although not associated budgetary increases-to the local and regional levels. Well over h a l f o f INDECI's budget continues to be spent on emergency and disaster response. Table 5.7 also shows, notwithstanding this devolution of responsibilities, that INDECI's staff expanded significantly between 2004 and 2005.

Total Budget (Soles) Risk Analysis (%)

Prevention (%) Total Staff Permanent Sstaff

Contracted by SNP

2003

2004

2005

59,804,851 2,905,949 (5%) 8,162,479 (14%) 443 103 340

85,315,955 3,462,573 (4%) 11,488,613 (13%) 442 102 340

86,432,560 542,594 (1%) 11,961,225 (14%) 603 102 501

5.41 Progress has been reported in the training o f c i v i l defense committees, particularly at the regional and provincial levels, but there are n o statistics or indicators to confirm this. In 2004, INDECI transferred its training functions to the regional governments, but without the financial resources to achieve it. The goals set out in the National Agreement do not necessarily relate to the reduction o f the poor's vulnerability to disasters, as one would hope. Many have argued that the State should have an explicit policy making the prevention o f disaster and reducing disaster r i s k a national priority. This would conform to the objectives set forth at the 2005 International Conference on Disaster Reduction and other venues that have proposed increasing the priority and political commitment given to disaster reduction and mitigation globally.

The process o f decentralization provides an opportunity for a new vision and emphasis on disaster 5.42 prevention and risk assessment throughout Peru. Decentralization places more responsibility on regional, provincial and local governments to plan and to manage economic development jointly with the reduction o f vulnerability and risk. However, INDECI remains a hierarchical institution in many ways, and much confusion exists regarding the assignment o f roles and responsibilities under decentralization. The lower levels o f government can positively influence the vulnerability o f their populations to r i s k and natural disaster through a variety o f legally institutedmeasures: regional and local development plans (Planes de Desarrollo Concertados), participatory budgets (Prespuestos participativos), and land use planning (Planes de Ordenamiento Territorial). However, the organizational, technical and management abilities o f regional and local governments fall far short o f the responsibilities assigned to them by law, and they

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have yet to build their new responsibilities into their budget planning. In many cases, the N G O sector f i l l s the gaps, working with regional and local governments. However, financial resources, technical support, training and improved management capacity are urgently needed to enable local governments to comply with their mandated new responsibilities. Local and regional governments have yet to build into their operating budgets the expanded authority now given them for natural disaster prevention and response. 5.43 Land use planning i s an important instrument for the prevention o f natural disasters. However, the national framework for land use planning-Decree No. 087-2004-PCM covering Zonzjkacidn Econdmica y Ecoldgica-is subject to various interpretations and types o f planning processes. As a simultaneous responsibility at all levels o f government, this demands a much-improved level o f integration and consistency. Thus far, the statutory laws o f the sectors, regional governments and municipalities have not adequately generated this outcome. 5.44 Although risk assessment methodologies have been incorporated into public investment projects, there are both political and technical aspects that make this a slow process. The introduction o f greater technical requirements into the National System o f Public Investments (SNIP) will also require more and better information about threats and vulnerabilities, as well as dissemination o f information to building inspectors who provide the critical link to contractors. Incorporating r i s k reduction into regional and local development plans in a coordinated way requires a concerted effort by an organization like the incipient CEPLAN.

Recommendations 5.45 There has been positive, if slow, movement toward recognizing the importance o f disaster risk, vulnerability, and prevention on the part o f Peru’s governmental and nongovernmental organizations. This i s clear from the incorporation o f these concepts in major documents and efforts such as the National Agreement and the National Plan for Prevention and Attention to Disasters. Yet, as a matter o f practice, the focus i s still often one o f attention to emergency events and dealing with their immediate impacts, without a sufficiently integrated response that emphasizes prevention, vulnerability analysis, and risk assessment. Suggested recommendations address needed changes in policy, technical assistance, and public investments:

Policy 1. Highlight disaster prevention and the reduction o f disaster r i s k and vulnerability as a national priority. The prevention o f disasters and the reduction o f disaster risks and vulnerability should be highlighted as a national priority within the National Agreement, the National Plan, and public sector entities and development planning at all levels. In the longer run, disaster risk reduction and prevention should also be promoted not just within government, but at all levels of c i v i l society as well, including NGOs and the private sector. I t i s important to strengthen technical and organizational capacities, especially at the regional and local levels, to manage risk reduction and organize the response to natural disasters. 2. Create an Office for Reduction o f Vulnerability to Natural Disasters as part o f the establishment and funding o f the new National Center for Strategic Planning (CEPLAN), as has been planned since 2004. This could be done in the short term and might be complemented by establishing a parallel office in the Ministry o f Housing, Construction and Sanitation, given the major impact o f natural disasters on housing. Such a move would also help to promote a consistent unification o f

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disaster prevention and risk assessment policies across the various ministries and functional areas, from development planningto watershed management to public works projects.

3. Support for disaster planning (prevention and emergencies) and incorporation o f checks and balances in the context o f decentralization. SINADECI i s organized better than most areas o f government to adjust to the new decentralization framework law, but much needs to be done. A clear articulation and structure o f specific operational roles and responsibilities for disaster prevention and planning at each level o f government i s needed. In the short term, the National Plan can be much more fully articulated with clear guidelines specifying the allocation o f roles and responsibilities among levels o f government and specific offices within government, clear budgetary allocations, and mechanisms and indicators for evaluating performance. INDECI’s leadership role in this new structure should be clearly defined, perhaps in terms o f the organization o f disaster prevention and response, establishing methods and indicators for r i s k assessment and monitoring, training and education. Changes to I N D E C I will not come easily,

given i t s traditional resistance to change. Regulations governing the preparation o f contingency plans should be articulated and enforced. Training i s needed in disaster assessment and planning, risk analysis, public infrastructure project planning, public health, and other areas. Also needed are better communications and the development o f early alert systems.

4. Better budgetary planning, greater financial resources, and greater accountability in disaster prevention and planning. Although responsibilities for disaster planning are being devolved t o the regional and local levels, financial resources are not. At the provincial and local levels, technical expertise, staff and budget resources are woefully inadequate to handle the increased responsibilities brought on by decentralization. Regional and local governments are in the early phases o f incorporating disaster planning into their budgets. A long-term commitment to better budgetary planning, both at the national and regional levels, can be better used to assure that disaster prevention and risk assessment are included in the operational plans o f governments and ministries. The use o f regional government revolving funds should be considered for dealing with natural disasters, much like that o f I N D E C I at the national level.

5. Greater participation in developing disaster plans. T o better define roles, resources, and specific

mechanisms for its implementation and monitoring, SINADECI’s National Plan for Prevention and Attention to Disasters should be revised with the participation and agreement o f the actors and institutions involved in i t s execution. These reviews and revisions should be conducted in a transparent, inclusive and participatory fashion. T o incorporate the financing o f activities and projects into annual budgetary programming, it i s critical that sectoral and regional plans be incorporated into the strategic plans o f the sectors, regional and local governments and, importantly, into their institutional operating plans.

6. Establish a national framework for integrated watershed management. The institutionalization o f watershed management should be redefined. T h e Independent Watershed Authorities (Autoridudes Autdnomus de Cuencus) have structural problems originating from their design, in that they ignore the need o f regional and municipal governments to elaborate land use and development plans. In addition, lack o f representation and inadequate financing are commonplace. Especially in the context o f decentralization, it i s important to give regional and municipal authorities legal and management authority over river basin management, as well as adequate financial resources. Part o f this effort should be the establishment o f early warning systems and monitoring systems in the main river basins. T h i s will help identify the processes that generate environmental degradation in the f i r s t place and that lead to greater vulnerability to natural disasters. Examples o f such processes are poor land use management, soil erosion, deforestation, mining, sources o f surface water contamination, and the construction o f human

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settlements in r i s k y areas. In organizations like PRONAMACHCS, indicators o f environmental deterioration and increased risk vulnerability to disaster in watersheds should be considered an additional criterion for i t s targeting o f critical watersheds, one that would complement i t s existing focus on poverty. An effort should be made to identify and systematize the lessons and successful experiences in watershed management and soil conservation, not only o f PRONAMACHCS but also o f NGOs.

7. Establish a policy on land use planning. Land use planning i s a key tool for r i s k reduction,

infrastructure, and because it identifies spatial uses for different human activities-housing, productive activities like agnculture. Furthermore, land use planning identifies critical constraints, risks and limitations arising from both human activity and the environment. W h i l e "Economic and Ecological Zoning" i s a widespread requirement across ministries and different levels o f government, i t s interpretation and requirements are diffuse and ambiguous. T h i s needs better articulation and consistency, with priority given to disaster prevention and mitigation; this could be a role for both C O N A M and CEPLAN. Land use planning should be better coordinated between central, regional and provincial governments. This could be enhanced through a general law on land use planning-a revision o f Decree No. 087-2004-PCM-to clarify the roles and functions o f land use planning at the three levels o f government, to specify the processes o f civil society participation, and to guide the allocation o f resources.

Technical Assistance 1. Promote disaster prevention and risk assessment through the comprehensive incorporation o f planning and management tools at all levels o f government. Indicators o f vulnerability and risk should be incorporated into risk management and planning at regional and local levels, into budgeting, into project design and management, and into the formulation o f development and land use plans. This requires the development and application o f risk and prevention methodologies, indicators and instruments to assess vulnerability and risk, including early warning systems, as well as their use in establishing baselines; measuring trends in key indicators; proposing goals for r i s k and vulnerability reduction at regional and local levels; and monitoring policies, programs, plans and outcomes. This will necessitate a much greater effort to train and build human capital in these areas, especially at regional and local levels. 2. Incorporating risk analysis in public investment proiects. The efforts o f the Multi-sectoral Commission and, more recently, the MEF should be strengthened to incorporate r i s k analysis and disaster prevention into the formulation o f public infrastructure and investment projects, beginning with the SNIP. T h i s will necessitate greater attention to building standards as well as strengthening capacities at regional and local levels, especially for project managers, public works inspectors and quality control specialists. All this will require a much greater effort in training and technical assistance. 3. Management o f risks in urban planning and development. It i s also necessary to better incorporate risk and vulnerability assessment into the formulation o f urban plans. In the case o f the Sustainable Cities Program, it i s necessary to evaluate, based on completed studies and plans, the manner and extent to which participating municipalities have actually controlled urban growth and managed urban development plans. On this basis, technical assistance programs could be improved and framed appropriately, given the actual conditions facing municipal officials. It i s also necessary to strengthen the processes o f citizen participation and the buy-in o f local authorities in the design and execution o f these studies.

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4. Diffusion o f appropriate and safe construction technolonies. Reducing the risks in housing construction will require, especially in poor urban sectors located in risky locations, taking advantage o f h o r n construction technologies and devising mechanisms for improved technical assistance for self-built housing. In rural areas, the improvement o f traditional construction systems (e.g., adobe) will require direct and efficient mechanisms to advise the rural population about safe construction practices and standards. Investments

1. Evaluate alternative mechanisms for financing disaster response and transferring risk. The decentralization o f the national framework for dealing with disasters, as well as the highly variable incidence o f disasters over time and space (see Tables 5.1-5.6), suggests the need for new funding mechanisms to enable regional and local governments t o access the necessary financial resources to deal with disaster mitigation. One possible mechanism would be a national fund for cofinancing disaster mitigation investments in local infrastructure. Regional and local governments are hard-pressed to finance these investments solely from locallregional funds. Through cofinancing, the national government could exert some influence in assessing critical needs throughout the country and directing resources to the areas o f greatest need and potential payoff. The proposed fund would build on the current fund available to I N D E C I in times o f disaster, but would direct funds to help meet local needs, where local funds are also available, and would be spent on disaster prevention, not just emergencies. 2. Consideration should also be given to alternative mechanisms for transferring risk. Disaster insurance i s seldom used in developing countries for a variety o f reasons (Freeman, et al., 2003): the high probability o f extreme weather events, the difficulty o f spreading risk in small economies (relative to the magnitude o f risk), the adverse selection problem, and thin markets for insuring risk. However, a number o f potential risk transfer mechanisms could be considered for Peru: catastrophe insurance or bonds, access to an international insurance fund (such as that proposed by the United National Framework Convention on Climate Change), private-public partnerships (such as the Turkish Catastrophe Insurance Pool), and parametric earthquake insurance. Some initial investigations into the potential for using broad-based catastrophe insurance in Peru have been made by the Peruvian Association o f Insurance Companies (APES). The company Cooper Gay P e d Corredores de Reaseguros S.A. has recently presented a proposal for catastrophe insurance to INDECI. These and similar initiatives should be considered further.

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Summary of Policy Recommendations Objective Emphasize disaster prevention and the reduction of disaster risk and vulnerability as national priorities.

Recommended Short-Term Actions

Establish and fund Vulnerability Reduction Office in CEPLAN.-(Cost: low) Establish Vulnerability Reduction Office in Ministry o f Housing. (Cost: low) 0 Develop and apply risk assessment and prevention methodologies, indicators, and instruments to assess and monitor vulnerability and risk in national and regional plans, program and project planning, infrastructure design, etc. (Cost: moderate) Strengthen MEF efforts to incorporate risk analysis in public infrastructure projects and in building design standards. (Cost: moderate to high) Invest in early alert systems in targeted areas. (Cost: moderate to high) Strengthen institutions 0 National Plan needs to identify roles, involved in disaster planning responsibilities, budgetary allocation and management, especially in guidelines, and p e r f o m c e the context of decentralization. indicators for national (INDECI), regional, and local entities. (Cost: moderate) Increase financial resources spent o n disaster prevention and planning, especially at regional and local levels, given decentralization framework. (Cost: high) Improve training, at all levels o f SINADECI (especially at regional and local levels), in disaster planning, risk analysis, public infrastructure planning, etc. (Cost: moderate to high) Diffuse information o n safe construction technologies. (Cost: l o w to moderate) Evaluate alternative 0 Establish national fund to facilitate comechanisms for financing financing o f local and regional public and private responses infrastructure and disaster prevention to natural disasters. projects. (Cost: high)

Recommended Medium- and Long-TermActions

Incorporate disaster prevention and risk reduction across all levels o f government, NGOs, education, private sector, etc. (Cost: moderate to h g h ) Incorporate risk and vulnerability assessment in urban plans. (Cost: moderate to high) Establish a national framework for integrated watershed management to help avoid natural disasters. (Cost: moderate)

0

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0

0

0

0

Foster better budgetary planning, and greater accountability in disaster prevention and planning. (Cost: l o w to moderate) Foster greater civil society participation and greater transparency in disaster prevention and planning. (Cost: low) Establish national and regional policies o n land use planning, and roles o f different levels o f government, as part o f disaster prevention effort. (Cost: moderate)

Evaluate feasibility o f catastrophe insurance and other risk transfer mechanisms. (Cost: l o w to moderate)

CHAPTER 6 SUSTAINABLE FISHERIES THROUGH IMPROVED MANAGEMENT AND POLICIES Peru S fisheries resources support one of the country’s most important economic activities and provide fundamental environmental services. The Peruvian anchoveta remains the largest single stockfishery in the world. The occurrence of El Niiio Southern Oscillation drives extreme fishery-resource volatility. Combined with the expansion of fishing and processing capacity and weak sector governance, this volatility has resulted in resource depletion, extensive marine ecosystem change, widespread environmental degradation and dissipation of resource rents, and loss of social and economic benefits. Meeting these challenges w i l l require an open and transparent participatory process to achieve the following goals: (i) Substantially increase net benefits from the sector by reducing its capacity and effort in order to bring net benefits in line with natural productivity and maximum economic yield, (ii) Improve sector governance and the distribution of equitable benefit. (iii) Issue effective environmental regulations with independent oversight of enforcement. (iv) Strengthen the sectors research capacity to support an ecosystem approach to managing fisheries and coastal resources. (v) Establish a system of Marine Protected Areas. (vi) Revise and modernize the sector’s regulatoly framework. 78

Introduction 6.1 About fifty years ago, Peru started to develop an industrial fisheries sector, based o n i t s r i c h anchoveta and sardine resources. These resources account for nearly 10% o f the global marine catch. In addition to being a major natural resource for Peru, they are key constituents o f the Humboldt Current Large Marine Ecosystem, one o f the most productive in the world. However, even when technological innovations and an expanding fleet caused the resources to pass from a situation o f abundance to one o f scarcity, n o major policy innovations have been introduced into the sector, except for privatization. Successive governments have shied away from tackling critical issues. T h i s results from the problems’ perceived complexity and political sensitivity, and strong and articulate commercial lobbies pursuing narrowly focused interests. Consequently, many fish resources are over-exploited or in a precarious recovery phase; the sector’s capital investments are used inefficiently; the sector i s a major source o f pollution due to handling and processing inefficiencies; and the contribution o f the industry to social welfare, nutrition, and employment remains very modest. Moreover, while medium-term market prospects for fishmeal and fish o i l remain promising, biotechnology may enable the development o f alternatives to these products, and long-term buoyant and remunerative export markets for fishmeal and o i l cannot be taken for granted. Therefore, to ensure a sustained and enhanced contribution to national welfare, it i s very important to look critically at the entire policy and institutional framework governing the fisheries sector. The primary focus o f this chapter i s the anchoveta fishery; however, the economic and social importance o f the other fisheries, and in particular the artisanal fisheries, must not be forgotten.

’*This chapter was prepared by Marea Hatziolos and Cornelis de Haan. The chapter draws significant information from a background report prepared by Patricia Majluf, Albert0 Barandiarin, and Juan Carlos Sueiro (2005).

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Background

6.2 Peru’s fishing grounds are the richest in the world, and anchoveta remains the largest single stock fishery in the world. Over 300 m i l l i o n MT o f fish have been harvested from Peruvian waters during the almost 50 years o f industrial fishing (from 1960). Since 1960, the average yearly catch has been 6.56 m i l l i o n MT. During the last seven years, since the last El N i i o in 1998, the average yearly catch has been 8.65 million MT (Tables 6.1 and 6.2). Table 6.1. Landings of Maritime and Inland Resources According to Use: January-December 2005 (Thousand Metric Tons Live Weight - TMB) TYPE OF USE

I I

Anchoveta Other Species

I I

115

8,797.1 13.5

I I

8,530.6 0.1

I I

-3.0 -99.3

I I

Table 6.2. Landings o f Resources by Use, According to Species: January-December 2005 (Thousand Metric Tons Live Weight - TMB) SPECIES

TOTAL Anchoveta

Fish M e a l

Total

Canned

Frozen

Cured

9,285,365

8,530,657

87,554

305,213

51,599

8,555,630

8,530,551

14,156

498

10,425

Fresh

310,342

Tuna

10,902

9,861

1,008

Mackerel (Caballa)

44,992

25,256

3,345

2,913

13,478

Horse mackerel (Jurel)

83,469

19,723

2,253

2,603

58,890

Squid (Calamar)

8,783

169

6 165

276,144

2,875

226,925

2,730

497

1,65 1

582

10,656

634

8,410

803

Flying Squid (Pota) Shell (Caracol) Scallop (Concha de Abanico)

11,290

Crayfish (Langostino)

9,226

Flathead M u l l e t (Lisa)

6,403

Hake (Merluza)

28,671

21,737

8,957

299

Silversides (Pejeney) Other Species

238,168

13

106

15,004

22,266

33

2,449 40

46,304

465

5,938

158

6,776 8,658

34,995

165,797

6.3 The industrial purse seine fisheries for small DelaPics mostly target anchoveta (Engradis ringens). The other major pelagic fisheries target sardine, horse mackerel, and chub mackerel.

Historically, annual recorded landings o f anchoveta have varied from 1.2 to 12 m i l l i o n MT, and are currently in the 8-10 m i l l i o n MT range, or approximately 10 percent o f the global annual marine catch. Other major pelagic fisheries target sardine, horse mackerel, and chub mackerel. Almost the entire catch o f anchoveta and sardine i s reduced to fish meal and o i l for export, primarily to Europe and China, t o supply a growing livestock and aquaculture industry with essential animal feed ingredients. Only a small fraction (2 t o 7 percent) o f the total marine catch, including the artisanal catch, i s used for direct human consumption. 6.4 Other industrial fisheries target hake (Merluza, or Merluccius guyi), squid, and other demersal (bottom) species. Hake i s a popular domestic food fish, with a strong export market. Average annual catches have been around 70,000 MT over the last nine years, but fishing activities have caused substantial variations-from less than 8,000 MT t o over 100,000 MT in recent years. In 2003, overfishing l e d t o the collapse o f the fishery (with a catch o f less than 8,000 MT) and the temporary closure o f the fishery until stocks could rebound. The fishery was reopened in 2004, when recorded catches reached 35,000 MT. Recorded squid catches have also varied considerably, fi-om less than 10,000 MT in the 1990s to over 200,000 MT in 2004 and 2005. 6.5 The artisanal fisheries target a wide variety o f species, mainly for human food. The total catch varies from around 100,000 t o 200,000 MT per year. Official estimates indicate more than

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40,000 people are employed, with informal estimates putting the figure at 100,000 persons. The resources targeted by these fisheries are diverse, with fish accounting for about 80 percent, invertebrates for 17 percent, algae for t w o per cent and other resources for one percent. 6.6 The inland fisheries o f the Amazon and Highland areas have landings estimated at between 30,000 and 80,000 MT per year, mostly for subsistence use. The fisheries in the Highlands focus mostly o n the lakes, and in particular Lake Titicaca, targeting indigenous species, especially the “ispi”, but also introduced species, such as trout.

6.7 Aquaculture i s a rather recent industry, with little diversification. The shrimp industry, mostly in the country’s extreme north, suffered f r o m “white spot” disease in the late 1990s, but with improved farm practices and disease control measures, production recovered to about 5,000 MT in 2004. Culture o f Peruvian scallops has also shown strong growth, with a production o f 10,000 MT in 2004. 6.8 Peru’s extraordinarily r i c h marine fisheries resources result from an exceptional upwelling o f cold, deep water nutrients brought to the surface by the Humboldt Current, which i s the dnving force o f the Humboldt Large Marine Ecosystem (LME). However, the LME i s subject to major periodic disturbances in the form o f El Ni60 Southern Oscillations (ENSO). W a r m westerly winds drive the nutrient-rich Humboldt Current further south and offshore, replacing it with warm water f r o m the Southern Equatorial Current. During EE Ni6o years, plankton levels decline and changing ocean temperatures contract and distend the habitats o f different species. The nutritional base o f the food chain radically contracts, altering the complex cascade o f predator-prey relationships with far-reaching impacts o n the marine ecology, the fisheries, and the economy (see Figure 6.1).

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Figure 6.1. Relationship between Anchoveta Landings and Mean ENSO Index, Demonstrating the Inverse Relationship between the Two

14000000

,

Anchoveta landings and ENSO , 2 1.5

12000000

1

10000000 E

f: u)

.-

0.5

8000000

0

6000000

-0.5

‘0 E

E 4000000

8

‘0 E

.$

3

-1

2000000

-1.5 -2

0

Importance o f the Sector 6.9 The fisheries sector remains a significant contributor to Peru’s economy. I t i s the second largest earner o f foreign exchange after mining, accounting for between US$1 and 1.7 billion annually in exports (Peru Statistical Yearbook, 2003), or 11-16 percent o f total export earnings. I t generates about 4 percent o f rural employment, and comprises approximately 1 percent of GDP. However, the sector i s currently a minor source o f revenue for the public sector. Finally, one-fifth o f the animal-protein intake o f the average Peruvian i s derived from fish. The poor are even more dependent on fish as a source o f protein and nutrition. 6.10

In addition to their economic and social value as a fishery, anchoveta and small pelagic stocks sustain a large and diverse food web, including a large variety o f marine mammals and bird species. These, in turn, generate an array o f ecosystem goods and services that are essential to maintaining marine biodiversity and productivity, but whose ecological, economic and social value are only now beginning to be recognized. For example, the marine birds and mammals that rely on anchoveta as a major food source support a growing marine ecotourism industry in the Pisco-Paracas area, valued at some US$7-9 million per year. The reserve system i s a chain o f islands and peninsulas protected for the exploitation o f guano generated from the droppings o f these fish eating birds. T h i s system has been identified as a marine biodiversity hot spot, and a proposal to designate the entire system o f islands as a Marine Protected Area network i s pending in INRENA. Furthermore, the guano from these islands supports a growing niche market for organic fertilizer in Europe and the U.S. Exports could generate alternative livelihoods for coastal fishers and help pay for the maintenance o f the guano reserve system. Thus, anchoveta stocks have the potential to support not only a robust industrial fishery, but also artisanal livelihoods based on secondary markets for the goods and services they produce. Figures 6.2 and

’’

“Guano” i s the generic name for the fertilizer produced from the droppings of seabirds, mainly cormorants, boobies, and pelicans.

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6.3 provide a simplified illustration o f the complex trophic relationships and show the anchoveta's pivotal role in the Humboldt Current LME. Figure 6.2. Main Trophic Interactions in the Pelagic Ecosystem off Peru (from Muck, 1989)

Figure 6.3. Schematic of Trophic Interactions in the Peruvian Upwelling System, with and without Fisheries Sin pesquerias la)

I@I Otros

Aves

Otros depredadores

Marinas

Con pesquerias

38.4% ZooPlancton

Anchovetas

T

Zooplancton

Fitoplancton

Nutrientes

Aves Marinas

depredadoreo

=>

Anchovetas

Fitoplancton No aprovechado (se preciplta)

(N. P. W

Nutrientes (N. Pvgil

No aprovechado (se precipita)

6.11 There have been numerous studies o n the fisheries sector, including a Fisheries Sector Note prepared with W o r l d Bank support (World Bank, 2003b). M o r e recently, M a j l u f et al, (2005) produced a detailed environmental assessment o f the fisheries sector. That report i s a

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central background source for this chapter. All studies emphasize the need to strengthen governance, transparency, and objectivity in decision-making.

Specific Issues 6.12 The tremendous potential productivity o f the Peruvian fisheries sector can be much more efficiently and sustainably exploited, its negative environmental and social impacts reduced, and its contribution to the Peruvian society enhanced. K e y issues that must be addressed synergistically to achieve these goals are (a) overcapacity in the fishing and processing sectors, (b) negative environmental and ecosystem impacts, (c) weak governance and a deficient environmental oversight and regulatory framework, (d) inadequate institutional arrangements and the role o f civil society, and (e) the unrealized contribution t o Peruvian society. These issues are examined below. 6.13 Peru i s not alone in facing these problems. Overfishing and overcapacity problems beset many fisheries. However, the sheer scale o f the anchoveta fishery (landings can be w e l l in excess o f 100,000 MT in a single day), the extreme volatility o f changes in the fish stocks caused by El Niiio events, and lack o f a broad consensus roadmap in a volatile political climate have a l l contributed to making the problems appear intractable.

Overcapacity

6.14 Perhaps the greatest single factor currently threatening the fisheries sector i s fleet and processing overcapacity, fueled by continuous growth in the fishhold storage capacity o f the fleet and characterized by an excessive number o f economically inefficient fishmeal processing plants. 6.15 The industrial anchoveta fleet i s comprised o f steel purse seiner vessels with more than 110 MT o f hull capacity, and the “Viking Fleet”, which consists o f wooden vessels with a storage capacity o f 32-110 MT. The steel vessels include 655 with a total fishhold capacity o f a little more than 183 thousand MT. The wooden fleet includes 604 vessels and has a combined fishhold capacity o f 35 thousand MT. The latter fish the anchoveta stocks in the north-central part o f their distribution and, in violation o f existing regulations, frequently enter into the restricted 5-mile coastal zone reserved for artisanal fishing. The recent fleet expansion has taken place almost entirely in the wooden Viking Fleet and has effectively doubled the number o f vessels in operation. 6.16 This overcapacity i s demonstrated in several ways. The anchoveta fleet i s permitted to fish for only 120 days, although a 200-day fishing season would be possible and s t i l l provide adequate protection for the juvenile anchoveta. The fishhold capacity o f individual vessels is, o n average, 3 - 4 times that required for an average day’s landings. It i s estimated that, in 2005, the steel purse seiners used an average o f only 3 1.5% o f their fishhold capacity and the wooden fleet only 25.4%. 6.17 The fishmeal industry consists o f 127 processing plants with an installed capacity o f nearly 9,000 MT per hour. Forty-three large plants account for over 50% o f the processing capacity. However, only 35% o f the installed capacity i s able t o produce the finest quality fishmeal (ACP), i.e., meal with the highest protein content, which requires fresh fish for processing. The greater portion o f the capacity (65%) and the largest number o f processing plants (80) are geared toward producing conventional fishmeal, which permits the use o f lower quality r a w material in processing, adversely affecting product quality and price. In 2003, the total fish-

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meal processing capacity was estimated t o be 9,000 MT per hour, equivalent to about 170,000 MT per day in three shifts, or 30 million MT per year (based o n 200 days o f fishing per year), thus exceeding the available fish supply by more than 200 percent (World Bank, 2003b) Overcapacity has two distinct effects: (i) fish-resource depletion and marine ecosystem 6.18 dissipation or loss o f economic benefits f r o m the sector. imbalance, and (ii)

Depletion of Fish Resources and Marine Ecosystem Imbalance 6.19 The indicators o f overfishing are clear in the hake fisheries. The average length o f the hake fish caught has declined from 45 c m in 1971 t o 25 c m in 2001. Stocks have collapsed twice in the last 25 years, most recently in 2003, when catches registered less than 8,000 MT, a decline from nearly 120,000 MT in 2001. In response to its overfished status, the fishery was closed temporarily in 2003, but reopened shortly thereafter, and stocks are now recovering. In the anchoveta and small pelagics fisheries, the picture i s more complex. Overfishing 6.20 has clearly been one o f the key factors contributing to the periodic collapses o f the fishery. However, there i s also a strong El Niiio effect, because during El N i i i o years, catches have periodically declined to less than 2 million MT; this i s a quarter o f the yield in normal years. The relative importance o f these two factors i s not clear. Partly because o f fishing restrictions during the last El Niiio (1998), the fishery has rebuilt rapidly, with landings o f about 8 million MT (Figure 6.4), but fleet overcapacity presents a constant threat o f overfishing and ecosystem imbalance.

Figure 6.4. Variations in the Historic Catch o f Marine Fish along the Peruvian Coast, Total Catch 1950-2004. Scale 0 to 14 million MT 14.000.0

1950

1

I

I

1

1955

1960

1965

1970

I

1975

1980

1985

Source: Fisheries statistics from FA0 Information Portal (2005)

121

I

I

1990

1995

2000

Total Catch Excluding Anchoveta (Engruulis ringens) and Sardines Scale 0 to 2.5 million MT

1950

‘e‘

1855

1960

1965

1970

1975

1980

1985

lag0

1995

2000

Anchoveta

Horse mackerel

Flying S q u i d

Sardines

Menhaden

Bonyfish

Mackerel

Anchoveta (other)

Hake

O t h e r species

6.21 The development o f the anchoveta fishing industry has caused the anchoveta biomass available t o birds to drop from about 14% to only 2% n o w (Figure 6.2). As a result, the population o f seabirds in the coastal areas o f Peru has declined f r o m about 15 million in the 1950s and 1960s to about 2 million. Similar declines in marine mammal populations are evident, demonstrating that the marine ecosystem has altered radically from i t s status several decades ago. There has also been a marked decline in f i s h stocks in the inland fisheries, where a combination o f habitat destruction and pollution by extractive industry (mining and oil), and overfishing have l e d to declining catches.

Economic heficiency 6.22 Based on estimates o f fleet overcapacity presented above, the capital invested in the fleet may be as much as 4-5 times higher than necessary. T h i s overcapacity reduces crew employment t o about 120 days per year, and there i s political pressure to expand the fishing season to the detriment o f resource recovery”. This overcapacity, combined with resource fluctuations, has led t o the reported major indebtedness o f the sector and absorbs capital that could be used t o diversify the economy. A more in-depth understanding o f the sector’s debt structure i s necessary. Tax relief for the industry resulting from i t s debt burden means that the sector’s contribution to national However, the awareness o f Peru’s policymakers seems to be increasing. F o r example, in 2005 the Vice Minister for Fisheries, commenting on the sector’s overcapacity, noted the paradox that the anchoveta fleet today operates a little more than 120 days per year, but in that period, the fleet i s able to catch more than 8 million MT o f anchoveta-its entire year’s quota (Majluf, 2005).

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welfare i s disproportional low. W h i l e exact data are not available, and favorable market conditions for fishmeal and o i l have reportedly reduced the debt from US$1.8 billion in 2000 to less than US$1 billion in 2003, the highly volatile nature o f the pivotal anchoveta fishery makes the restructuring o f the industry critical for the sector’s long-term sustainability. However, this capital i s currently ‘locked’ into the vessels and cannot readily be converted to economic alternatives. A similar situation exists with processing overcapacity: many plants are old, relatively inefficient and can meet neither high-end market demands nor modem environmental standards for fishmeal plants. As mentioned before, Peru i s not alone in facing these problems. A number o f international comparisons demonstrate how problems o f overcapacity can be addressed.81T h e following B o x indicates how Norway overcame these problems. Box 6.1. Example from Norway on Reducing the Capacity of the Fleet and Processing Plants

Relevant experience in methods for reducing both fleet and processing plant capacity comes from Norway, where reductions o f 80% and 88%, were achieved, respectively, for the purse seine fleet and fishmeal processing plants over the course o f about 35 years. T h i s was achieved through comprehensive structural adjustment programs that included industry-financed buyouts, industry consolidation, mothballing o f plants, comprehensive price agreements between vessels and plants (mandated by specific legislation), government subsidies, incentives for fleet reduction through the individual quota system, and subsidized sales o f excess capacity to Peru and elsewhere.

EnvironmentalEcosystem and Public Health Impacts 6.23 In addition to the direct impacts on anchoveta, hake and other stocks, substantial ecosystem-wide impacts arise from capture and processing activities. These include significant by-catch o f non-target species and impacts to other species adversely affected by the catching o f millions o f MT o f anchoveta each year (Figures 6.2 and 6.3). Seabirds are included among the affected species, and although their populations are s t i l l estimated to comprise millions o f individuals, studies conducted by NGOs indicate a steady decline in the number o f seabirds associated with the expansion o f the fishing industry. Anchoveta production i s also responsible for environmental impacts related to water and air pollution, thus undermining the sector’s social and economic contributions. The introduction o f available improved processing technologies appears to have strong win-win potential, because more efficient waste recovery could lead to recouping at least part o f the discharged fishmeal and oil. Similarly, overall emissions can be reduced by using steam dryers to process fishmeal instead o f direct heat. T h s would augment the amount and quality o f protein in the final product, and generate a price differential o f US$30-80 per MT above that for standard fishmeal.

81

See, for example, OECD documents: AGFUFI(2004)4/Revl: Further Examination o f Economic Aspects Relating to the Transition to Sustainable Fisheries. Review o f the Use of Management Systems. AGR/FI(2004)5/Part 3: Iceland Case Study by Professor R. Amason.

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Figure 6.5. Industrial Fishing Landing and Processing Facilities Showing Processing Quality

Weak Governance and Inadequate Oversight 6.24 The increase in fisheries production capacity over the last 15 years has come about in spite o f the 1992 General Fisheries Law, which expressly prohibits expansion o f fleet and processing capacity. Despite the General Fishery Law’s intent to manage Peru’s fisheries based o n biological, economic, and social considerations and in compliance with the FA0 Code o f Conduct for Responsible Fisheries, the institutional framework for effective governance remains deficient. T h i s largely results from enforcement difficulties and loopholes in the l a w regarding limits o n fleet size and vessel class (i.e., whether fishing for direct or indirect human consumption, whether targeting underexploited or l l l y fished stocks, or whether vessels are classified as industrial or artisanal). Some specific examples follow. 6.25 M a n y loans for vessel construction were granted contrary to provisions o f the Fisheries Law; others were approved initially to target “underexploited stocks” (e.g., chub and horse mackerel), only to have the license request changed to f i s h anchoveta when it became clear shortly thereafter that a fishery for these “underexploited” species was not economically viable.

In 1998, Viking class vessels were legitimized as part o f the anchoveta fleet. Classed as 6.26 artisanal vessels, the Vilungs were exempt from regulations limiting the size o f the industrial fleet, despite recognition by authorities that the sector suffered f r o m overcapacity. This act

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precipitated the rapid construction and growth o f Viking class vessels in the fleet, with the addition o f 3 80 wooden vessels since 200 1. The Viking Fleet currently captures around 1 million MT annually, with far less variability in catch than the fleet o f steel purse seiners. 6.27 When substituting newer vessels for older ones, the 1:l replacement ratio o f vessel fishhold capacity has been retained, although better-equipped, newer vessels have much greater efficiency and powerg2than the older vessels they are replacing. Other “exceptions” to ordinances intended to limit capacity include ad hoc adjustments to regulations o n fishing licenses and permits for the operation o f processing plants. 6.28 Finally, despite a Vessel Tracking System (SISESAT) and independent inspection o f catch at landing facilities by an external private company (SGS) along the coast, fragmented responsibilities for Monitoring, Control, and Surveillance (MCS) and restricted access to information have led t o allegations o f violations and fraud. For example, the percentage o f juvenile anchoveta i s legally set at 10% o f landings, and percentages o f up to 96% o f juveniles are reported in landings, sometimes for periods o f several weeks. These weaknesses in the M C S system would affect the successful introduction o f more market-based fishing-rights systems, as will be proposed later.

Institutional Arrangements and Public Participation

The huge overcapacity in the Peruvian fishing industry i s a sign o f the basic weakness in the fisheries sector’s governance. It i s fimdamentally important to strengthen the sector’s governance, taking account o f ecosystem considerations through an Ecosystem Approach to Fisheries and Ocean management (EM). IMARPE (Instituto del Mar de Peru), the biological research arm o f the Division o f Fisheries within the Ministry o f Production, issues its recommendations o n the TAC for different stocks each year. These recommendations are based o n IMARPE’s assessment o f the different stocks’ condition and recruitment potential, oceanographic and other factors. At times, IMARPE’s advice i s not reflected in ministerial management decisions; this shows weak linkages between research, policymaking, and implementation at the level o f the Ministry (Figure 6.6). 6.29

82

P e d Pesquero, No. 9, 1992

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Figure 6.6. Framework for an Ecosystem Approach to Ocean Management

The illustration describes the interactive management decision cycle. All stakeholders f r o m the fishery sector and from c i v i l society must be included in the process t o promote openness and transparency.

6.30 The central environmental institutions, such as C O N A M (Consejo Nucionul del Ambiente), INRENA and DIGESA have been sidelined with respect t o environmental oversight o f the fisheries sector. C i v i l society, in the form o f NGOs and academic and research institutions, has historically had little voice in independent reviews or demands for public accountability. A recent positive s i g n has been the initiation o f discussions o n overcapacity, the future sustainability o f the anchoveta fishery and the need to reduce fishing effort. The discussion has been facilitated by bilateral assistance, the private sector, and NGOs, which have been reflecting international market concerns regarding sustainable sources o f supply and product quality.

Contribution to Economic and Social Welfare

6.31 The sustainability o f Peru’s anchoveta fishery depends not only o n the ecological and economic viability o f production, but also o n the extent to which benefits f r o m this public good accrue to society. A s noted above, the vast majority o f the catch i s destined for conversion into fish meal and fish o i l for livestock and aquaculture production in China and Europe, with only 27% used for direct human consumption, mostly for export. Only 1% o f the production i s used for domestic consumption. With meat and the higher value fish unaffordable t o Peru’s poorer classes, small pelagics represent an important, but largely untapped, potential source o f protein for the poor in Peru and elsewhere. Despite food security and nutrition issues in Peru and the government’s efforts, very little progress has been made in developing a domestic market for direct consumption o f anchoveta.

6.32 No comprehensive analysis has been made to estimate the economic losses (or foregone benefits) caused by fleet and plant overcapacity and suboptimal fish stocks. Further analysis i s required to estimate the environmental and social costs o f marine and coastal degradation caused

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by the industry. Some indicative studies suggest that the sector i s probably losing several hundred million dollars annually in net benefits: Aguero (1987) concluded that eliminating fleet overcapacity could have increased net benefits by over 60 million US$. T h i s was based o n a 37% fleet overcapacity compared to the current overcapacity o f more than 100%.

The poor utilization o f investment and infrastructure was conservatively estimated in a 2002 study (PRODUCE, 2002) as causing losses o f US$50-70 million per year. A similar order o f magnitude was estimated by Rizopatr6n (2000), according to which a fleet reduction by only 50,000 MT hold capacity would save US$6 fishing cost per ton o f anchoveta landed. Ecosystems changes caused by the high catch o f anchoveta threaten incomes from alternative livelihoods o f some US$20 million per year (Majluf et al., 2005). The reported heavy indebtedness o f the sector enables the industry to obtain significant tax exemptions, with the result that the sector contributes a disproportionately small fraction o f i t s earnings to the national treasury. Annual aggregate taxes paid to the state in recent years range between US$22 and US$60 million, or less than 1% o f total government revenues. If taxes were levied at rates equivalent to those o n other productive sectors, or equivalent to the sector’s contribution to GDP, public revenues could increase up to US$lOO million per year. License fee levels are l o w because vessels currently pay only US$0.72 per ton o f catch, yielding total revenue o f about US$7 million. In comparison, for a smaller fishery, the Chilean treasury receives US$20 million in revenue. Production inefficiencies and the l o w grade o f the fishmeal (especially regarding protein quality) lead to the loss o f benefits. Recovering these benefits would require significant changes in catch management on board and at the landing sites to prevent spoilage, and investments in more efficient recovery sytems for fish o i l and protein, n o w available. 6.33 The dissipation and drain o f resource rents and net benefits that the government and Peruvian economy should otherwise realize from the anchoveta fishery have significant social consequences. These include lost income to finance Peru’s anti-poverty and food security agendas and marine resources management in general; lost job opportunities from diversified and value-added industries related to anchoveta, including marine tourism associated with seabirds and marine mammals dependent on anchoveta in the food chain; and contamination o f air, water and food.

The Future 6.34 Two major external factors are likely to shape Peruvian fisheries in the future: (1) the growth o f aquaculture and livestock production, particularly in China, and i t s dependency on fishmeal and fish oil; and (2) climate change or, more specifically, the frequency and intensity o f ENS0 events. The degree to which these factors will affect the sector’s economic, environmental, and social performance will depend largely on creating a more economically viable and biologically robust sector through reforms in fisheries management and governance. 6.35 Future prospects for fishmeal and, in particular, for fish o i l look promising, The price o f fishmeal, and particularly o f fish oil, i s expected to increase over the next five years, based on anticipated demand in China and worldwide from expanding aquaculture operations. Consumer

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concern about the sustainability and safety o f feedstocks i s also an issue in Europe, where certification and labeling are in increasing demand by consumers. In China, efforts to replace imported fishmeal with soy and cheaper sources o f protein in livestock feeds are advancing. However, fish o i l remains an essential source o f Omega 3 fatty acids in the diet o f carnivorous farmed fish. Until alternative supplies o f these fatty acids are sourced through advances in biotechnology and genetic engineering, demand for f i s h o i l supplied largely by Peru will continue. T h i s will put a premium o n improved processing and techniques for fish o i l extraction, and could be an incentive for recovery o f fish oils from fish waste. Such materials are currently discharged along with pump water and are responsible for pollution near the processing plants.

6.36 With climate-change models predicting more frequent El Niiio events, climate-driven change in anchoveta biomass i s expected to become more volatile. Managing this volatility t o maximize resilience and recovery o f anchoveta stocks will require improved oceanographic information o n the estimated onset and severity o f an E N S 0 event, accurate monitoring o f the condition o f standing stocks and recruitment potential, and improved capacity t o monitor stock behavior during an El Niiio event to determine factors influencing recovery. Better assessment o f the interactive effects o f El NiEo and fishing pressure o n stock recovery potential will also be required to manage stocks for optimal yields. These studies should be extended t o other species in the food webs o f economically important f i s h stocks within the Humboldt Current Large Marine Ecosystem. Because the climate-induced changes in the anchoveta biomass and resulting economic impacts are likely be recurrent, consideration may be given t o establishing economic stabilization mechanisms to provide insurance or compensation to vessel operators and crews that may have to stop fishing in El Niiio years. 6.37 Business as usual o n the management and governance side i s not an option. Leaving the current system o f weak governance and major regulatory gaps in place will likely create additional increases in vessel and processing capacity. These increases will further increase inefficiency in the utilization o f fishing and processing investments, put further stress on the ecosystem, and result in continued poor economic returns t o Peru f r o m the sector. Strengthening the governance o f the sector, as recommended in the policy recommendations described below, could at least recoup some o f the losses and capture some o f the benefits currently being lost. These losses are estimated to be several hundred millions (in U S dollars) per year.

Policy Recommendations 6.38

Policy recommendations to improve sector governance center on three major objectives:

1. Substantially increase the net benefits from the fisheries.

2. Ensure an equitable distribution o f these benefits (social and economic) from the fisheries.

3 . Sustainably exploit fisheries resources through an ecosystem approach to management that internalizes environmental and social costs in determining optimal economic yields for the fisheries.

6.39 The following recommendations support these objectives and identify the policy actions that can be undertaken in the short term and the medium t o longer term, with potential high returns o n investment.

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I. Substantially increase the net benefit from thefisheries and ensure equitable distribution of benefits a.

Limit access and allocate fishing rights. Institute a general framework for the allocation o f rights, paying particular attention to (i) equity in allocation, (ii) distribution o f social benefits, and (iii) human welfare issues.

b. Reduce the capacity o f the fleet and fish plants to a level that maximizes the net economic returns during normal years through a structural adjustment program. Develop

a timeline for decision making and for implementing effort reduction in the whole fishing industry, including a period for public vetting and for securing financing. These options should be considered: Institute a vessel buyback and decommissioning scheme that provides adequate safeguards t o the moral hazards involved. Institute a general system o f quotas to be gradually developed for the different fisheries. F o r hake fishery, a system o f individually transferable quotas (ITQ) might be considered and, i f proven successful, expanded t o other demersal and pelagic fisheries. Enforce a freeze on the Viking Fleet’s capacity until a comprehensive plan to reduce fishing i s under implementation. Provide a financial incentive to reduce excess vessel capacity either through increased licensing fees that reflect the true value o f the resource being harvested or through other methods. Eliminate the excess capacity o f processing plants through closure by using market mechanisms, ensuring, as a matter o f public policy, that all subsidies are eliminated, and that all costs for mitigating pollution are charged to the industry. T h i s can be expected to eliminate the least efficient factories. Increase revenue capture from industry t o support the development o f alternative economic opportunities and the anti-poverty agenda. Restructure the industry’s debt through a dialogue with industry stakeholders and key donors.

c.

Explore market and r e m l a t o w mechanisms t o ‘automatically’ adjust fleet activity and plant capacity during E l NiEo events to (a) retain a high level o f net economic benefit and (b) facilitate a rapid recovery o f the anchoveta and other stocks following such events. Consider establishing a stabilization fund to address the economic impacts o f the regulatory measures that are required by the climate-driven volatility o f the stocks and landings.

II.Ensure Equitable Distribution of Benefits and Improved Management of the Sector

a. Create a system o f co-management with participation by industry, c i v i l society, and other legitimate stakeholders in decisions affecting the management o f the fisheries sector.

b. Ensure open public access to kev information (biological, economic, fiscal, and social) about the fishery sector.

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c.

Strengthen the monitoring and enforcement o f fishery regulations, including the vessel monitoring, surveillance, and control (MCS) system.

d. Ensure transparent independence from industxv. Ensure that institutional arrangements for drafting, adopting, monitoring, and enforcing environmental standards and safeguards maintain a transparent independence from industry.

III.Adopt an Ecosystem Approach to the Management of Fisheries a.

Strengthen the fisheries- and oceans-research capacity o f IMARPE for science-based management o f marine resources.

b. Pursue a precautionary approach in fisheries management. C.

Establish, where necessary, a revised system o f fishery regulations to ensure the rational and sustainable harvest o f fish stocks. These regulations should address factors such as minimum fish size, seasonal closures, and gear restrictions.

d. Internalize the environmental costs of the fisheries sector. Reduce andor internalize the negative externalities o f the fishing industry on the coastal population, the coastal environment, and the ecosystem.

e.

Establish a system o f marine reserves. In compliance with L a w No28793 (Law for the Protection, Conservation, and Re-population o f the Country’s Guano Islands, Rocks, and Points) promulgated in July, 2006, incorporate the Guano Reserve System (Sistema de Islas, Islotes y Puntas Guaneras) into the National System o f Natural Protected Areas (SINANPE) and launch a program for their conservation and re-population. T h i s will protect critical breeding and nursery habitats for threatened marine species and protect areas o f high productivity for artisanal fisheries and aquaculture.

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Summary o f Policy Recommendations:Actions for the Fisheries Sector Objective

Recommended Short-Term Actions

Substantially increase net benefits from fisheries, and ensure equitable distribution o f these benefits (social and economic) from the fisheries.

0

0

Limit access and allocate fishing rights. Institute a general framework for the allocation o f rights, paying particular attention to (i) equity in the allocation, (ii) distribution o f social benefits, and (iiihuman ) welfare issues. (Cost: low) Develop a timeline for decision making and for the implementation o f effort reduction in the whole fishing industry, including a period for public vetting and securing financing. (Cost: low) Increase revenue capture from industry. (Cost: low) Restructure the industry’s debt by opening a dialogue with industry stakeholders and key donors. (Cost:

Recommended Medium- to LongTerm Actions 0

Reduce the capacity o f the fleet and fish plants to a level that maximizes net economic returns during normal years through a structural adjustment program. (Cost: high-but can be moderate through the use o f potential mechanisms for financing by industry)

hh)

Improve sector governance.

0

Explore market and regulatory mechanisms to ‘automatically’ adjust fleet activity and plant capacity during El Niiio events to (a) retain a h g h level o f net economic benefit and (b) facilitate rapid recovery o f the anchoveta and other stocks following such events. (Cost: moderate to high) Consider establishing an industry driven stabilizing fund to address the volatility o f the stocks and landings. (Cost: moderate) Ensure open public access to key information (biological, economic, fiscal, and social) about the fishery sector. (Cost: low) Strengthen the monitoring and enforcement o f fishery regulations. Strengthen the vessel monitoring, surveillance, and control (MCS) system. (Cost: moderate to high) Freeze any expansion o f the Viking Fleet and implement a vessel registry system to monitor the fleet. (Cost: low) Establish a multi-stakeholder working group to examine the tradeoffs and viability o f instituting a general framework for allocating fishing rights. Particular attention

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Create a system o f co-management with participation by industry, civil society, and other legitimate stakeholders in decisions affecting management o f the fisheries sector. (Cost: low)

Sustainably exploit fisheries resources through adoption o f an ecosystem approach to managing the fisheries sector.

should be given to (i) biological carrying capacity, (ii) social equity in the allocation process, and (iii) financing issues. (Cost: low) 0 Transfer to CONAM, DIGESA, and INRENA decisions related to (a) the drafting and adoption o f environmental standards for industry emissions, and to (b) monitoring and enforcement within an integrated framework o f these standards and o f environmental safeguards. (Cost: moderate) Strengthen the fisheries- and oceansresearch capacity o f IMARPE for science-based management o f marine resources. (Cost: high) 0 Establish a revised system o f fishery regulations to ensure the rational and sustainable harvest o f fish stocks. These regulations should address factors such as minimum fish size, seasonal closures, and gear restrictions. (Cost: moderate) Finalize the incorporation o f the Guano Reserve System (Sistema de Islas, Islotes y Puntas Guaneras) into the National System o f Natural Protected Areas (SINANPE). (Cost: low)

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0

0

Internalize environmental costs of the fisheries sector. Reduce andor eliminate the negative externalities o f the fishing industry o n the coastal population, the coastal environment, and the ecosystem. (Cost: moderate) Establish a system o f Marine Protected Areas to protect critical breeding and nursery habitats for threatened marine species and to protect areas o f high productivity for artisanal fisheries and aquaculture. (Cost: moderate)

CHAPTER 7 CONSERVATION OF NATURAL ASSETS: SOILS, FORESTS, AND BIODIVERSITY Much of Peru's economy depends on the effective utilization of its natural resource base. Peru has the world's eighth largest forest cove and a unique array of diverse biological resources, but the country has scarce soils to sustain its agriculture. The sustainable use of these resources is under threat from many sources, both natural and human-induced. The latter include migration to the Oriente, illegal logging, road and infrastructure development, threats to many endangered species, increasing soil erosion, and soil salinity problems on the Coast. Improving the management of Peru's diverse natural resource base w i l l require an improved policy and regulatory framework, a higher level of resources for its management and protection, and a renewed national commitment to sustainable natural resource management."

Introduction

Peru possesses a vast natural resource base that serves as the foundation for much o f i t s economy. Agriculture, fisheries, petroleum, natural gas, and forestry are among the most important economic sectors. Increasingly, though, the productive use o f these and other natural resources i s under threat from many sources, both natural and human-induced. Estimates o f total annual environmental damage in Peru, ranging from 6.0 to 10.4 billion soles, include an estimated 820 million to 1.51 billion soles due to soil degradation (erosion and salinity) and deforestation (Chapter 3). This chapter addresses the conservation o f natural assets in Peru, specifically soils, forests, and biodiversity. This chapter treats these three areas in turn, in each case examining the current situation, causes contributing to resource degradation, the institutional and policy framework, and recommendations for institutional and policy changes to reduce environmental degradation and promote future sustainable use o f these resources. 7.1

Soil Degradation Current Situation-Soil

Erosion a n d Soil Salinity

7.2 Soil erosion and soil salinity have long presented formidable constraints on improving the productivity o f Peruvian agriculture. A fact that cannot be stressed enough i s that cultivable land i s scarce in Peru. The country's 4.2 million hectares o f land in annual and perennial crops represent only about 3.3% o f the country's total area and amount to only about 0.16 hectare per capita, one o f lowest among developing nations. T h i s makes soil erosion, which affects all three regions o f the country (Coast, Sierra, and Oriente), all the more serious as a problem. O f the various types o f soil erosive processes in Peru, sheet erosion i s the most fkequent, accounting for an estimated 49.19 million hectares (Table 7.1). Sheet erosion i s not highly visible, occurring as rain falls on steep slopes and slowly dragging soil particles downhill. Sheet erosion does not producing noticeable r i l l s or gullies, but nonetheless causes loss o f soil fertility. The second important erosive process i s concentrated surface runoff that produces furrows (rills) 83

T h i s chapter was prepared by David Lee. T h i s chapter draws on background documents prepared by Jorge Elgegren (2005, 2006) and Juan Guerrero Barrantes (2006).

133

o f various depths, some eventually becoming deep ditches (>lm) or gullies. T h i s accounts for another 24,100 million hectares. Mass soil movement, sometimes resulting in mudflows and landslides, accounts for another 18.8 million hectares o f eroded soils. 7.3 Based on the most recently available statistics-which are from the 1970s and are severely outof-date-approximately 18.9 million hectares in Peru are affected by moderate-to-severe erosion (including nonarable land). On another 109.9 million hectares, erosion i s light to moderate (Table 7.2). Moderate-to-severe erosion i s most serious in the mountainous topography o f the Sierra, where it i s estimated to characterize 50% or more o f the region's soils, while another 40% o f the region's soils are affected by light-to-moderate erosion. Light soil erosion i s more prevalent in the soils o f the Coast and Oriente. ____

~

Table 7.1. Dominant Types o f Soil Erosion in Peru by Region (Million hectares) Type of Erosion Mudflow Sheet erosion Non-concentrated surface runoff

Rill erosion Rill and gully erosion Concentrated surface runoff

Coast 0.39 1.30 1.69

Sierra 1.52 4.92 4.92

0.75

15.75 7.60 23.35

0.75

Oriente 39.98 1.08 41.06

16.50 7.60 24.10 18.80

Mass movement (mudflow, seasonal soil creep, intensive sheet erosion, landslides) Mass movement and surface runoff due to torrential events

Total 41.89 7.30 49.19

18.80

3.50

3.50 17.30

Fluvial deposition TOTAL WATER EROSION

5.94

TOTAL WIND EROSION

5.60

I

TOTAL EROSION

I

77.16

I

112.89 5.60

3.80

3.80

5.70

3.80

9.50

17.24

37.39

Glacial processes and wind erosion Landslides and wind erosion

29.79

17.30

77.16

Table 7.2. Intensity o f Soil Erosion in Peru (1,000 Hectares)

Source: ONERN (1985)

134

131.79

7.4 Several studies have estimated the aggregate soil loss arising from soil erosion in Peru. Early on, Gamarra (1945) estimated annual sedimentation in Peru’s Coastal rivers at 63.2 million m3,representing a loss o f 316,000 hectares o f arable land. Reyes and Portocarrero (cited in Alfaro Moreno, 1984) estimated annual soil loss equivalent to 200,000-300,000 hectares annually. L o w (1966) estimated that 1,500 metric tons per km* annually were lost. The National Soil and Water Conservation Program (1986) estimated soil loss in 44 river basins on the western slopes o f Andes equivalent to 3 18,000 hectaredyear. Therefore, these estimates, however old, are roughly consistent. 7.5 Soil salinity i s not only a serious problem in Peru, but also a global problem that affects an estimated 1 billion hectares o f the world’s soils, representing 10% o f global arable lands (Szabolcs, the total amount o f soluble salt in the soil. Salts, especially nitrates and 1989). “Soil ~ a l i n i t y ” ’indicates ~ potassium, are necessary components o f soil. However, when they are present at high levels, they will adversely affect plant growth by inhibiting plants’ water uptake from the soil, aggravating water stress and causing nutrient imbalances, reduced water infiltration, and the accumulation o f toxic elements. High soil salinity can lead to plant stunting, leaf burn and defoliation, resulting in yield decreases and reduced forage quality. Inprinciple, soil salinity i s not difficult to manage. Saline and sodic (sodium-containing) soils exist in at least 100 countries, where an estimated 10 million hectares o f imgated land are abandoned annually because o f salinization, sodification, and waterlogging (Szabolcs, 1989). The main requisite for managing soil salinity i s adequate drainage, either natural or 7.6 manufactured. The degree o f soil salinity must first be determined by measuring the electrical conductivity o f a sample solution extracted from a water-saturated soil paste. Soil salinity i s typically measured, based on the extracted solution’s electrical conductivity, in units o f decisiemens per meter (dS/m) or millimhos per centimeter (mmhos/cm). “Evident salinity” i s that in excess o f 4 mmhos/cm; this i s further divided into “light” salinity (4-8 mmhos/cm)-the level at which most plants are adversely affected-and “heavy” salinity (>8 mmhos/cm) (Table 7.3). A value below the level o f “evident salinity” has been defined as “incipient salinity” for Peru (also Table 7.3). 7.7 Based on these criteria, more than 306,000 hectares--40% o f cultivated land in Peru’s Coastal Valleys-were affected by soil salinity in the 1970s. About 25% (roughly 190,000 hectares) was characterized by light to extreme salinity (above 4 mmhos/cm), enough to negatively affect crop productivity. The extensive nature o f the salinity problem i s demonstrated by the fact that, in 18 o f these Coastal valleys, over 60 percent o f cultivated land was characterized by some level o f soil salinity, and in another eight valleys, this figure was between 4 0 4 0 % o f cultivated land. The severity o f the problem i s confirmed by the results from evaluations o f soil salinity in 16 selected Coastal areas (also in the 1970s), showing that salinity affected fully 69% o f the soils evaluated (Table 7.4). 7.8 Together, soil erosion and soil salinity are estimated in Chapter 3 to result in W.544 to S/.918 million soles worth o f annual losses resulting from reduced crop yields and abandoned lands. It i s likely that these figures are conservative and significantly underestimate the severity o f the actual current economic losses resulting from soil degradation. Soil erosion and salinity data, though s t i l l reported by INRENA, are based on data assembled by i t s predecessor organization, the National Office o f Evaluation o f Natural Resources (ONERN), in the 1970s and 1980s. At this point, this information i s o f questionable utility, due to i t s age (20-30 years or more), the fact that soil salinity problems have likely worsened in the intervening years;, and the subjective criteria that were (and are) often used in reporting salinity problems. Lack o f monitoring makes it impossible to c o n f m the magnitude o f the current problem, but it i s widely reported to have become worse in key areas o f the Coast such as the Chira-Piura region.

84

The discussion o f soil salinity draws f r o m Kotuby-Amacher et al. (1 997).

135

Source: Ministry o f Agriculture Portal (2005), based on data from ONERN (1973)

136

Causes of Soil Degradation 7.9 There are many causes o f erosion in Peru. Peru’s Sierra region, accounting for nearly 30% o f the total national area o f 1.29 million Ian’, i s a mountainous area o f great topographic variation with mountain valleys ranging f i o m 1,500-3,000+ mas1 and widely characterized by steep slopes (FAO, 2002). This makes much o f the country’s soils highly vulnerable to erosion. Reinforcing this problem are seasonal rains in many areas, exacerbated by periodic occurrences o f El Ni60, most recently in 19971998, which have caused significant soil erosion and downstream sedimentation, as well as severe impacts on the human population. The lack o f protective measures-both natural and manufactured-n stream banks makes the impacts o f flooding even more severe. Wind erosion i s a major source o f soil erosion on the Coast. 7.10 Adding to these natural causes o f erosion are numerous human-induced influences. Overgrazing, particularly in the Sierra, which includes 90% o f the nation’s cattle, i s a common problem. Widespread deforestation (see next section), currently in the Oriente and earlier in the Sierra, has further exacerbated this problem. Poor crop cultivation practices also contribute to erosion. Data f i o m the Andean region (Peru and Ecuador) shows a close association o f cultivation practices and soil erosion (Table 7.5). Both choice o f crop and the use or non-use o f soil conservation practices-contour plowing, crop rotations, and fallow management, for example-have had significant impacts on the degree o f soil erosion. The magnitude o f the erosion problem i s illustrated by the Poechos Reservoir in northern Peru, which had an initial capacity o f 1 billion m3 when constructed in 1977. Now, sedimentation, due in part to poor soil management practices, has reduced this reservoir’s effective capacity to 400,000 m3.

I Table 7.4. Area Affected by Soil Salinity at Sites Evaluatedby ONERN (1973) I Area Evaluated Chicaza Moche, Viru and Chao Santa, Lacramarca, Nepeiia, Casma,

Atico, Caraveli, Pescadores and Ocoiia Majes and Camana Quilca and Tambo Osmore, Locumba, Sama and Caplina TOTAL

Number of Sites Evaluated 9 19 31

61

Area Evaluated (ha) 50,620 99,400 104,700

18,655

Area

YO

Affected

Affected (ha) 1,000 17,900 34,625

I

18,655

2 18 33

I

100

17 15 26

126,990 335,700 258,000

107,450 297,100 189,000

85 89 78

200

1,490,660

1,026,980

69

137

7.10

The problem o f soil salinity in Peru's Coastal valleys also has diverse causes. Heavily eroded desert soils, l o w in moisture and organic material and high in mineral salts due to their marine origins, have l e f t Peru's Coastal valleys with soils that have a high soluble salts content. Salinity i s further affected by a variety o f environmental and management factors, including climate and irrigation practices. As soil dries in hot, dry conditions, such as those on Peru's Coast, salts become concentrated, increasing salt stress. Consequently, salinity problems are most severe in these areas, but such problems are often accompanied by increasing irrigation frequency.

Table 7.5. Estimated Rates o f Soil Erosion for P e r u and Ecuador Authors FelipeMorales, 1993

Conditions (rainfall, slope)

Experiment

500-750 mm Slope: 25%

Runoff plots, 40 m2

Maize-potato-oats, mulching Maize-potato-oats, contour plowing; Maize-potato-oats, up-down plowing; Maize, up-down plowing

Simulation, USLE

Peru Southern Andes

Runoff plots, 40 m2

Natural vegetation Sweet potato, contour plowing

Low, 1966 Pastor, 1992

1,050 mm Slope: 3 0 4 0 %

Torre, 1985

2,000 mm Slope: 20%

Alegre & Rao, 1996

2,200 mm Slope: 15-20%

Byers, 1990 Harden, 1988

800-1,400 mm Slope: >SO%

Treatment

Erosion (mg/ha/yr)

Sweet potato, up-down plowing Clean fallow (bare land) Maize-pea rotation Pea-cassava rotation

3.7 6.9 14.2 20.0 0-70 10-30 0.4-1.1 0.6-1.4 1.8-4.0 3.1-14.9

445 12-70

Runoff plots, 150 m2

Contour hedgerow cropping Annual crops (rice, cowpeas) Bare soil

6 79 141

Rainfall simulations

Maize

82

Rainfall simulations

Thin dusty soils High-altitude, rich organic-matter soils Intermediate altitude, dark Andean soils

20 40 80

Source: Authors listed above, cited in Posthumus (2005)

7.12 The over-application o f water in excess o f plant demand often occurs during hot, dry periods to minimize salinity stress. T h i s leads to a highly inefficient system and high groundwater levels in the absence o f an adequate drainage system. Due to h g h evaporation, irrigation water i s o f poor quality. Overplanting o f rice uses a great deal o f water, up to 30,000 m3/hectare or more, worsening preexisting salinity and drainage problems. In major irrigation projects such as Chira-Piura, irrigation and drainage systems are poorly maintained; in many cases, they have fallen into total disrepair. h g a t i o n technologies that are more efficient than gravity irrigation, such as sprinkler and drip irrigation, are rarely used. Soil and water contamination further exacerbates the problem. Finally, l o w water costs, typically well below the cost o f water delivery, mean that little economic incentive exists for farmers to economize on water use.

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Soil Conservation Measures 7.13 Soil conservation measures are the primary means by which farmers can arrest soil erosion. Ideally, avoiding the deforesting and cultivation o f land inappropriate for agriculture would render these measures unnecessary. However, for land that i s already highly eroded, such as much o f the Peruvian Sierra, explicit measures are typically required to prevent further soil loss. The use o f these measures entails benefits-lower erosion, greater soil moisture retention, higher crop productivity-as well as costs, principally in terms o f labor inputs. Some soil conservation measures are ancient; estimates o f the extent o f remaining Incan and pre-Incan stepped terraces range from 200,000 hectares to ten times that amount (Inbar and Llerena, 2000), most o f which are abandoned or in disrepair.

7.14 The crop productivity effects o f soil conservation measures are well documented, although most applied research regarding Peru i s somewhat dated. Three studies, all from the late 1980s, compare crop yields from unterraced land to those with two types o f apcultural terraces, among the most commonly promoted soil conservation measures in Peru (Table 7.6). The results from the L a Encaiiada study, using ”slow formation” terraces in which the soil i s slowly built up over time, show a 17.6% increase in yields Table 7.6. Crop Productivity Effects o f Soil Conservation Measures Crop

Potato Maize Barley Andean tubers Drv beans Peas Potato Maize Barley Oats (for forage) Wheat Quinoa Oca** Olluco** Alfalfa Apples Potatoes (fertilized) Maize (fertilized) Barley (fertilized) Barley, forage (fertilized)

Yield without Soil Conservation Measures @/ha) 3,800 794 726 6.33 1 640 596

Yield with Terraces* (kg/ha) 4,300 95 1 798 6.709 755 830

Estimated Increase in Yields

(YO) 13.1 19.7 9.8 5.9 17.9 39.2

4,581 482 740 5,625 723 8,500 5,433 2,700 567 1,500

11,091 490 993 7,675 1,113 11,550 9,300 5,000 6,345 1,666

142.1 1.7 34.2 36.4 53.9 35.8 71.2 85.2 1019 11.1

12,206 1,807 1,333 15,865

17,206 2,982 1,910 23,000

41.0 65.0 43.3 45.0

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(simple average across six crops). The other two studies, using bench-type “water absorption” terraces, which require greater construction costs, demonstrate a 52.4% average yield increase85in the Cajamarca study and a 48.6% yield increase in the Colca Valley study. A recent study (FCPS, 2003) was conducted in three Sierra sub-watersheds in which soil conservation measures were introduced along with smallscale irrigation. T h i s study found yield increases ranging from 33% (beans, onions, wheat) to 200% (potatoes) and even 700% (alfalfa). Most crops achieved 50-1 00% yield gains. 7.15 T o achieve these gains requires labor and material inputs ranging from modest to substantial. The primary input i s labor, either paid or unpaid. Estimated costss6for the four most widely promoted soil conservation measures in Peru are available from previous studies. However, these studies range over a wide period, limiting the comparability o f economic and financial estimates (Table 7.7). The four measures include slow formation and water absorption terraces (both described above), the reconstruction o f traditional Andean terraces (Andenes), and water infiltration ditches. For all four measures, cost estimates vary widely depending o n factors such as the study’s location and date, soil type, soil moisture level, and cost o f local materials. Table 7.7. Construction Costs for Selected Soil Conservation Practices Soil Conservation Measure Reconstruction o f traditional Andean terraces (Andenes) Water absorption terraces (terrazas de absorcidn)

Slow formation terraces

(terrazas deformacidn Zenta)

infiltracidn)

Labor Investment 1,013 daysha

Estimated Cost ($/ha) $1,993-$3,985 (1996)’

600 daysha 1,250 daysha

$1,764-2,472 (labor only, 2005)2 $3,675-$5,150 (2005)3

1,000 dayslha

$2,940-$4,120 (labor only, 2005p

500 daysha

$3,323 (1994)4 $1,470-$2,060 (labor only, 2005)’

on soil type and soil moisture 2 10 daysha

$ 807 (1994)4 $250-$ 1 , 5 6 6 h (2005)5

$617-$865 (labor only, 2005)2 $ 1,649-$2,31 l h a (2005)6

’ Olarte and Trivelli (1999). Based on calculations made in 1989 and 1996. Excludes additional irrigation

costs o f $1,15Oha.

’World Food Programme (2000), Promocion de Desarrollo Sustentable de Microcuencas Altoandinas, WFP/EB.2/200016-A/21Add.1, Lima, Peru, May. Labor costs updated to 2005. M. Romero (2005), Instituto de Desarrollo y Medio Ambiente, Lima. Fondo de Contravalor PERU-SUIZA (1994). SBnchez Cevallos (1986), with labor costs updated to 2005. Fondo de Contravalor, PERU-SUIZA (1994), with labor costs updated to 2005.

For Andean terrace reconstruction, Treacy (1989) reports an even wider range o f labor costs, from 350 to 3,750 days per hectare. At 2005 labor cost level^,^' these amounts o f time would entail labor costs ranging from $1,029 to US$15,442 per hectare. Given these exceedingly wide ranges o f estimated costs The yield increase for alfalfa appears to be an outlier and i s excluded &om this calculation. Where possible, costs were updated to 2005. In two studies, the underlying data were not sufficiently disaggregated to enable this updating; thus, costs are reported in 1994 and 1996 US dollars. 2005 labor costs are estimated at 1C-14 soles per 6-hour workday (jornd), depending on location. s5

86

*’

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and yield levels stemming from soil conservation measures, as well as the outdated nature o f most cost estimates, it i s difficult to conclude whether investing in these measures represents an economic use o f resources for most farm households at present. Institutional and Policy Framework

7.15 The National Institute o f Natural Resources (Instituto Nacional de Recursos Naturales INRENA) i s the authority in charge o f promoting the sustainable management o f Peru's soil, water, and forestry resources. INRENA was created in 1992 as a successor institution to the National Office o f Natural Resource Evaluation (Oficina National de Evaluacidn de Recursos Naturales - ONERN), which had been in existence since the 1960s. Currently, INRENA's Water Resources Superintendency (Intendencia de Recursos Hidricos) i s the office directly responsible for administering the laws and regulations governing soil and water management. T h i s includes oversight o f 68 Irrigation Districts, o f which 63 are implemented jointly with local watershed management authorities (Administradores Ticnicos de Distritos de Riego - ATDR). The ATDRs are directly in charge o f local water and irrigation management in the Coastal valleys. The Autonomous Watershed Authorities (Autoridades Autdnomas de la Cuencas Hidrogrhjicas - PLACH), created between 1992 and 1994, are the ultimate decision-making authorities regarding the use o f irrigation water and soil management in the irrigated coastal zones, working in concert with INRENA representatives and water-users associations. 7.16 INRENA and other agencies working in irrigation management are greatly hampered by the 1969 Water L a w (No. 17752), which states that water i s state property and that there are n o "private property nor acquired rights" to water. The priority order for water use i s for human, animal, agricultural, energy, industrial and mining, and other purposes. The legal framework for water use was revised by subsequent regulations in 1989 (D.S. No. 037-89-AG) and 1990 (D.S. No. 003-90-AG). However, there i s s t i l l a widespread view among users that water rights are inalienable and that water use, except in irrigation projects (where water charges are typically well below cost), should be free. This has led to, among other things, the highly inefficient use o f water on the Coast and has stimulated the widespread cultivation o f crops like rice that, without below-cost charges for water use, would not be economically viable. More generally, the multiple demands on scarce water resources, especially on the Coast, as well as the lack o f price-based or other rationing mechanisms, have led to inefficiencies and inequities in water use that could be addressed by more integrated and economically oriented allocation mechanisms. As mentioned in Chapter 2, a strategy to for water resources management was developed in 2004 and a bill to modernize water resources management i s awaiting Congressional review. The enactment o f the bill would be a capital step to address the distortions generated by the current law (Bemales, 2006). The main initiative to address soil degradation issues i s the National Program o f Watershed 7.17 Management and Soil Conservation (Programa Nacional de Manejo de Cuencas Hidrogrhficas y Consewacibn de Suelos - PRONAMACHCS). It dates only from 2002, although previous programs with similar names and related responsibilities extend back to 1981. Over time, the focus o f this program has changed from a technical emphasis on soil conservation to a broader focus on sustainable natural resource management. In the 1990s, PRONAMACHCS became highly politicized and lost much o f i t s technical focus. I t s current strategy focuses on enhancing livelihoods and strengthening production-marketing chains in a target population that includes 5,000 communities in 850 watersheds, containing an estimated 170,000 families living in poverty and extreme poverty. Specific program activities include small-scale irrigation infrastructure, technology transfer, reforestation, rural community organization, and agtlcultural marketing. Although the institution has 125 regional offices serving 18 Departments, continuing budgetary cutbacks have reduced the professional staff in each office from five to as few as one or two (each office has a target population averaging 40 communities and 1,300-1,400 families). Much activity focuses specifically on eight selected "model" sub-watershed areas.

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7.18 Financing for PRONAMACHCS's activities has been heavily dependent on external donors. The Japan Bank for International Cooperation (JBIC) has financed over $155 million worth o f support over the span o f many years. The World Bank has supported a project on Intensive Management o f H i g h Altitude Watersheds (MIMA) in three Sierra sub-watersheds (in Cajamarca, Hunin, and Cuzco Departments). A $51 million Bank loan complemented by $14.3 in GoP support and $27.9 million o f inkind community labor supported the Natural Resource Management for Poverty Alleviation in the Sierra Project in 1997-2002. PRONAMACHCS's total budget has declined from about US$93 million in 2000, to $84 million in 2001, and $42 million o n 2004. T h e current (2005) budget totals roughly $38.34 million, which i s distributed across five major categories (Table 7.8). The project's past focus on soil conservation now accounts for only a small proportion o f the total portfolio, while production, irrigation infrastructure, and marketing assistance to agricultural producers and reforestation have assumed much larger shares. Among specific soil conservation measures, expenditure allocations for 2005 were as follows: 9.2% for rehabilitating Andenes (traditional Andean terraces), 77.7 for constructing terraces, 11.8% for infiltration ditches, and 1.3% for controlling gully erosion. Nearly 80% o f the soil conservation budget i s spent on general coordination o f watershed management activities, training and other costs (A. Toscano, personal communication, 2005).

* At 3.4 soles per U S dollar, t h i s equals an annual program budget o f approximately US$38.34 million in 2005. Source: PRONAMACHCS (2005), Cumulative Budget Summary 7.19 As was the case for erosion, GoP attention to the salinity problems o f Coastal valleys began in the 1960s and 1970s. The MAG addressed this problem by creating the Land Recuperation Center (Centro de Recuperacidn de Tierras - CENDRET, 1967-1974) and later the Subdirectorate for Land Rehabilitation (SUDRET, 1970-1974). The salinity data reported above stem from these early efforts. T h i s was followed by the National Plan for the Rehabilitation o f Coastal Lands (Plan Nucional de Rehabilitation de Tierras Costeras - REHATIC, 1977-1990) and by the National Program for Land Drainage and Recuperation (PRONADRET, 1991-1 995). This institutional legacy disappeared during the 1990s under the Fujimori administration (1990-2000), when the General Directorate for Water and Soils was transferred to INRENA. INRENA's current Water Resources Office has l i t t l e technical expertise and i t s efforts to address soil salinity and drainage problems are greatly reduced compared to earlier years. 7.20 Another agency, the National Institute for Development (Instituto Nacional de Desarrollo NADE), despite i t s broad title, was created in the 1990s. I t s specific focus i s managing large-scale irrigation projects in ten Coastal watersheds that serve multiple uses: water storage for domestic and industrial use, energy generation, and irrigation. Together, nine o f these projects total more than 570,544 hectares o f improved, new, and rehabilitated Coastal lands (plus 3.1 1 million hectares "involved" in the Chavimochic Project in the Chao-Viru-Moche-Chicama region). Principal projects include the binational (with Ecuador) Puyango-Tumbes Project (126,000 hectares in both countries), the Chira-Piura Project (83,356 hectares in three areas), and the Tinajones Project, covering 200,000 hectares. Total investment in these projects through 2000 was US$3.367 billion, with total projected costs o f US$11.283 billion.

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7.2 1 INRENA's Office o f Trans-sectoral Environmental Management, Evaluation, and Information o f Natural Resources (Oficina de Gestibn Ambiental Transectorial, Evaluacibn e Informacidn de 10s Recursos Naturales - OGATEIRN) i s responsible for coordinating the national response to problems o f desertification, which i s closely related to soil salinity problems on the Coast. In 1994, Peru's Congress approved the UN Convention to Combat Desertification. In July 2001, Peru's National Action Plan to Combat Desertification (PAN-PERU) was authorized. Just recently, in June 2005, the National Committee to Combat Desertification was authorized. Peru's national effort i s very modest, comprising only two staff members. T h i s office engages in a variety o f activities primarily involving coordination with researchers, NGOs and university collaborators, entailing efforts to evaluate soil salinity problems in selected Coastal valleys (including Chancay, Lambayeque, Chao, Tambo and Sama); the early stages o f a monitoring and evaluation effort; and the elaboration o f a database on salinity problems on the Coast. 7.22 Also within INRENA, the Special Land Titling and Rural Cadaster Project (Proyecto Especial Titulacibn de Tierras y Catastro Rural - P E P ) has, since 1992, had responsibility for land titling and cadastral registry o f expropriated and state-owned land, as well as for the promotion o f private sector and cooperative investment in the rural sector. Beginning in 1996, with support from the Inter-American Development Bank and the collaboration o f the National Superintendency o f Public Registry (SUNARP), the Land Titling and Registry Project (PTRT) has devoted significant resources to cadastral surveys and land titling o f farms and rural landholdings in Peru. By the end o f the project's first phase in 2001, it had titled more than 900,000 farms (IADB, 2001). Land titling i s widely recognized as a valuable mechanism to encourage long-term investment in land improvements and farm productivity.

A number o f other governmental and non-government-based efforts attempt to improve land 7.23 management. The National Network for Watershed Management (REDNAMAC) i s composed o f public, private, and N G O sector participants and has the objective o f coordinating, promoting, and diffusing work in watershed management. I t s Coordinator heads INRENA's Directorate o f Waters and Soils, and i t s national technical committee i s composed o f public sector and N G O representatives. Among NGO-led projects, the SESA (Sewicio Silvo Agropecuario) project at the National University in Cajamarca i s perhaps the best known, especially for i t s work in reforestation and soil and water conservation.

Recommendations Regarding Soils 7.24 In large part, the recommendations below have a common origin: the progressive disinvestment o f the Peruvian government in mechanisms to address soil degradation issues over the past 30 years. Given the scarcity o f Peru's arable soils, this disinvestment has come at a price: high levels o f eroded land and increasing salinity problems in many areas o f the Coast. A number o f changes in policy, technical assistance, and investments would help redress this situation, in both the short and long terms.

Policy 1. Revise the 1969 Water L a w to authorize broad-based fees for water use. The restrictions o f the 1969 law were only partially addressed in 1989 and 1990 legislation, and the inalienable "right to water" continues to be a powerful impediment to the use o f water charges. Allowing for water pricing where it does not exist, and for higher charges where it does, will help address massive water use inefficiencies in the Coastal valleys, and will lead to more rational resource management. Where water pricing does already exist, in Coastal irrigation projects, water use fees are typically far below cost. Thus, in the short run, increasing water use fees and the resulting longer-run improved land management patterns can be expected to address soil salinization through less overuse, especially for rice. Moreover, funds can be generated to invest in maintaining irrigation systems. Soil conservation research has demonstrated significant payoffs from improved water use in the Sierra.

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2.

Create a new Water Resources Agency. Water i s a critical resource in Peru, with strict competition for multiple uses, especially on the Coast and in the Sierra. Peru has several institutions with a role in water management, but none that has broad-based responsibilities for the integrated management o f Peru's water resources. INRENA's Water Resources Superintendency has general responsibility for administering laws and regulations regarding soil and water management. As a practical matter, much of INRENA's attention focuses on the Coast's irrigated areas, where INRENA jointly administers the irrigation districts with the ATDRs; ultimate authority for water storage release rests with the AACHs. INVADE focuses on construction and engineering issues in large-scale Coastal irrigation projects. Transferring responsibilities for water management from INRENA and assigning this global task to a new Water Resources Agency could be accomplished in the short run and with relatively l o w investment. T h i s change could strengthen the general management o f this critical resource and better insulate the government from the short-term demands o f water users. T h e Agency could continue to work with the local ATDRs and AACHs, much as at present. INADE could continue i t s largely technical role. However, the new agency would have an overall coordinating role as well as responsibility for assuring sustainable long-term availability o f water resources, including reconciling short-term demands with long-term best interests. T o assure i t s success, greater budget support than exists at present would be required.

Technical Assistance 1. Strengthen institutional technical capacity to address soil degradation. Peru's institutional capacity to deal with problems o f soil erosion and soil salinity has diminished greatly since the 1970s. T h e ability o f INRENA to address soil degradation should be strengthened over the medium to long run, even if only to monitor and assess the nature o f these problems-and this should certainly be done if greater level o f public sector intervention i s sought. This includes the Water Resources Office, OGATEIRN, PRONAMACHCS, INADE and other offices. The creation o f a new independent Water Resources Agency would enable INRENA to focus more narrowly on soil degradation issues. 2. Conduct comprehensive feasibility analysis o f soil conservation investments. Many millions o f dollars o f both donor and government funds have been spent on soil conservation investments over the years. However, the evidence on the costs versus benefits o f these investments i s inconsistent and out-of-date. PRONAMACHCS has emphasized the building o f terraces (among other interventions), but some estimates show the reconstruction o f traditional Andean terraces to be less expensive, Overall, i t i s not at all clear which o f these conservation investments are cost-effective given current labor costs. There i s likely to be considerable payoff from conducting, as early as possible, comprehensive feasibility analyses o f alternative conservation investments before expending further funds. T h i s could be accomplished in the short to medium run, with returns from improved public investment strategies generated over the long run, as funding i s increasingly directed toward high-payoff investments and away from those with l o w economic rates o f return.

Investments 1. Conduct new national inventories o f soil erosion and soil salinity. T h e last comprehensive inventories were conducted in the 1970s (soil erosion) and 1980s (soil salinity), and are now severely out-of-date, especially given the rate at which soils can degrade. New comprehensive soil inventories should be conducted. Such inventories should constitute de technical input for a campaign aimed at raising awareness about the constraints that soil degradation can impose on economic growth. Regarding soil erosion, these inventories should have a national focus; regarding soil salinity, they should focus on the Coastal valleys. They should be based on up-to-date soil monitoring techniques, equipment, and extensive ground-truthing. Various government entities, including INRENA, are involved in the Ecological and Economic Zoning (Zonifcacidn Ecoldgica y Econdmica) process, but these efforts are typically inconsistent across levels and agencies o f government, and do not include conducting inventories o f soil

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and water resources. Without an adequate and up-to-date data base to assess the magnitude and nature o f soil erosion and salinity problems, other public policy alternatives are premature. Conducting these inventories should be part o f a long-term strategy to use improved information on Peru’s soils to focus future public investments in the most cost-effective manner and in the areas that have the highest potential.

Deforestation Current Situation 7.25 Based on the most recent data, Peru i s estimated to have 68.74 million hectares o f natural forests (FA0 and INRENA, 2005). T h i s i s the world’s eighth most extensive forest cover and second to Brazil in Latin America. Data fi-om Peru’s Report to the FAO’s Forest Resources Assessment (Table 7.9) show that forest cover accounts for roughly 53.5% o f the total national territory o f 1.29 million hectares. However, Peru’s forests are distributed highly unevenly across the country, with virtually all (99.4%) o f the country’s forests located in the eastern (Oriente) part o f the country. The Coastal region has been depleted almost entirely o f i t s forest cover o f mangroves and dry and sub-humid forests. In the Andean highlands, somewhat over 300,000 hectares o f forests remain, including small extensions o f original Polylepis forest.

Table 7.9. Peru: Total Forest Cover and by Regions, 1975-2005 (hectares)

7.26 At the outset, one must note that time-trend data o n forest cover and deforestation in Peru are not highly conclusive, because they come from different sources and use diverse and non-comparable methods o f data collection and estimation (Elgegren, 2005). Forest cover estimates for Peru’s Amazonian region have been revised in a recent study conducted by Peru’s National Environmental Council (CONAM) and INRENA. 7.27 The property rights regime governing forests in Peru i s composed o f two major categories: private ownership and public (state-owned) property. Each has four major subcategories (Table 7.10), although there i s little reliable data on forest cover for most private property. State-owned forest land i s comprised o f Permanent Production Forests, available for timber production through public bidding or competition; Conservation Concessions, non-timber forest concessions used for biodiversity conservation projects and other non-consumptive activities such as ecotourism, research and education; Natural Protected Areas, also used for biodiversity conservation as well as for cultural, landscape and scientific uses; and State Reserves, available for subsistence purposes by indigenous groups. Currently, there are over 25 million hectares o f permanent (sustainable) timber production, and over 14 million hectares o f forests under protected area status. 7.28 Although Peru has extensive forest resources, it i s not a leading country in the production o f timber and forest products. O f a total US$186 billion o f forest products traded internationally in 2002

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(Seneca Creek Associates and Wood Resources International, 2004), Peru’s exports o f forest products accounted for roughly $136 million that year, representing less than 0.01% o f world sales (INRENA-CIF, 2004). Nonetheless, Peru’s forest sector ran an annual average $116,280 trade account deficit for the 1994-2003 periods (INRENA, 2005). This suggests that great scope exists for further commercial development o f Peru’s forestry resources. Table 7.10. Forest Property Rights Regimes, 1990-2004 1990

2000

2004

13,784.31 Other areas3 I 20,140.69 I 1,203.26 1 TOTAL 69,213.26 68 742.06 O f t h i s land, some 7.5 million hectares are under concession contracts as o f October 2005. ’As o f October 2005, conservation concessions had increased to a total o f 199,623 hectares and ecotourism concessions cover 43,190 hectares. The total area o f these categories now amounts to 242,813 hectares. Definedas the difference between total forest and the two other categories. Source: F A 0 and INRENA (2005)

7.29 Past analyses o f deforestation in Peru have shown dramatically different results. The most widely cited estimate, which i s based on data through 2000 provided by Peru’s National Institute o f Natural Resources (INRENA), has been an annual rate o f deforestation o f 261,000 hectares (Reitegui, 1996; CIFOR, 2003), with cumulative forest loss o f 9.6 million hectares over the last 25 years. However, C O N A M and INRENA jointly undertook a recent comprehensive study: the National Capacity Strengthening Program to Manage the Impact o f Climate Change and Airborne Pollution (PROCLIM). This study has recalculated deforestation for the period 1990-2000 for the Peruvian Amazon, based on Landsat imagery (scale o f 1: 100,000), extensive ground-truthing, and forestry inventories on 120 forest plots in the Peruvian Amazon. 7.30 Overall, the PROCLIM study estimates the deforestation rate between 1990 and 2000 at 149,632 hectares per year. This figure i s roughly consistent with a recent study conducted by the Universidad Nacional-La Molina’s Conservation Data Center (CDC) and the World Wildlife Fund (WWF) o f three areas in the Peruvian Amazon, which projected annual deforestation for 1996-2001 at 136,000 hectaresgg. By comparison, estimates o f annual deforestation in neighboring countries are as follows: Bolivia -168,000 hectares2 (1975-1993); Brazil - 1,850,600 hectares2 (1990-2004), increasing to 2,612,900 hectares’ in 2004; and Ecuador - 189,000 hectares’ to 300,000 hectares2 (Butler, 2004; Mecham, 2001). Cumulative deforested areas in Peru’s Oriente Region show that San Martin, Amazonas, and Loreto are The USAID-sponsoredCDC-WWF study involves three regions covering about 7.87 million hectares, or roughly 10.2% o f the Peruvian Amazon.

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the regions most severely affected by deforestation, followed by Junin, Ucayali, and Huinuco (Table 7.11). Most o f this forest loss i s due to land conversion to agnculture and grazing, but other drivers include road opening and maintenance, coca cultivation and illegal logging (discussed in next section).

Table 7.11. Cumulative DeforestedArea through Year 2000 by Department Department San Martin Amazonas Loreto Junin Ucayali Huanuco cusco Caiamarca Pasco Madre de Dios Puno Ay acucho Huancavelica Piura L a Libertad TOTAL

Department

Amazonas Loreto Cajamarca cusco Madre de Dios Junin Ucayali Huinuco Puno Piura Huantavelica San Martin Pasco

Ayacucho L a Libertad TOTAL

% of total deforested area 18.5 14.0 13.2 10.2 8.7 8.4 7.5 7.3 4.2 2.8 2.0 1.9 0.7 0.4 0.1 100.0

Deforested Area (ha) 1,327,736 1,001,540 945.642 734,304 627,097 600.655 537,632 520.062 302,021 203,892 146,04 1 135,373 51,991 3 1,737 7,232 7,172,954

Adjusted Deforestation 1990" (ha)

645,582 638,071 366,618 395,850 79,268 622,859 547,750 532,457 101,358 287 23,561 1,300,O 14

1,001,467 945,591 520,030 537,601 203,879 734,273 627,064 600,620 146,033 31.735 5 1,987 1,327,669

Estimated Increase in Deforestation 1990-2000 (ha) 355,885 307,520 153,413 141,752 124,611 111,414 79,315 68,163 44,676 3 1.448 28,426 27,655

128,642 6,570 5,676,236

135,366 7,23 1 7,172,554

6,725 662 1,496,3 186

287 353

Deforestation 2000** (ha)

302 008

14 6 5 5

I Source: PROCLIM (2005) 147

% Increase in Deforestation 1990-2000

M e a n Annual Deforestation 1990-2000 (ha)

35 588,52 30 75 1,97 15 341,29 14 175,16 12 461,lO 11 141,36 7 931,48 6 816,30 4 467,55 3 144.81 2 842,61 2 765,47

23.78 20.55 10.25 9.47 8.33 7.45 5.30 4.56 2.99 2.10 1.90 1.85

672,47 66,17 149,63 1,76

0.45 0.04 100.0

1 465 5 1

0 98

7.3 1 The recent estimate o f Peruvian deforestation o f roughly 150,000 hectares annually should not be interpreted as a decline in the rate o f deforestation from earlier years, but rather as an improved As discussed in Chapter 3, the estimated annual cost o f deforestation during the 1990-2000 e~timate.'~ decade i s U.280-590 million. T h i s includes the estimated value o f the sustainable flow o f future forestry benefits. From Table 7.12, it i s clear that Amazonas i s the Department with the largest increase in deforestation during this period, followed by Loreto and Cajamarca, while the Departments with the smallest increase in deforestation for the same period are L a Libertad, Ayacucho, and Pasco. 7.32 Forestry plantations are o f increasing importance in Peru. Reforestation programs date from the 1960s, when they were supported by an IDB loan that permitted the reforestation o f 56,000 hectares through 1974. T h i s was followed by an Amazon Reforestation Royalty in the 1980s (100,000 hectares), and since 1988, promotion o f reforestation in the Sierra by the National Watershed Management and Soil Conservation Program (PRONAMACHCS). The result o f these efforts i s the growth o f forestry plantations from about 262,997 hectares in 1990 to 754,244 hectares in 2003 (FA0 and INRENA, 2005). However, most o f this land i s designed for watershed protection, not timber production.

Causes of Deforestation 7.33 The causes o f deforestation in Peru are varied and complex. The proximate causes o f deforestation typically receive greatest attention, though a recent study by Alcalde (2002) also addresses the enabling conditions behind deforestation in Peru. As i s true throughout much o f the world, small subsistence migrants from the Sierra and some parts o f the Coast use slash-and-burn agriculture to open their small agricultural plots. Rowe et al. (1992) estimate that smallholder agriculturalists account for as much as two-thirds o f deforestation globally. Large-scale commercial agriculture and plantations convert forested land to agricultural use for commercial crops such as o i l palm, sugar cane, rubber, coffee, cacao, and tropical h i t . This sometimes pushes small subsistence migrants even further into the forest. Narcotics traffickers clear forests to grow coca and to build illegal runways to transport illegal drugs, mainly coca base paste and cocaine. Garnica (2001) estimates that coca plantations have deforested 2.3 million hectares in Peru, about half o f which i s in San Martin (800,000 hectares) and Hudnuco (450,000 hectares); i f accurate, this would account for nearly one-third the total deforestation in the Peruvian Amazon. 7.34 Cattle ranching, typically in areas from 30 to 50 hectares (unlike the extensive cattle ranches in the Brazilian Amazon), sometimes pushes small subsistence migrants further into the forest. Loggers build forest roads to transport commercial timber from the harvest area to the main roads; these secondary roads then allow migrants into the forest. Petroleum, natural gas and mining all involve geographically focused direct impacts on forests due to exploration and exploitation activities, including the construction o f roads and facilities, as well as indirect impacts associated with increased colonization and agricultural land uses due to those activities. Rural colonization programs have promoted the relocation o f colonists into forested land. Infrastructure development, particularly the opening o f roads, has promoted forest clearing and has made millions o f hectares o f tropical forests more accessible to colonization by settlers. Although it i s not intrinsically destructive o f forests if conducted in a sustainable fashion, firewood gathering and charcoal production tends to significantly affect the forest and forest fauna to the extent it i s highly selective o f commercial timber species and closer to urban areas. 7.35 Illegal logging and, more generally, illegal trade in timber are an important cause o f deforestation. Since forest concessionaires must pay harvest fees and produce according to costly T h e earlier estimate o f 261,000 hectares annually beginning in the mid-1970s through the end o f the 1990s was based on alternative methodologies that are not directly comparable with the improved estimates obtained from the PROCLIM study (see Table 7.9). 89

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sustainable forest management plans, illegal loggers have a competitive advantage from avoiding these costs. Illegal harvesting i s highly selective: 80% o f mahogany i s reported to be illegally extracted and sold. The worldwide economic loss from illegal logging has been estimated in the range o f $10-1 5 billion annually (Contreras-Hemosilla, 2002) to $23 billion (Seneca Creek Associates and Wood Resources International, 2004). In Peru, conservative estimates value the economic cost o f illegal logging associated to mahogany alone at $40-70 milliodyear (M. Romero, WWF-Peru, personal communications, 2005). I t should be emphasized that without a market in the illegal timber trade, illegal logging would not be a remunerative activity. 7.36 Recent PROCLIM data on the current uses o f Peru’s deforested land provide some idea o f the magnitudes o f the different factors leading to deforestation. The data show that agnculture-including cultivated land, fallowed land, and newly opened agncultural plots-covers approximately 609,5 15 hectares o f the Peruvian Amazon. This includes annual crops such as maize, cassava, and rice, and perennial crops such as citrus, sugar cane, banana, o i l palm, and peach palm. About 440,000 hectares (63.8% o f total deforested agncultural land) i s in three Departments: Amazonas, San Martin, and Loreto. Grazing and pasture use account for nearly twice as much land (1,179, 983 hectares), with four Departments (Amazonas, Cusco, Ucayali and Cajamarca) accounting for 63.4% o f the total. Secondary forests cover 2,067,765 hectares, o f which 76.5% i s in the Departments o f San Martin, Loreto, Cusco, Huhnuco, Amazonas, and Ucayali. A mixed category o f secondary forests and agriculture occupies an estimated 3,166,728 hectares, by far the largest in the Peruvian Amazon, more than half (52%) o f which i s in San Martin, Loreto and Junin. Finally, a ‘bare land’ category o f 65,565 hectares includes areas occupied by energy and mining infrastructure; more than half o f this i s in San Martin and Loreto. 7.37 More basic enabling causes o f deforestation underlie these factors (Alcalde, 2002; Roger and Roberts, 1999). Peru’s annual population growth i s approximately 400,000 inhabitants o n a base o f roughly 26,749,000 total inhabitants (INEI, 2002), leading to increasing demand for land and resources. As previously discussed, poverty in Peru i s extensive, with over half (51.6%) o f the population in conditions o f poverty, and the extreme poor accounting for nearly 25% o f the population (MI,2004). As much as 70% o f the rural population i s estimated to live in poverty. Malnutrition and food insecurity are highly correlated with poverty. I t i s logical for the rural poor, given their limited economic opportunities, to regard the country’s forested areas as an attractive solution to their economic problems. 7.38 Other causes o f deforestation relate to policy failures or unforeseen impacts. Tax exemptions for imported equipment and machinery, and government-supported infrastructure projects have promoted regional development at the expense o f impacts on forests. The B e l a h d e administration in the 1960s and 1980s promoted agriculture in the Amazon basin, misconceiving this region as the nation’s food pantry. Land titles in Peru are still granted only on deforested land, so that land suitable for forestry purposes i s converted to agriculture or cattle ranching. Most recently, the CDC has released a report (2004) correlating deforestation rates in Huallga, Pachtea-Aguaytia, and Aprurimac valleys with road rehabilitation sponsored by USAID and Peru’s Ministry o f Transport and Communication. They find one additional kilometer o f road opening and maintenance i s associated with 1,000 hectares o f forest loss. There i s concern among many that the opening o f the Inter-Oceanic Highway connecting Brazil with Peru’s Pacific ports may greatly stimulate in-migration and deforestation if l e f t uncontrolled. 7.39 Past studies’ lack o f comparable data and their analytical methods limit the ability to accurately estimate changes over time in deforestation. However, a good deal o f anecdotal evidence suggests that many o f the factors that underlay deforestation in the 1980s, and that may have retrenched in the 1990s, may resume their roles in the current decade. Weak economic growth that characterized much o f the 1990s has reversed course, and, on both supply and demand sides, a stronger national economy would be expected to contribute to pressures on forest resources. Peru’s internal security situation was precarious in the 1990s and led to significant migration from rural to urban areas helping relieve the demand for forest

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products. However, the security situation has improved markedly. Migration to areas in the Oriente, especially from the Coast continues, and pressure on forest resources continues due to land encroachment, lack o f adequate titling and poor enforcement capability. The exploitation o f forestland for coca plantations continues, although the inherent nature o f this activity makes estimates o f i t s magnitude difficult. Finally, following a decade or more o f little government investment in infrastructure projects, the construction o f the Inter-Oceanic Highway has the potential to greatly exacerbate deforestation in the affected areas. In sum, the combination o f factors which, by some accounts, may have lessened the pressures on Peru's forest resources in the 1990's, together have the potential to exacerbate deforestation in the current decade if not addressed. 7.40 A final underlying cause o f deforestation i s the lack o f understanding and economic undervaluation o f the environmental services provided by the forest, which discounts their incorporation into private and public decision making. A variety o f studies i s starting to provide insights into these economic values. FONDEBOSQUE (E. Toledo, personal communication, 2005) has recently estimated the economic loss due to slash-and-bum agriculture in Peru's Amazon basin, including timber and nontimber products, at US$1.6 to US$2.0 b i l l i ~ d y e a r . 'Chambi ~ (2002) estimates the carbon sequestration value o f forestland covering 2.26 million hectares in Madre de Dios, Puno, and Cuzco at $1.26 billion in the year 2000, projected to $2.47 billion in 2010. H e also estimates the total economic value o f biodiversity as US$1.851 billion in 2000, including both direct (e.g., fishing, Brazil nuts and timber), indirect (e.g., carbon sequestration), option and existence values. Portilla (2002) estimated the total economic value o f the 86,673-hectare Cerro Escalera Protected Forest in San Martin at $496.5 million in the year 2000, including both direct and indirect (environmental service) values. Malca (2002) estimates willingness-to-accept in compensation for changing the actual land use from shifting cultivation to conservation ($67ihectares/year) and agroforestry ($45SO/hectares/year). Three willingness-to-pay studies o f entrance fees to national parks and protected areas find that average WTP i s 50-100% higher than current entrance fees (Buendia, 1999; Diez, 2002; Vigo, 2005), suggesting considerable scope for recovering higher economic surpluses.

Institutional and Policy Framework 7.41 Prior to the year 2000, Peru's forest sector was governed by the 1975 Forest and Wildlife L a w (Law No. 21 147). This law was conceived o f as a redistributive mechanism to encourage resource-poor loggers to enter forest-related activities and thereby alleviate rural poverty. In addition to this questionable premise, the law had a number o f serious flaws in execution. Annual forest contracts were overly small (1,000 hectares) and not economically viable; this was compounded by the problematic role o f intermediaries (habilitadores), and led to a great deal o f unauthorized timber harvesting and trade, especially in mahogany. Very little recognition was given to the needs o f indigenous populations. The existence o f an exploitative relationship-described as a "feudal" relationship (Bedoya and Bedoya, the timber industry, intermediaries, and resource-poor small loggers made it difficult for 2005)--between the latter to operate effectively. Overall, the law l e f t considerable scope for ambiguity and corruption in the management o f forestry contracts.

A number o f initiatives, including preparation o f a National Forestry Strategy covering 19857.42 1996 and a national debate extending over much o f the 1990s, eventually led to the passage o f the new Forestry and Wildlife L a w (No. 27308) in 2000, designed to promote the reform and modernization o f the country's forest sector. In 2001, the regulatory framework supporting the law was also passed. Enactment o f both the law and regulatory framework followed intense national debate in Congress and

'O T h i s figure i s based on an estimated deforestationrate o f 250,000 hdyr, and thus should be revisited in view of the results o f the PROCLIM Project, which estimated annual deforestationin Peru's Amazon at roughly 150,000 hdyr.

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public forums among timber industry representatives and those with a stake in the old system, as well as local and international organizations, community leaders and other authorities. The new Forestry L a w and its centerpiece, the introduction o f timber concessions under 7.43 INRENA's supervision, represent a significant improvement over the old legal framework, although implementation problems continue. The new framework for timber concessions9' has the following main features: (1) Access to timber resources through transparent public bidding. (2) Concessions may become tradable. (3) Concessions are granted for 40 years (versus annual contracts under the old law), renewable based on five-year compliance evaluations. (4) Concessions cover from 5,000 to 50,000 hectares (versus 1,000-hectare contracts previously). (5) A General Forest Management Plan (PGMF), containing financial projections for the 40-year contract period, i s required immediately after signing the contract. (6) A specific Annual Logging Plan (POA), mapping the trees to be harvested each year, i s required prior to the authorization o f h a r v e ~ t i n g .(7) ~ ~ Concessions may be used as collateral for accessing bank financing. (8) Incentives are introduced for (i)voluntary forest certification to promote access to international markets for certified wood products (a 25% discount on annual harvest fees); and for (ii) processing timber locally, to promote increased value added and the generation o f employment at the local level (an additional 25% discount o n the harvest fee).

INFENA launched the forest concessions process in March 2002, after establishing the forestry 7.44 base suitable for timber production (column two in Table 7.13). T h e total area o f potential forest concessions amounts to 24.34 million hectares, almost 15 million o f which are in Loreto. By the end o f 2004, over 7.5 million hectares o f forest had been awarded in the form o f forest concessions to 576 concessionaires for timber production in Madre de Dios, Ucayali, Huhnuco, San Martin, and Loreto.

The new Forestry L a w introduced some other innovative features. A new forest use category, 7.45 Forest Recuperation Areas, was defined, where concessions can be granted o n bare or open land for afforestation and reforestation. The L a w created Forest Management Committees to involve local stakeholders in monitoring sustainable forest use to help assure compliance with the Law, the PGMFs, 9' The Forestry and Wildlife L a w o f 2000 and its 2001 Regulation permit other forms o f access t o timber resources: (1) permits from native communities, (2) permits from private agricultural and grazing plots, (3) extraction from local forests, (4) authorizations from northern tropical dry forests, (5) authorization for clear cutting (e.g., for road opening) and (6) authorization for the use o f trees and shrubs stranded on river banks. Other forms o f access to non-timber resources include (1) Brazil nut concessions, (2) afforestatiodreforestation concessions, (3) conservation concessions, (4) protection concessions, and (5) ecotourism concessions. 92 Failure to submit the General Plan or the Logging Plan to INRENA for approval, or not getting approval, i s a cause for nullifyingthe concession contract.

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and the POAs. T h e L a w also created so-called 'Local Forests', 500-hectare forest plots for use by local communities. Finally, the law introduced the possibility o f financing environmental services provided by forests for soil protection, water regulation, biodiversity conservation, and other purposes. In August 2005, INRENA formed a task force to plan PEPS implementation.

INRENA's Forestry Superintendency i s responsible for managing forestry concessions and 7.46 related programs. The Multi-Sectoral Commission to Fight Illegal Logging, created in 2002 with representation from several ministries and SUNHAT (the national tax agency), released the National Strategy to Fight Illegal Logging in November 2004. It was succeeded by another commission o f the same name, which became operational in March 2005, whose mandate i s to implement the National Strategy to Fight Illegal Logging through the following three actions. (a) Strengthen INRENA's organizational and institutional capabilities in forest control and supervision. (b) design and implement a system for law enforcement, timber tracking, forest raids, and timber trade transparency. (c) Promote and support participation by civil society and the local population in forest control and supervision. As part o f the strategy, INRENA i s developing a computer system and database to effectively review, evaluate, and manage concessions nationwide. 7.47 Other agencies and organizations are also important in the forestry sector. The Supervisory Agency for Forest Resources (OSINFOR), which was absorbed into INRENA in 2004, i s charged with enforcing the forestry law, including the GoP's quota o n mahogany exports, now set at 23,621 metric tons. The concentration o f both management and enforcement responsibilities in INRENA has resulted in ambiguity and inconsistency in the execution o f governmental management functions. Like similar institutions in Brazil, Paraguay, and elsewhere, Peru's National Forestry Consensus-Building Roundtable (Mesa Nacional de Dicilogo y Concertacidn Forestal - MNDCF) i s composed o f numerous prominent governmental agencies and NGOs, and played a key role in facilitating the implementation o f the new forestry law. It continues to be a locus o f consensus building in the forestry sector, and i s being replicated in several regions o f the country, including Ucayali, San Martin, Tingo Maria, and Loreto. The National Protected Areas System (SINANPE) includes 25 NPAs, protecting over 14 million hectares o f Peruvian Amazon ecosystems, approximately 20% o f the region. The NPA L a w o f 1997 allows for the creation o f Private and Regional Conservation Areas outside o f SINANPE and some o f them may be located within the Amazon. Supreme Decree No. 037-99-AG requires INRENA's technical input regarding overlaps of proposed private apcultural plots and NPAs with forest resources prior to issuing land titles in the Amazon. Supreme Decree No. 003-2005-AG declares deforestation as a priority o f national interest and assigns the responsibility o f preparing the National Reforestation Plan to INRENA and a number o f other institutions. The Plan i s pending approval as o f December 2005. 7.48 Nongovernmental programs play an important role in Peru's forestry sector. The Netherlandsfunded Project (Institutional Support to INRENA with a Focus on the Forest Sector) was a US$2.1 million effort to implement sustainable forest management in the Amazon through institutional strengthening o f INRENA, including support for a decentralized forestry administration system, improved communications and training, and leveraging donor funding. The project supported the launching o f the concession process and helped INRENA s i g n 338 forest concession contracts through July 2004. 7.49 The Certification and Development o f Peru's Forest Sector Project (CEDEFOR) i s an ongoing USAID-fundedproject, originally for US$16 million, to help reform, modernize, and promote sustainable management o f the forest sector, through institutional strengthening in forest management, implementation o f sustainable forest management and forest certification, and strengthening business management capacities and improved market access, especially for certified markets. Project results include providing technical assistance to 132 (23%) o f 576 existing forest concessions; helping INRENA in the review and approval o f 86 Forest General Management Plans (representing 1.53 million hectares),

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and 62 Annual Logging Plans; advising on the creation and operation o f 21 Forest Management Committees; assisting in the certification o f roughly 63,000 hectares o f forests; helping in the generation o f 615,734 temporary jobs; and generating almost $10 million in timber sales through June 2005 (WWFPeru Program Office, 2005).

The Forest Development Promotion Fund (FONDEBOSQUE) i s a public-private organization 7.50 (presided over by the head o f INRENA) and funded mostly by the donor community. I t s objective i s to promote investment in sustainable and competitive forest enterprises and in environmentally responsible projects generating economic opportunities and biodiversity conservation. As o f July 2005, i t s portfolio amounted to US$20.4 million, with US$16.8 million, or 82.3%, from international donors. FONDEBOSQUE’s portfolio focuses on implementing forest concessions (15.2% o f portfolio), intermediate technology for sustainable forest use (3.7%), forestry plantation development (27.4%), sustainable communal forestry management (19.4%), and i t s own institutional creation and strengthening (1) technical assistance to 31 forest (49.6%). Specific projects have provided the following: concessionaires, including timber processing; (2) support to Brazil nuts harvesters (394,106 hectares); (3) support for construction o f the first industrial timber products factory in Madre de Dios; (4) creation o f a Forest Development Center in Oxapampa, with an estimated production o f 730,000 seedlings; and (5) Creation o f a forest business information center.

Evaluation of Forest Concessions 7.51 The introduction o f the forest concessions process i s an important improvement in the effort to bring effective sustainable forest management into a sector that, in the past, has been plagued by inefficiency, informality, and corruption. However, issues pertaining to implementation o f the new legal and institutional framework will continue to require GoP’s attention. Thus far, the concessioning process has been implemented on a largely ad hoc basis, and much remains to be done to make the process more effective and credible. Criticisms to date include i t s inadequate planning and scheduling o f the initial public bidding process; poor mapping o f the concessions, in turn creating access difficulties to concessions and concessionaire complaints that they do not receive what they bid for; lengthy delays in PGMF’s and POA’s review and approval, malung timely (i.e., dry season) harvesting difficult; and inadequate monitoring o f illegal timber trade. 7.52 Concessionaires often do not have adequate capital, access to credit, or sufficient technical, and business and forest management experience to make their concessions economically viable enterprises. T w o separate and independent surveys (WWF’s o f 47 concessions and Universidad del Pacifico’s o f 4) have determined that the concessions are economically feasible and that the primary limitation for most concessionaires lies in the lack o f operating capital. T h e rate o f delinquency in the payment o f harvest fees i s high so far. T o date, only 36 concessionaires o f the 343 concessions granted in the f i r s t and second public bidding (2002 and 2003) have paid their harvest fee; the remainder (92%) should have their contracts nullified, per the Forestry Law. 7.53 Illegal logging and, more generally, illegal trade in timber continue t o be a major problem, challenging existing government institutions. There are inadequate surveillance and control systems to combat illegal logging, particularly in issuing harvest and transport authorizations (which permit the laundering o f timber from private land and indigenous communities). Part o f the problem i s that, although infractions are specified in the Forestry L a w (Article 363), accompanying sanctions are not (Glave and Morales, 2006). InNovember 2004, INRENA began random concession inspections in Madre de Dios to verify compliance with the PGMFs and POAs, and to monitor mahogany extraction as required by CITES commitments. O f 23 inspections conducted, INRENA detected violations in five concessions, involving the laundering o f $2 million worth o f mahogany. By law, OSINFOR should nullify these concessions and the areas returned to public control. Violators should be prosecuted as required by law.

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However, until June 2005, n o legal action had been concluded against the violators, illustrating the GoP's weak capacity to enforce the law.

7.54 Thus far, the GoP has lacked the institutional capacity t o accomplish the desired reform and modernization o f Peru's forest sector. INRENA's institutional weaknesses arise from the lack o f prioritization o f forestry policy, insufficient funding, inadequately trained staff, lack o f adequate forestry information and intelligence, excessive bureaucracy (corruption has been alleged at some INRENA offices), and even simple things like not working weekends (unlike illegal loggers, who do). The increasing transfer o f jurisdiction from the central t o regional governments as part o f the Decentralization Framework i s needed. However, thus far, there has been only limited participation by local stakeholders, including NGOs, in the concessioning process. Effective decentralization will require time, and technical and administrative support. There i s a need for greater involvement by c i v i l society, including local and indigenous populations, in the concessioning process, through such mechanisms as the National Forestry Consensus-building Roundtable and the regional roundtables. Such forums could constitute an adequate t o ensure that the concessioning process contemplates the rights, traditions, culture, and languages o f indigenous populations. Land tenure problems continue t o exist, including overlaps o f land claims (native community territories, protected areas, private plots, etc.), inadequate mapping o f concessions, and conflicts between concessionaires and newly arrived migrants (Bernales, 2006).

Recommendations Regarding Forests 7.55 The new Forestry l a w and institutional framework represents a significant improvement over the 1975 Law; however, forestry institutions and administrative processes need significant strengthening. Among the recommended changes in policy, technical assistance, and investment strategies are the following.

Policy 1. Improve positioning: o f forest concessions t o foster success. The forest concessions are at the heart o f Peru's new forestry policy and are key to its eventual success. In the short run, the GoP should consider temporarily suspending bidding and the issuance o f n e w timber concessions until needed changes are made. I t i s preferable t o focus first o n the consolidation o f existing concessions and assuring their economic feasibility. In the future, efforts should be made t o attract larger investors for the remaining forest concessions, approximately 9 million hectares. The participation o f stakeholders in the design and implementation o f the essential changes may enhance their understanding o f the need to temporarily suspend the concessioning process, and should therefore be considered as an important element t o overcome political and social resistances t o such measure (Bernales, 2006). Consideration should be given t o creating a secondary market, where forest concessions could be traded and thus attract private investment, the forging o f alliances with international buyers focusing o n certified markets, and strengthening o f the concessionaires' capacity to become part o f a chain o f production and hence secure a demand for their timber (Bernales, 2006). The criteria for concessionaire profiles need t o be revised for future bidding. Future criteria should pay more attention to such elements as higher capital requirements and adequate equipment furnished by bidders. The economic proposal should receive more weight relative t o the technical 93 In the first bidding competition o f 2002, the technical proposal counted for 70% and the economic proposal for 30%. In the last process (Loreto, 2004), the distribution was modified to 90% for the technical and 10% for the economic proposal. Neither approach gave adequate weight to economic and financial criteria.

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Promoting the formation o f bidding consortia seems to be a sensible solution, but consortia should provide complementary proposals, and strict criteria should be used in forming consortia: minimum areas, minimum capital requirements, etc. Technical assistance (in forest and business management and administration) should be directed to a limited number o f concessionaires that have shown the commitment and potential to become certified and have actual or potential links with foreign markets.

2. Strengthen INRENA. INRENA's limited funding and staffing, along with the limitations o f the newly created OSINFOR, are major constraints on GoP's capacity to manage, monitor, and enforce compliance with forest management regulations. Even with the technical assistance provided by donor-supported projects (US and Dutch governments) and FONDEBOSQUE, significantly greater efforts are required in many areas, including systematic inspections o f concessions to ensure compliance with forestry regulations; better monitoring and enforcing o f harvesting and transportation authorizations; building, equipping and staffing forest check points; consolidation o f a national information network to control fraudulent trafficking o f timber; closer coordination with Peru's Tax Service (SUNAT); more active participation o f local and indigenous populations through the Forest Management Committees and Local Forests; work with NGOs and the private sector in providing technical assistance to concessionaires; and communication and education activities. This effort will only succeed with long-term GoP commitment. 3. Improve control o f illegal lorrning and timber trade. Existing gaps in the legal framework should be addressed to better attack illegal logging and trade in timber. In the short term, illegal logging should be clearly defined as a criminal act and specific sanctions should be established for specific infractions, with offenders prosecuted and penalties assessed without other concurrent crimes having to be committed to allow this. Longer term, greater support should be given to SUNAT, OSINFOR, and INRENA in their ability to enforce compliance, impose fines and collect them. The ambiguous relationship between INRENA and OSINFOR (which surfaced as recently as December 2005) limits the effectiveness o f both. The GoP should consider placing OSINFOR in the P C M to enhance i t s stature and likely effectiveness. The effectiveness o f the Multi-Sectoral Commission should be evaluated. INRENA's database could be expanded into a "forestry intelligence center" as a clearinghouse o f timely, accurate information on timber concessions and illegal logging.

4. Promote more active stakeholder participation in forest management. Over the medium and longer term, this should include the expansion and strengthening o f the local Forest Management Committees and providing technical support to them. The National Forestry Roundtable (MNDCF) i s an important locus for stakeholder involvement at the national level. T h i s model should be replicated at the localhegional levels through Mesas Regionales de Concertacidn y D i d o g o Forestal wherever possible; these already exist in several departments. 5. Promote alternative sources o f revenue generation in forest management to supplement GoP and external funding. Once the concessions are o n a firm financial footing, harvest fees might be increased and the proportion o f fees received by OSINFOR could be increased to support enforcement efforts (care would have to be taken to avoid conflicts with INRENA on this score). A strengthened focus on sustainable forest management practices throughout the industry would highlight the importance o f financial viability, which has been a chronic problem in the past. In the future, transferring responsibility o f monitoring and enforcement schemes to the logging industry i t s e l f should be considered, such as in the case o f Guatemala's system o f forest auditors (regentes forestales).

6. Address land tenure and titling problems in forestrv concessions and surrounding areas. INRENA needs to review i t s concessioning procedures to avoid titling conflicts. The law requiring the cutting

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o f forests to get private land title should be revised. This will entail a closer coordination with the Special Land Titling Program (PETT), the Ministry o f Energy and Mines, and other GoP agencies. Strengthen international markets. Many o f the above constraints result in a lack o f international competitiveness in forest product markets. Peru has much to gain from a greater involvement in international markets, if properly managed. This could include, for example, market development activities, business feasibility analysis, and identification o f critical constraints on Peruvian industry (such as transportation constraints). Trade agreements and operations in the emerging market o f responsible forest products should be promoted, including collaboration with the WWF-led Global Forest Trade Network.

Strenahen the participation o f indigenous populations in forestrv management to mitigate problems with the concessioning process and to minimize conflicts over land tenure. There i s handful o f key native communities that may benefit from the support given to the existing concessions. This should be coordinated closely with representative indigenous populations’ associations and bodies, such as the Inter-ethnic Association for the Development o f the Peruvian Jungle (AIDESEP); the Peruvian Indigenous and Peasant Agroforestry Coordinating Body (COICAP); the National Institute of Peruvian Andean, Amazonian and African Peoples (INDEPA); and individual native communities at the local level. Greater effort should be made to involve indigenous groups in the local Forest Management Committees wherever possible.

Technical Assistance

1. Provide support for the decentralization o f forest management. INRENA’s current initiative to delegate functions from i t s central office to i t s regional branches (ATFs) and regional governments should be supported and reinforced. The movement toward decentralizing INRENA’s functions i s underway and needs greater long-term support. However, regional governments currently lack the administrative and technical capacity, funding and staffing to do this adequately, and these needs should begin to be addressed in the short term. Checks and balances need to be built into forest management at the regional level, and independent third-party involvement in forest management should be considered. INRENA’s commitment to Permanent Production Forests should be continued even as i t s functions are increasingly transferred to the local and regional levels. Greater transparency in the concessioning process will be needed if local stakeholders and regional governments are to be effectively involved. Bidding processes and procedures, in particular, need to be fully disclosed. The creation o f Forest Management Committees and Local Forests should be reinforced; these mechanisms are currently inadequate for effective forest control and surveillance. 2. Strenahen technical assistance to the forestrv sector through FONDEBOSQUE and other institutions, including promoting forest certification and sustainable logging practices; technical support for tree plantations, reforestation, and agroforestry; introducing technical innovations to reduce wood product waste; and promoting improved technologies for forest product processing. 3. Promote greater attention to Reduced Impact Logging (RIL) to moderate i t s environmental effects. Brazil’s extensive experience with RIL should be considered in light of Peru’s similar conditions. RIL includes management practices such as pre-harvest inventory and mapping o f trees, vine-cutting, and planning o f roads and skidtrails; directional felling; cutting stumps l o w to the ground; constructing roads and skid trails o f optimum width; winching o f logs to skid trails; constructing landings o f optimal size; and minimizing ground disturbance and slash management (Holmes et al., n o date). Widespread use o f these practices not only mitigates the environmental impacts o f logging but also can result in higher profitability. C O N A M and/or the Ministry o f Transportation should be involved in this dialogue given their national-level authority. The construction of the Inter-Oceanic Highway

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provides an important opportunity for the use o f these practices and other means to moderate the impacts o f road construction and logging. Investments

1. Improve the mapping, zoning. and forest inventories o f Permanent Production Forests. This should precede the launching o f new bidding processes in order to more clearly define land use patterns in the areas where concessions will be granted. This will address two major problems associated with the current bidding process: (1) conflicts over property rights, stemming from multiple claims on forest concession lands; and (2) inadequate infomation on accessibility (roads and rivers), species composition, and the economic potential o f the plots for which bids are sought.

Biodiversity Conservation Current Situation

7.56 Peru i s recognized as one o f the twelve "mega-diverse" countries o f the world. I t hosts 70% o f the world's biological diversity and contains some 25,000 plant species, 460 mammal species (the third most in the world), over 340 amphibian species (the fourth most in the world), 1,811 bird species (second in the world to Colombia), 365 reptile species (the fifth most in the world), and almost 2,000 marine and fieshwater fish species (the most in the world) (Brack, sd; Portilla, 2002; Skchez et al., 2005). Peru's species endemism i s also very high, with at least 6,288 endemic species, 5,528 species o f flora and 760 species o f fauna (Shnchez et al., 2005). However, Peru also has a long l i s t o f endangered species, including 301 fauna species, o f which 23 are considered "critically endangered"; 332 orchid species; and 375 other species o f flora (INRENA, 2005). 7.57 There have been numerous collaborative efforts to establish baseline data, assess, and monitor biological diversity in different biodiverse or biologically fragile sites (Table 7.14). The Conservation International-Birdlife International ongoing effort in the Tropical Andes region has identified 128 Important Bird Areas, covering 19,120,000 hectares, where 1,642 bird species have been identified, including 87 threatened species (Boyla and Estrada, 2005). Conservation International has led Rapid Assessment Programs in at least six biologically important areas (Table 7.14), in each case identifying new species o f plants, mammals, reptiles, frogs, and birds not previously known to science. Some o f these efforts were initiated as part o f the large Camisea natural gas project during 1996-1999. The Field Museum o f Chicago has sponsored Rapid Biological Inventories in two areas. In collaboration with the Frankfurt Zoological Society and INRENA, the National Agrarian University-La Molina's Center for Data Conservation (CDC) has undertaken a number o f exercises to standardize environmental monitoring for the National Protected Areas System (SINANPE). The World Wildlife Fund also tried to produce a national monitoring system to measure SINANPE's managerial capacity and biological diversity conservation. These efforts have been mostly implemented by local and international NGOs, and by projects 7.58 funded by the international donor community. A consistent long-term, national-level monitoring system to gauge the progress o f biodiversity conservation does not exist. C O N A M i s currently leading an effort to establish regional guidelines that can be applied in regional monitoring efforts, beginning in 2006 in Loreto in conjunction with the Peruvian Amazon Research Institute (IIAP), INRENA's Protected Areas agency (SINANPE) and Biodiversity Conservation Directorate, and other organizations.

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7.59 A variety o f different methodologies has been employed in these biodiversity-monitoring efforts. Some o f the most notable include those o f T h e Nature Conservancy (TNC), including Conservation Action Plans (CAPS), identifylng conservation objectives, threats, causes, and losses; TNC's biodiversity "scorecard'l, applied to management capacity and often to biological monitoring at a conservation site; and Threats Monitoring, conducted by TNC's local partner, the Conservation Data Center at Universidad Nacional-La Molina. At two major sites, Pacaya Samiria and Central Selva, the TNC-CDC effort has employed satellite imagery from 1997, 2001 and 2003 to monitor changes in forest cover as an indicator o f illegal logging, with site visits and overflights to ground-truth the data. Conservation International's approach to biodiversity conservation, which includes Rapid Assessment Programs and biological assessments, highly coincides with TNC's, and focuses primarily on the National Protected Areas System. The biodiversity information and monitoring system employed in the Camisea project i s based on the Shannon Index, employed widely in community ecology. Table 7.14: M a j o r Biodiversity Monitoring - and Assessment Projects in Peru

SponsoringInstitution Conservation International and Birdlife

International Conservation International FieldMuseum o f Natural History

Universidad Nacional-La Molina Conservation Data Center, /Frankfurt Zoological Society/INRENA World Wildlife Fund Conservation International Conservation International Conservation International and Smithsonian Institution Conservation International Duke University Center for Tropical Conservation Universidad Nacional-La Molina Conservation Data Center and WWF The Nature Conservancy (TNC)

Project Important Bird Areas (IBAs) o f the Tropical Andes Rapid Assessment Programs Rapid Biological Inventories in Cordillera Azul National Park and in Yavari region (Loreto) Environmental monitoring inNational Protected Areas System: Bahuaja Sonene National Park, Tambopata National Reserve, Amarakaeri Communal Reserve, ManuNational Park and Alto Punis Reserved Zone National monitoring system for SINANPE Biological Assessment o f Tambopata Candamo Reserved Zone, southeastern Peru Biological Assessment o f Cordillera del Condor Region in Peru and Ecuador Biological and Social Assessments o f the Cordillera de Vilcabamba, Peru

Biological Assessment in Zona Reservada Tambopata Camdamo (Madre de Dios and Puno) Alto Punis region (covering parts o f the Ucayali and Madre de Dios Biodiversity loss in three coca-growing areas o f the Peruvian Amazon Conservation Action Plans; Biodiversity monitoring in Pacaya Samiria National Reserve (Loreto) and Central Selva Compound (in Yanachaga-Chemilltn National Park, San Matias-San Carlos Protected Forest, and Yanesha Communal Reserve) P I M A Project -biological monitoring in Amazon

Peruvian Association for the Conservation o f Nature (APECO) B I O D A M Z Project in northern Peruvian Amazon Peruvian Amazon Research Institute (IIAP) and Government o f Finland lource: Assembled from data in Elgegren (: 105)

7.60 Many o f the areas o f high biological diversity in Peru lie within or proximate to the country's 61 natural protected areas. The Natural Protected Areas Law o f 1997 defines the purpose o f the country's protected areas as to conserve biological diversity and their associated cultural, landscape, and scientific values, as well as to secure their contribution to the sustainable development o f the country. Together, the

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various categories o f protected areas in Peru comprise 17.66 million hectares, representing 13.74% o f the country’s total area (Table 7.15). Each category has a distinct objective and associated level o f protection, the highest for National Parks and National and Historic Sanctuaries (for further details, see Pulgar-Vidal and Calle, 2003). Most o f these areas are located in the M e n t e , with smaller areas in the Sierra, and to a lesser extent, the Coast. These parks and protected areas represent a potential source o f future economic growth if Peruvian protected area managers and private sector entrepreneurs are able to use these resources in stimulating growth in Peru’s ecotourism industry. 7.61 Beginning in 1997, an effort has been made by INRENA, with technical assistance from the CDC, WWF, and USAID, to assess the management capacity o f the Protected Areas System, SINANPE, using the so-called Management Monitoring Matrix (M3) approach. This assessment has focused on management criteria including registration o f the P A in the public r e g s t r y to avoidminimize land-tenure conflicts, the establishment o f Protected Area Management Committees to secure open and transparent participation o f all those with a stake in protecting the area, financial sustainability, the approval o f Master Plans to provide management guidelines, and the approval o f Annual Work Plans. The M3 tool does not include monitoring and evaluation o f the status o f biological diversity itself. The fact, however, remains that n o standardized monitoring system i s in place in Peru, even in the protected areas system, unlike neighboring countries like Colombia, to assess the status o f or changes in biological diversity. 7.62 In addition to its wild biodiversity, Peru i s also one o f the most ancient sites for species domestication, dating to over 6,000 years ago. The country hosts a genetic diversity o f over 128 cultivated species, including the highest global diversity o f potato varieties, one o f the four most important food crops of the planet, along with wheat, rice, and maize. At least nine species o f domesticated potato are known with almost 3,000 ecotypes and an estimated 150 wild species with high genetic value. (Peru’s potato production had a farm-level value o f about $425 million in 2003). 7.63 The annual global market for biodiversity-derived products4omprising agricultural products, functional foods, pharmaceuticals, biopharmaceuticals, herbal medicines and nutraceuticals, seeds and personal care and cosmetic productehas recently been estimated at over US$230 billion @oca et al., 2004). As noted above, estimates by Chambi (2002) and others suggest that there i s considerable economic value to Peru’s biodiversity. If properly managed, the value o f both wild and ago-biodiversity could be translated into a source o f increased national income and employment. In addition to conventional agriculture and growth o f industries such as ecotourism, Peru has considerable potential for the improved commercial management o f many types o f species o f fauna and flora. Roca et al. (2004) identify more than 40 sources o f wild and cultivated biodiversity in Latin America with current or potential commercial use. In Peru, species that have been identified for commercial potential include the alpaca and vicufia, brazil nuts, tropical fish, the peccary (for meat and hide), orchids, natural colors derived from the cochanillu bug, medicinal plants with international market demand such as “cat’s claw” (Uncaria tornentosa) and “sungre de grade'" (Croton lechleri), and foods such as the vitamin C-rich “carnu carnu” (Mycaria dubia). Individually, these species may not have the same commercial potential as potato or maize; however, together they represent a prospective means for Peru to take better advantage o f i t s competitive advantage in biological diversity.

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Table 7.15. Peru's Protected Area System

I Protected Area (Date Established)

I

National Parks (11) Cutervo I 1961\ Manu (1973) Huascaran (1975)

Area (ha)

I

Protected Area (Date Established)

2.500 I Yanachaca-Chemillen f 1986)

I

1,7 16,295 Cordillera Azul(2001) 340,000 Otish (2003)

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I

Area (ha)

7,812,667 122.000

1,353,191 305,973

I

Causes ox and Threats to, Biodiversity Conservation 7.64 Without doubt, deforestation i s a key driver o f biodiversity loss, since it deprives living species o f their habitats. As indicated in the previous section, forest cover loss i s significant in Peru, amounting to around 150,000 hectares annually. An interesting recent effort to link deforestation to biological diversity loss i s represented by CDC's landscape analysis o f three coca-growing areas o f the Peruvian Amazon, Huallaga, Pachitea-Aguaytia, and Apurimac (CDC, 2004). One o f the major findings o f the study i s that, o f the 7.87 million hectares in the study area, 31.4% (roughly 2.47 million hectares) were estimated to be o f "high conservation value" based on a set o f biodiversity and landscape criteria.

A recent study sponsored by C O N A M and the National Biological Diversity Commission (1998) 7.65 identifies three categories o f threats to biodiversity. The first category, conceptual threats, consists o f misconceptions about biodiversity and lack o f knowledge and awareness about ecosystem functioning, the role o f biodiversity, and i t s economic potential. The second category, political and economic threats, consists o f policy gaps and failures such as perverse incentives for slash-and-burn cultivation in areas not suitable for agriculture, lack o f policies to facilitate the preservation o f genetic resources, and economic instability and widespread poverty. A third category, direct threats, consists o f human activities that can lead to the degradation o f species habitat and/or to species extinction: migration to the Oriente; deforestation; urban and industrial pollution; overfishing and overhunting; genetic erosion; road opening; exploration and exploitation o f mineral and hydrocarbon resources; and the extinction o f native populations and cultures, which can lead to loss o f traditional knowledge about biodiversity. These direct threats also include large-scale projects such as Camisea and the Interoceanic Highway, o f which 1,100 lan i s being built in Peru, potentially disrupting landscapes, ecosystems, and conservation comdors.

Institutional and Policy FrameworP4 7.66 Biodiversity has long been recognized as having many o f the qualities o f a public good, such as non-excludability and non-rivalrous in consumption. Markets have a tendency to underinvest in public goods, and private sector control accordingly may be suboptimal, because o f the tendency to free-ride and expect others to pay for the benefits provided, and because private provision i s often limited to immediate capturable private benefits (FAO, 2002; Zilbennan, 2002). As explained above, even though there i s great scope for greater private investment in and private capture o f the economic benefits rooted in Peru's biodiversity, the public goods rationale and the need for Peru to comply with i t s international treaty obligations, among other factors, provide justification for public sector investments in helping conserve these diverse resources. 7.67 Peru has a comprehensive legal and policy framework governing biodiversity conservation and management. This includes a national sectoral policy and programs to deal with the country's diverse ecosystems. Likewise, Peru has a broad set o f public institutions having a biodiversity conservation mandate (CONAM, INRENA, IMARPE, and INIA) as well as a large number o f local and international NGOs working in biodiversity management. The central regulatory umbrella governing biological diversity worldwide, including Peru, i s the 1992 Convention on Biological Diversity (CBD), which Peru ratified in April 1993. In Peru, the response to the C B D was to create the National Biological Diversity Commission (CONADIB). T h i s Commission has been fundamental in facilitating the implementation o f the C B D and defining national positions and policies regarding biodiversity, notably through formulation o f the National Biological Diversity Strategy (ENDB) that provides regulations, priorities, and actions to operationalize the CBD's principles in Peru. 94

T h i s section and the next draw in part ftom Shchez et al. (2005).

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7.68 A recent report by the UN Development Program and CONAM (Sinchez et al., 2005) suggests that CONADIB has a mixed record in galvanizing efforts regarding biodiversity conservation in Peru. A first phase o f CONADIB's effort (1996-1998) was highly proactive and the passing o f the Conservation and Sustainable Use o f Biological Diversity L a w (1997), the Protected Areas L a w (also 1997), the approval o f the National Biological Diversity Strategy (ENDB) in 2001, and the creation o f thematic working groups, such as those in agro-biodiversity, biotechnology, access to genetic resources, and economic valuation o f biodiversity. In recent years, the efforts have been less visible but have focused on consolidating national policies and negotiations in international forums regarding biodiversity, approval o f regulations governing the operation o f the Conservation and Sustainable U s e o f Biologcal Diversity and Protected Areas Laws, and approval o f the law protecting the biodiversity-related knowledge o f indigenous populations (2002). Technical assistance from UNEP has helped strengthen CONADIB and make i t s operation more efficient, though it i s still as weak entity for several reasons, including lack o f financial support. Making CONADIB more effective will require greater political visibility, a strategic plan with concrete and measurable targeted impacts, and additional fhding from the donor community. 7.69 C O N A M i s the national agency responsible for national policy and guidelines governing the conservation and sustainable use o f biological diversity, and it i s the lead agency for administering the ENDB. Its Biodiversity and Biosafety Directorate, established in 2003, focuses i t s work in three main areas: (1) institutional coordination with other GoP Ministries, agencies and Regional Governments, including implementing CONADIB; (2) sustainable use o f biodiversity, dealing with biotrade, agrobiodiversity and access to genetic resources; and (3) biosafety, dealing with biotechnology and transgenic organisms. Unlike INRENA or IMARPE (Peru's Oceanic Institute), C O N A M i s not an implementing agency but acts largely in a coordinating role, conducts training programs and acts as an information clearinghouse. I t s regional coordinating function rests on the Regional Environmental Commissions (CARS), which in turn assist the Regional Governments in the design and implementation o f their Regional Biodiversity Strategies, as mandated by the Decentralization Framework L a w o f 2003. The Biodiversity and Biosafety Directorate i s a minimally staffed office (four people), which creates major challenges in executing i t s wide mandate. 7.70 INRENA i s the primary implementing agency for biodiversity management in Peru, through i t s Biodiversity Conservation Directorate. This office has primary responsibility for national programs that assure Peru's compliance with three international conventions: the CDB, the Convention on International Trade in Endangered Species (CITES) and the Convention o n Migratory Species. T h i s includes major responsibility under ENDB for biodiversity monitoring, including monitoring Peru's mahogany export quota, a politically sensitive task. The existing monitoring effort i s very modest; an inherent conflict in moving aggressively toward a national system o f biodiversity monitoring i s that such a system could well confirm the weaknesses o f current GoP policies and procedures in dealing with biodiversity conservation and deforestation. The Directorate i s also active in the National Biotrade Commission (over which C O N A M presides), in environmental education - important given the lack o f knowledge about biodiversity and i t s importance - and in conservation training at the regional and provincial levels. 7.71 Numerous other institutions work on biodiversity conservation in Peru. Since 1992, the Peruvian National Trust Fund for Parks and Protected Areas (PROFONANPE) has been managed by the private sector to provide funding for Peru's main protected areas. By 2003, it had generated an estimated $38 million in assistance from the Peruvian government, national and international nongovernmental organizations, the World Bank Global Environment Facility, and the United Nations Environment Programme, in support o f protected area management in Peru (Global Environment Facility, 2003). The Peruvian Amazon Research Institute (W)has an active program o f biodiversity research management focusing on Peru's Amazon regon, including projects with commercial applications. The National Agncultural Research Institute (INIA), with its four regional stations, has a small gene bank collection and research effort. A number o f in situ and ex situ agro-biodiversity conservation efforts are underway in Peru,

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with involvement o f INIA, the International Potato Center (CIP) and several national universities, and with funding fiom the GEF, the McKnight Foundation and the Swiss government, among others. These include innovative projects such as the "Potato Park" project in southern Peru, developed with indigenous communities and international donors; a CIP and INIA-led effort to restore native potato varieties in 35 villages in the Sierra; and the "Condor Route" network o f in situ Andean conservation sites planned to extend from southern Venezuela to Bolivia. 7.72 Finally, efforts funded by the Global Environment Facility (GEF) on conservation and biodiversity in Peru focus primarily on biodiversity conservation and protected area management through public participation, particularly through enhancing the capability o f indigenous people to participate actively in protected area management. By mid-2006, there were six active biodiversity projects funded by the GEF through the United Nations Development Programme and the World Bank, totaling almost US$33 million. In addition, the GEF also funds enabling activities for around US$500,000 on biodiversity-related issues. There area also nine GEF-funded active climate change projects totaling over US$27 million, and one POPS (persistent organic pollutants) project for US$500,000. Under the new Resource Allocation Framework, Peru will greatly benefit from the GEF, and i s eligible to receive roughly $30 million in grant funding for biodiversity, $5-10 million for climate change and adaptation, plus additional GEF funds for land degradation, persistent organic pollutants, and international waters. 7.73 Having at least two major actors working toward biodiversity conservation fosters a lack o f clarity about which has higher authority. T h i s in turn impedes communication and creates conflict with other sectors o f the Government including relationships with other ministries. T h e recently approved General Environmental L a w (2005) will help better define CONAM's role as the country's highest environmental authority, but the problem will likely persist under the current structure. Even though some o f the Regional Environmental Commissions (CONAM's regional branches) are quite active, C O N A M has little field-level expertise and implementation capacity (Shnchez et al., 2005), which will continue to hamper it. INRENA i s widely perceived as the agency that has the most hands-on experience and i t s current leadership i s well respected. However, excessive bureaucracy, understaffing and a chronic lack o f resources leave it difficult for INRENA to adequately fulfill i t s many mandated functions. Even though Peru has a comprehensive policy and regulatory framework covering biodiversity, 7.74 the application o f this body o f regulations and policies leaves much to be desired. This i s in part because jurisdictional and enforcement institutions are weak, chronically short o f resources, and traditionally too dependent on individual initiative rather than institutional strength. CONADIB seems to have lost momentum (Shnchez et al., 2005). This may be reversed by strengthening the strategic planning capacities o f the agencies and institutions within CONADIB to establish baseline information and tangible targets and goals. There are also overlaps and inconsistencies, which i s a common problem at the regional level in Latin America. The problem may be greater in Peru than in other Andean countries where a Ministry o f the Environment exists (Colombia, Ecuador, Venezuela; in Bolivia, the Ministry o f Sustainable Development). T h i s effort has been complemented in the past by donor community contributions, which have created numerous benefits but have fostered a project-based approach to dealing with biodiversity, rather one built on strong institutions.

7.75 Perhaps inevitably, another limitation stemming from the current institutional configuration i s difficulties in intra- and inter-institutional coordination. The government has a hghly sectoral approach to biodiversity: INRENA deals with forests, C O N A M deals with biodiversity policy, IMARPE deals with marine biodiversity, INIA deals with agro-biodiversity, and so on. International coordination can also be difficult, such as, within INRENA, coordination between the National Protected Areas Superintendency (IANP) and the Forest and Wildlife Superintendency (IFFS). Coordination i s often not a problem rooted in lack o f willingness to coordinate, but in time constraints and shortage o f personnel. The multi-

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institutional framework also leads to duplication o f efforts across projects, and therefore a need for coordination among donor agencies. Despite Peru's enormous biological diversity, GoP efforts, and those o f donors, NGOs, 7.76 universities, and civil society, there i s n o comprehensive and consistent biodiversity monitoring system in place in Peru. As reviewed above, many monitoring systems have been employed in one-off donorfunded projects, but these efforts are typically intermittent, unsustained, and narrow in geographic scope. Even in the Protected Areas system, there i s n o ongoing monitoring system. The Protected Areas Superintendency (IANF') does not have an information specialist and has only one person handling monitoring for the whole Protected Areas System. A 2004 report on the previously mentioned M 3 evaluation o f the Protected Areas system found, for example, that only 28 o f 56 Protected Areas were registered in the public registry as state-owned land; o f the 28 Management Committees, 18 had a Work Plan; only 4 PAShad a financial sustainability plan; only 18 PAShad an approved Master Plan, o f which only 13 were used as a management tool, and only three had a monitoring and evaluation plan. For the past three years, IANP has focused on strengthening management capacity and achieving the Protected Areas Master Plan targets. Information gathering and systematization has not been a priority, though.

7.77 Finally, there i s very limited capacity to properly manage biodiversity at the regional and local levels. T h i s i s a critical constraint because, under Peru's decentralization laws (Nos. 27680 and 27783, both in 2002) INRENA i s gradually devolving responsibility for the management o f forestry and wildlife biodiversity to the regional governments, which are demanding a role and participation in an area which they foresee as a future source o f economic growth. Several Departments (Loreto, Madre de Dios, Ucayali, San Martin, Amazonas, Ica, and Junin) have already developed their biodiversity strategies as provided for by law. However, the regional governments do not currently have the technically trained staff or the resources to assume these responsibilities, which have a target date o f 2007. They reportedly s t i l l frequently contact INRENA in Lima for guidance and support on key biodiversity management issues. Overall, only about 0.15% o f the GoP budget i s currently allocated to dealing with the environment and natural resources, including biodiversity (Shchez et al., 2005). The Departments which are most advanced in their biodiversity management capacity include Ayacucho, Piura, Tumbes and Loreto.

RecommendationsRegarding Biodiversity 7.78 Despite progress in complying with national commitments to international treaties such as the CBD, there are severe constraints. The most challenging problem seems to be the lack o f integration and consistency o f biodiversity management at the highest political level. Biodiversity, not to mention environmental issues as a whole, i s not prioritized in PCM's agenda. Some ministries do not have a clear view that, in being responsible for biodiversity, they are the stewards o f the nation's storehouse o f genes, species, and ecosystems. I t may be unrealistic to think that Peru will soon approach the commitment o f a country like Costa Rica, but the country can go much further in tahng advantage o f i t s unique biodiversity resources, including in a commercial and developmental context. Important recommendations for changes in policy, technical assistance and public investment include the following:

Policy 1. Strengthen institutional capacities o f key actors in biodiversity conservation both at the national and regional levels. This long-term goal includes increasing staffing and budget at CONAM's Biodiversity and Biosafety Directorate, INRENA's Directorate o f Biological Diversity Conservation and Natural Protected Areas Superintendency, IMARPE, and the regional governments. T h i s strengthened capacity i s especially needed in view o f the decentralization framework. In the

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specialized area o f biodiversity management, the central offices o f INRENA and C O N A M can be expected to serve as national resources. However, there i s great need to build institutional capability over the longer t e r m at the local and regional levels, since responsibilities are increasingly devolved to these institutions.

2. Build on Peru’s “comuarative advantage” in biological diversity, including aao-biodiversity. Over the longer term, Peru should make better use o f i t s strengths in agro-biodiversity and in developing commercial uses o f i t s unique wild biodiversity. This should begin by building on current efforts, such as those underway in institutions like the National Bio-Commerce Program implemented by the National Commission for the Promotion o f Exports (PROMPEX) under CONAM’s leadership. However, these efforts should be reinforced and given new focus and vision. Such efforts should also be geared towards strengthening Peru’s capacity to access and manage the country’s genetic resources, focusing in areas such as research, access, and intellectual property (Bernales, 2006). 3. Speed uu the process o f review and approval o f C O N A M roles and functions, which will clarify and strengthen i t s Biodiversity and Biosafety Directorate. In view o f the National Biological Diversity Strategy and Peru’s new Environmental L a w (2005), CONAM’s regional offices (CARs) may also need strengthening in view o f the increasing importance o f decentralized efforts in biodiversity management. These objectives can be accomplished in the short to medium run. 4. Refine coordination mechanisms among external donor agencies working on biodiversity, because o f the important role o f these agencies. Improved mechanisms will help avoid duplication o f efforts, improve information sharing, and promote interventions in areas that have received little external support. Although this i s a long-term goal, it could have significant payoff, given the level o f donor resources that have supported biodiversity conservation in Peru.

Technical Assistance 1. Strengthen GoP efforts to disseminate biological technical knowledge and training. T h i s should include the regional governments, CARs and INRENA regional offices, as well as more specialized opportunities for private sector participation, such as in agro-biodiversity and promising biotrade opportunities. T h i s effort i s consistent with, and necessary to reinforce, the decentralization framework. 2. Suuuort national efforts to value biological diversity and environmental services. A Payment for Environmental Services working group has recently been formed with initial funding from GTZ. This initiative should receive more attention in view o f decreasing fhding resources from the donor community. This effort i s important, among reasons, in generating incentive-compatible solutions to biodiversity and natural resource conservation, thus potentially reducing the reliance on central GoP financing.

Investments

1. Increase resources (financial suuuort and technical assistance) to create an adeauate biodiversity

monitoring system. including aao-biodiversity, and to evaluate and assess progress o f i t s status in Peru. Peru’s commitments under international treaties will not be fulfilled if n o consistent and reliable data i s available regarding the state o f biological diversity, nor will the national vision and objectives stated in the National Biological Diversity Strategy be achievable. A consistent, ongoing, long-term national monitoring effort, using modern, science-based methodologies, i s needed to improve past monitoring efforts, which have been inadequate, inconsistent, and which have generated noncomparable results. In addition, it i s advisable to strengthen Peru’s Biodiversity Clearinghouse

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Mechanism, situated in CONAM. Information sharing i s vital in consolidating these efforts, as there i s abundant information that has not been systematized.

Summary o f Policy Recommendations to Address Soil Degradation, Forestry, and Biodiversity Recommended Medium- and LongTerm Actions

Recommended Short-Term Actions

Objective

Foster more efficient public planning and private resource allocation through improved information.

0

Use water resources and associated lands more efficiently.

0

0

Conductlupdate new national inventories o f (1) soil erosion and (2) soil salinity (none completed since 1980s). (Cost: l o w to moderate)

Use updated information to improve planning o f public and private interventions in soil salinization, water and irrigation use, land use planning, soil erosion and soil conservation. (Cost: low)

Revise the 1969, 1989, and 1990 Water Laws to authorize higher, broad-based fees for water use. (Cost: low) End preferential treatment for rice in water allocation in Coastal irrigation projects. (Cost: low)

Increase water use fees to cover provision costs and generate more efficient water use and associated land uses. (Cost: low)

Consider establishing a new independentWater Resources Agency with a mandate for integrated water use management. (Cost: low)

Improve technical capacity o f personnel working in soil conservation, and improve staffing resources (INRENA, PRONAMACHCS, etc.). (Cost: moderate)

~

Strengthen institutional capacity to address water use and soil conservation.

0

Refocus INRENA’s mandate on soil conservation. (Cost: low)

I

Allocate government and external resources for soil conservation more efficiently.

0

Improve inter-institutional coordination (PRONAMACHCS, NGOs, donors) through R E D N A M A C and other venues in guiding investments in soil conservation. (Cost: low)

I

Conduct comprehensive feasibility analysis o f soil conservation investments. (Cost: low)

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0

Use feasibility analysis, improved information, and estimated economic costs and returns to guide public investments in soil conservation. (Cost: low)

Objective

Recommended Short-Term Actions

Recommended Medium- and LongTerm Actions

11. Deforestation Improve functioning of new 2000 Forestry Law, especially regarding forest concessions.

0

0

Suspend concessioning process until further reforms are made. (Cost: low)

0

Improve mapping, zoning, and forest inventories prior to further concessioning. (Cost: low) Create secondary market in forest concessions. (Cost: low)

0

Revise concessionaire criteria, especially higher capital requirements, and promote bidding consortia. (Cost: low) 0

0

0

Strengthen institutions involved in managing forestry resources.

0

Assign greater weight to economic vs. technical criteria in evaluating concessionaire proposals. (Cost: low) Improve stakeholder involvement in forest concessioning process through National Forestry Roundtable, local Forest Management Committees, etc. (Cost: low)

0

Strengthen the participation o f indigenous populations in forestry management through AIDESEP, COICAP, INDEPA, etc. (Cost: low) Devote increased resources to inspections and compliance; monitoring and enforcement o f harvest and transport authorizations; closer coordination with SUNAT, OSINFOR, PETT, etc. (Cost: moderate) Clarify division o f responsibilities between INl7ENA and OSINFOR. (Cost: low)

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Provide ongoing targeted technical assistance to bidders and concession holders through INRENA, FONDEBOSQUE, NGOs, and other institutions to assure success o f forest concessions. (Cost: moderate) Provide more intensive ongoing institutional support (INRENA, OSINFOR, etc.) for forest concessioning process. (Cost: moderate to high) Strengthen alliances with international buyers, especially in certified markets. (Cost:_low) Promote Reduced Impact Logging (RIL) practices through increased technical assistance and incentives. (Cost: low) Promote alternative sources o f revenue generation, including increased harvest fees, transfer of monitoring and enforcement to industry, etc. (Cost: low) Expand national information network and database to assist monitoring and enforcement o f Forestry Law. (Cost: l o w to moderate) Consider making OSINFOR an independent agency that reports to PCM. (Cost: low)

0

Address land tenure and titling problems in forestry concessions through better coordination with PETT, MEM, etc. (Cost: l o w to moderate)

Objective

Recommended Short-Term Actions

Recommended Medium- and LongTerm Actions

Continue national support o f Permanent Production Forests. (Cost: low)

Support decentralization of forest management and associated institutions. 0

Suppodstrengthen devolution o f administrative and technical functions to departments and regional INRENA offices. (Cost: moderate)

Promote greater role for Forest Management Committees in local monitoring o f forest resources. (Cost: l o w to moderate) 0

Promote greater participation and stakeholder involvement in local forest management through regional forestry roundtables, etc. (Cost: low)

Increase fimding,.staffmg, technical monitoring and evaluation, and enforcement capabilities at regional level. (Cost: moderate to high) Improve control of illegal logging and trade.

0

Devote greater resources to inspections, compliance, monitoring and enforcement o f harvest and transport authorizations; closer coordination with SUNAT, OSINFOR, PETT, etc. (Cost: moderate)

0

Expand NRENA database to create National Intelligence Center to support monitoring and enforcement activities. (Cost: low)

Clarify role o f Multi-Sectoral Commission to Control Illegal Logging. (Cost: low) 111. Biodiversity Management Provide improved information to foster better planning, including planning for compliance with international treaties and agreements, and for allocation of private resources.

Strengthen institutional capacity in biodiversity management.

0

0

0

0

Increase resources-financial support and technical assistance-to create an adequate national biodiversity monitoring system, including agro-biodiversity. (Cost: moderate) Strengthen CONAM's Biodiversity Clearinghouse Mechanism. (Cost: low) Clarify responsibilities o f different public institutions in biodiversity management, including CONAM, INRENA, IMARPE, and ministries. (Cost: low) Speed up review and clarification o f CONAM's functions in biodiversity management. (Cost: low) Strengthen GoP efforts to disseminate biological technical knowledge and

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0

0

Support national efforts to value biological diversity and environmental services. (Cost: moderate)

Refine coordination mechanisms among donor agencies. (Cost: low)

Objective

Foster greater economic returns from Peru’s “comparative advantage” in biological diversity, including agro-biodiversity.

RecommendedShort-Term Actions training, especially at regional level, given decentralization framework. (Cost: moderate) 0

0

Register all protected areas as state-owned land in public registries. (Cost: low) Assure that all Protected Areas have Management Committees. (Cost: low)

For all Protected Areas, develop: (1) Work Plan, (2) Financial Sustainability Plan, (3) Master Plan, and (4) Monitoring Plan, as provided in existing national legislation and regulations. (Cost: l o w to moderate)

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RecommendedMedium- and LongTerm Actions

0

0

Foster public-private linkages to promote Peru’s ecotourism sector. (Cost: low) Promote commercial uses o f wild biodiversity through PROMPEX, and foster private sector initiatives. (Cost: low) Provide adequate financial and staffing resources to enable INRENA and Protected Areas to cany out Plans #1-4, once they are developed. (Cost: moderate)

CHAPTER 8 ENHANCING COMPETITIVENESS TO IMPROVE DESIGN AND IMPLEMENTATION OF ENVIRONMENTAL POLICY EIA is Peru’s main tool for environmental planning. However, its effectiveness is undermined by the lack of a uniform perspective among government authorities regarding its objectives and usefulness. Specijkally, there exists an ambiguity among government authorities as to whether the purpose of E I A is environmental planning or environmental management. This ambiguity has led to a situation in which neither environmental planning nor environmental management is satisfactory. As a result, environmental problems persist. There is a clear need for the Government to clarifi the purpose of EIA. To make EIA an effective planning tool, it is crucial to recognize the need to strengthen screening and scoping procedures and to improve mechanisms for allowing representative participation by the public, including indigenous communities. On the other hand, if EIA is to be used as an environmental management tool, it is important to recognize EIA ’s limitations, particularly where market and policy failures are strongly linked to environmental problems. Various mechanisms exist for controlling environmental degradation, including (i) direct regulation by government or “commandand-control ” measures; (ii) economic and market-based instruments; and (iii) other approaches such as administrative procedures, legal actions, and formal negotiation. Economic instruments and command and control measures are far more effective and efJicientfor tackling Peru ’s priority environmental problems.

Introduction A growing body o f regulations has been passed in response to Peru’s environmental The main environmental policy instruments for environmental planning and management include environmental assessment procedures (environmental impact assessments EIAs - and environmental compliance and management program - PAMAs) and environmental emission standards (Eimites mhimos permisibles - LMps). 8.1

8.2 The private sector routinely expresses concerns that lack o f coordination and clarity in the environmental approvals process leads t o uncertainty and affects investor confidence. T h i s concern i s reflected in the environmental performance indexes o f the Global Competitiveness Report 2005-2006. In these indexes, Peru placed in the bottom quarter among 117 countries (Table 8.1). Poor management o f environmental problems lies at cross-purposes with the achievement o f sustainable economic growth and the protection and improvement o f Peruvians’ welfare. A growing body o f evidence from the experience of businesses in the most competitive c o u n ~ e s(Japan, Germany, Denmark, and Ireland) in the past two decades shows that environmental performance i s directly related t o the quality o f the country’s business climate and the competitiveness o f the businesses (Hammond, 2005; IADB, 2005). 8.3 Adopting strict and stable environmental requirements, and enforcing them in a clear and transparent manner, has improved the business climate in the most competitive countries. The 2005-2006 Global Competitiveness Report indicates that complying with environmental standards improves long-term competitiveness (Lopez-Claros et al., 2005). A country’s business 95 T h i s chapter was prepared by Ernesto Shchez-Triana, Miles Scott-Brown, Yewande Awe, and Juan David Quintero. The chapter draws heavily on a background document prepared by Miles Scott-Brown (2005) for this study.

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climate i s crucial to enabling businesses to operate optimally and increase their productivity. Consequently, and particularly in an economy based on natural resources, the successful incorporation o f environmental factors into a country’s competitiveness structure facilitates a business climate attractive to foreign investors, orients agriculture and industrial sectors toward higher value markets, reduces the pressure o f productive sectors on the natural resources base and offers new business opportunities in global markets (Lopez-Claros et al., 2005; Porter, 2005).

8.4 Consistent with the above, experience from the most competitive developing countries, such as Malaysia and South Africa, shows that environmental quality i s a k e y factor that affects the growth and competitiveness o f important economic sectors. In this context, failure to adequately address or respond t o pollution problems undermines the country’s growth potential and i t s business sectors’ competitiveness. In the same vein, failure to reduce potential health risks to the public from exposure t o hazardous wastes and substances has detrimental implications for the population’s health and productivity. 8.5 Therefore, Peru has a dire need t o enhance the efficiency and transparency o f environmental legislation and increase enforcement capacity. Increasing the efficiency and effectiveness of an environmental regulatory framework, particularly o f the EIA, P A M A s and L M P s system, i s urgently needed in Peru. Table 8.1. Peru: Environment and Competitiveness (Total o f 117 Countries) I

I

Indicator Stringency o f environmental regulations Clarity and stability o f environmental regulations Protection o f ecosystems by business Extent o f government-mandated environmental reporting Effects o f compliance on business Prevalence o f corporate environmental reporting Prioritization o f energy efficiency Importance o f environment in business planning

Position of Colombia

World Leader

Position of Leader in Latin America

35

41

Germany

Brazil (25)

78

38

50

Denmark

Chile (38)

83

23

45

Iceland

Chile (23)

87

45

58

Denmark

Panama (44)

88

37

78

Denmark

Chile (37)

88

36

59

Denmark

Brazil (32)

60

30

44

Denmark

Brazil (25)

96

67

66

Japan

Panama (28)

Position o f Peru

Position

70

Of

8.6 While EIA i s s t i l l a relatively n e w process in Peru, it i s being applied t o a variety o f sectors and investment projects. Previous studies have discussed ways in which environmental licensing procedures operate as a barrier to development, particularly in dynamic and growing sectors such as energy and mining (IADB, 1997,2001; W o r l d Bank, 2000,2005e; Garcia, 2005). M u c h less i s known, however, about the influence o f EIA and environmental licensing on Peru’s environmental quality and the effectiveness and efficiency o f EIA tools. Relative t o existing and proposed legislation and international EIA standards, there has been little comparative review o f EIA practices across all sectors. There also has been little comparative analysis o f EIA effectiveness, particularly with respect to monitoring, follow-up, and compliance with EIA commitments. To address these gaps, this chapter analyzes the existing environmental policy framework for sectoral environmental management in Peru, particularly its environmental impact assessment system. Following this introduction, section two o f this chapter describes the

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evolution o f Peru’s environmental impact assessment system. Section three discusses the effectiveness o f the E M system as the main environmental planning tool in Peru. Section four analyzes the effectiveness o f EIA for environmental management in Peru. Section five analyzes the application o f E M t o three projects in the mining, electricity, and o i l sectors. Section six discusses the limitations o f EM. Finally, section seven presents conclusions and discusses options to improve the design and implementation o f environmental assessment.

Peru’s EnvironmentalImpact Assessment System 8.7 The institutional and legal framework governing environmental assessment and licensing in Peru has evolved from 1990 when the Code o f the Environment and Natural Resources established it as an environmental planning tool (CONAM, 1999). A series o f laws and regulations constitute Peru’s environmental impact assessment (Table 8.2). Legislative Decree 757 establishes that the legal authority for environmental approvals and compliance i s regulated at the ministerial level. Legislative Decree 757 also identifies the ministry responsible for specific industrial and other regulated activities. This has been accomplished through the enactment of various sectoral regulations and guidelines. Each ministry i s responsible for defining the EIA process and the terms o f reference for the content o f environmental impact studies. Table 8.2. Peruvian Environmental Legislation Pertinent to Environmental Impact Assessment Law

Reievance to EIA

Code o f the Environment and Natural Resources Legislative Decree No. 613 o f 1990 (CAM) Framework L a w for Increasing Private Investment. Legislative Decree No. 757 o f 1991 L a w for Environmental Impact Assessment o f Projects and Activities. L a w N o . 26786 o f 1997 L a w o f the National System for Environmental Impact Assessment. L a w 27446 o f 2001

First law to establish need for EIA. Indicated l i s t o f activities subject t o EIA. Provision superseded by L a w 757. Delegated responsibility for EL4 and environmental management t o sectoral authorities (ministries).

General L a w o f the Environment. L a w N o . 2861 1 o f 2005

Established C O N A M ’ s oversight role in EIA process, but Ministries responsible for EIA. Established a true “one-window’’ system for EIA. Established u n i f o r m procedures t o identify requirements, steps, and scope o f EIA. Established three categories f o r EM: I. Environmental Impact Declaration (DIA) 11. Semi-detailed EIA 111. Detailed EIA Established mechanisms for public participation. A s o f December 2005, this L a w was not in force, as regulations have not been enacted. Article 24 states a l l project, plans, programs and policies that could cause significant environmental impacts are subject t o S E I A requirements.

8.8 Environmental assessment systems are not uniform across all ministries in Peru. The ministry with the strongest EIA system i s the Ministry o f Energy and Mines, followed by the Ministries o f Transport and Communications and the Ministry o f Production. INRENA has a dual mandate in the EIA process. I t acts as a review agency t o other ministies where natural resources may be affected and i s the sectoral authority for the EIA review o f agricultural projects. The

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devolution o f responsibility t o the ministerial level has created a diversity o f approaches to EIA from a legal, organizational, and institutional perspective. A variety o f regulations specify different types o f EIA documents, terms o f reference for EIA scope and content, timing for review and approval, and means for public consultation. While the proposed regulations to the SEIA attempt t o unify the EL4 process with respect to categorization, content, process, and timing, they have yet to be promulgated. A s a result, Peru currently lacks a unified approach to EIA, and each ministry conducts EIA according to i t s specific regulations and institutional practices. EIA practices differ significantly among ministries. Furthermore, practices differ within ministries, as within the Ministries o f Energy and Mines and within the Ministry o f Production. Furthermore, not all Peruvian ministries conduct EIA o f projects and activities.

8.9 The current ministries that undertake EIA in Peru include Energy and Mines, Production, Transport and Communications, and Agriculture. The status, as o f December 2005, o f EIA in other government ministries i s described below: Foreign trade and tourism - Currently, Tourism does not have a legal framework for EIA. The sector has been worlung with C O N A M to define an EIA guide for the tourism sector. Some EIAs have been done o f tourism projects, mostly o n ecotourism concessions offered by the Government. The Ministry o f Foreign Trade and Tourism recently approved the tourism sector’s environmental policy. CONAM will lead the preparation of a Strategic Environmental Assessment o f the Strategic Plan o f the Tourism Sector, scheduled to begin in early 2007 (Bernales, 2006). Communications (done for Transport) - Investment projects in this sub-sector are associated almost exclusively with the installation o f transmission towers and cable. An environmental protection regulation requires technical environmental studies similar in format and content to an Environmental Impact Declaration (DIA). Defense - No legal framework for EIA i s established. The draft SEIA regulations include a series o f projects that will require EIA in the future. Housing, Construction and Sanitation - In 2006, the Environmental Directorate o f the Ministry will develop EIA regulations for the sector. Consultants have been hired to prepare a proposal for environmental management. 8.10 At the regional and local level, EIA i s mostly nonexistent. Regional Authorities have limited EIA capacity and focus their attention o n construction and operating licenses, which require the approval o f D I A s or EIAs in order t o be made effective. In practice, little i s done regarding this.96

8.1 1 Overall, the EL4 capacity within Peruvian government ministries i s very weak. Staff i s largely inexperienced in environmental impact analysis, and continuity i s affected by significant staff turnover and significant lack o f financial resources. The review of environmental impact assessment studies focuses more on technical aspects, rather than on issues o f impact analysis and environmental management. Staff has little experience in the EL4 approval, monitoring, and follow-up process, and EIA training within ministries i s generally laclung. Finally, there i s a void between the E N process and land-use zoning, and pollution control. 8.12 L a w No. 27446, passed in April 2001, establishes a new environmental assessment process, the National System for Environmental Impact Assessment (SEIA). T h i s n e w process 96

An exception i s the Municipality o f Lima, which has undertaken EIAs, but only in the historic center o f the city.

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provides a one-window system for environmental impact assessment and establishes a process for environmental approvals. L a w N o . 27446 and its regulations have yet to come into force. 8.13 The l a w regarding the National System for Environmental Impact Assessment, L a w 27446, establishes several objectives for Peru’s EIA system. On one side o f the spectrum, the L a w adopts the EIA goal o f the first EIA system enacted in the United States in 1969 (NEPA, 1969). This approach views EIA as a planning tool to open decision making to public scrutiny and provide citizens the opportunity t o better understand an investment project’s impacts and alternatives (NEPA, 1969; Ortolano, 1998). This goal can be attained by including regulations that specify clear procedures for EIA screening, public participation, scoping, analysis o f alternatives, information disclosure, and accountability. On the other side o f the spectrum, this l a w also allows for the design o f an EIA system that i s the basis for an environmental protection statute. In this case, a portfolio o f environmental regulations might be designed and implemented t o include regulations for (i)land-use zoning; (ii)pollution control; (iii)conservation o f biodiversity; (iv) management o f forest, water and other natural resources and (v) technical environmental specifications for sectoral environmental management. In this latter case, the EL4 system would include requirements for the design o f environmental management plans based on detailed mitigation measures. 8.14 Currently, at a conceptual level, clear conflicts exist with respect t o normative understanding o f the EIA in Peru. At the project level, different stakeholders (public and private) in the development-assessment process have very different expectations for the EIA process. EIA i s viewed by most as an information-gathering exercise, by environmentalists as environmental advocacy, by academics as a mechanism for integrated analysis, and by the private sector as a compliance tool, a risk management (safeguarding) framework, a mechanism for public deliberation and an awareness-raising instrument. According to the draft regulation for the Peruvian National System o f Environmental Impact Assessment (SEIA), EIA i s defined as: The orderly, coherent and reproducible set o f analyses for the adoption of decisions and measures that permit the project proponent, government authorities and c i v i l society to understand in an integral manner, at the earliest stage possible, the potential positive and negative impacts generated by the Project proposal, as well as the Environmental Management Strategy to be adopted, following approval o f the environmental impact assessment, t o prevent, control, mitigate, recuperate or compensate those negative impacts, while promoting the positives. (CONAM, 2005:43)”

This definition incorporates the different objectives o f EIA (NEPA, 1969; IAIA, 1999), 8.15 including the following: 0

0

0

0

97

T o open up decision malung to public scrutiny by providing citizens the opportunity t o better understand an investment project’s alternatives and impacts T o ensure that environmental considerations are explicitly addressed and incorporated into the decision-malung process o f projects T o anticipate and avoid, minimize or offset the adverse significant biophysical, social and other relevant effects o f development proposals T o protect the productivity and capacity o f natural systems and the ecologcal processes that maintain their fimctions

Translated by Scott-Brown (2005). Page 43: Reglamento de la ley delsistema nacional de evaluacidn ambiental.

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T o promote development that i s sustainable and optimizes resource use and management opportunities 8.16 Delays in issuing SEIA regulations have contributed to confusing objectives for Peru’s current EIA systems. There i s inconsistency in the approach, content, timing, and requirements o f the EIA legal and regulatory process developed by sectoral ministries to open up governmental decision making to public scrutiny. This inconsistency i s blatant in EL4 procedural components such as (i) timing o f public consultation procedures from the onset o f the project through approval and implementation; (ii) mechanisms for incorporating the results o f public consultation into the decision-malung process; (iii) public disclosure o f project information and accessibility o f information (e.g., location and language); and (iv) feedback to participants o f the results o f the consultative process. At the other end o f the spectrum, EIA has become a de facto substitute for pollution-control regulations and effective land-use planning, but should instead form part o f the land-use planning process. EIA goals associated with avoiding, minimizing or mitigating environmental impacts to third parties could only be attained with the design and implementation o f regulations for (i) land-use zoning; (ii) pollution control; (iii) conservation o f biodiversity; (iv) management o f forest, water, and other natural resources; and (v) technical environmental specifications for sectoral environmental management.

Environmental Assessment as a Planning Tool 8.17 An analysis o f EIA practices in the Ministries o f Energy and Mines, Transport, and Agriculture, shows that the lack o f a consistent and efficient screening process has led to the completion o f an excessive number o f unnecessary EIAs. T h e resources o f environmental units in these ministries are mostly spent on reviewing reports. The analysis also shows significant differences in (1) screening, (2) scoping, (3) evaluation criteria, (4) public consultation, (5) timing o f EIA approval among the ministries, (6) monitoring, and (7) follow-up procedures (Table 8.3).

Screening 8.18 The purpose o f screening i s “to determine whether or not a proposal should be subject to EIA and, i f so, at what level o f detail” (IAIA, 2005).98 In Peru, the responsible ministerial authority determines screening o f projects and activities; consequently, screening i s not consistent between ministries and sectors. This leads to an overall lack o f clarity about assessing the significance o f project impacts. In some cases, projects with significant impacts are not subject to EIA. A case in point in the transport sector i s the construction o f the Interoceanic Highway, launched in 2005, which will complete a connection to Brazil and provide a direct commercial link between Peru’s Pacific ports and the Atlantic Ocean. In other cases, many projects are subject to EIA, but this i s often unnecessary, since preventing or mitigating project impacts could be addressed through technical environmental specifications, environmental management plans, land-use zoning bylaws, or a pollution-control regulation. 8.19 T o address this deficiency, Article 4 o f the L a w o f the National System o f Environmental Impact Assessment (Law 27446) aims to assess project proposals, which are assigned to one o f three categories, based on their environmental risk: Category I: Environmental Impact Declaration - n o significant negative impacts expected 98

See www.iaia.org for description o f best EIA practices.

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Category 11: Semi-detailed Environmental Impact Assessment (EIA-sd) - Projects that could result in moderate impacts that can be minimized through mitigation measures Category HI: Detailed Impact Assessment - projects whose characteristics and location could result in significant negative quantitative or qualitative effects requiring a detailed analysis o f project impacts and the development of environmental mitigation strategies

(EIA-d)

8.20 Contents o f the EIA for Categories I1 and I I Iare specified in Annexes o f the proposed regulation o f the L a w 27446. Since neither the SEIA l a w nor the regulations are in force, screening and focus o f EIA scrutiny in Peru are highly inconsistent and ineffective.

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Scoping 8.21 The purpose o f scoping in EIA i s “to identify the issues and impacts that are likely to be important and t o establish terms o f reference for EIA” ( M A , 2005).99The legislation governing the Peruvian EIA process does not include a formal requirement for the scoping o f issues; the EIA terms o f reference for proposed projects within different industrial sectors are defined by the responsible ministerial authority. Generic EIA terms o f reference are available for the mining, o i l and gas, electrical, agricultural, and industrial sectors. Within the various EIA terms o f reference examined as part o f this review, only those o f the Sub-directorate o f Hydrocarbons contain any reference to scoping. Even then, there i s little elaboration o n methods for scoping o f both environmental and social issues. Similarly, in most EIA processes, public participation i s absent in the scoping for identifylng key issues for analysis. 8.22 There are significant differences in the treatment o f k e y components o f what i s considered best practice for EIA. These components include (i) EIA scoping based o n public consultation at the earliest stage o f the project to help define major environmental and social issues; (ii) determination o f spatial and temporal boundaries; (iii) a consistent process for analyzing alternatives; (iv) data collection consistent with the scoping process and identification o f data gaps; (v) determination, analysis and prediction of impacts, including impact significance and quantification o f impacts, where possible; (vi) consideration o f cumulative effects, including suggested procedures for their determination and assessment; (vii) consistency in content and scope o f environmental management plans in relation to predicted impacts; (viii) detailed monitoring and follow-up plans t o confirm the effectiveness o f project mitigation measures and the accuracy o f impact predictions; (ix) consideration o f all project phases (lifecycle approach), including decommissioning and abandonment; and (x) public participation in governmental decision malung. 8.23 The E M terms o f references reviewed for t h i s study do not refer explicitIy to the establishment o f spatial, temporal, techmcal, and administrative boundaries at the onset o f the EIA scoping process (Beanlands and Duinker, 1983). This l i m i t s the definition o f EIA scope primarily to projects’ direct impacts, often with the result that regional and induced impacts with more significant and widespread consequences are not addressed. 8.24 An unbiased analysis o f alternatives i s a critical part o f EIA and should be done early in the planning stage before project-design decisions are taken. Analysis o f alternatives i s mentioned in some terms o f reference (e.g., hydrocarbon sector), but the process i s not fully described. Ideally, the analysis o f alternatives should be presented as a stand-alone chapter and used as part o f project justification. 8.25 A s o f December 2005, Peru’s EIA process neither explicitly nor effectively addresses the assessment o f cumulative effects from a l l other past, present, and pending developments associated with the proposed project’s impacts. The existing EL4 TORS for each sector do not explicitly refer t o h o w such an assessment should b e considered and conducted (Hegmann et al., 1999).

In Peru, EIA terms o f reference contain information o n what impacts should be assessed, but lack specific details regarding h o w impacts should be assessed and, more importantly, h o w their significance should be determined. To b e an effective decision-makmg tool, the EIA should determine the importance o f environmental and social impacts, based on information collected for a baseline and considering the effectiveness o f mitigation methods t o remove or reduce impacts to an “acceptable” level.

8.26

99

See www.iaia.org for description o f best EIA practices.

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8.27 To be effective, EIA terms o f reference should consider the following in the assessment o f project impacts:

(i)Impacts should be quantified as much as possible, based on the best information available to the EIA consultant at the time o f preparation.

(ii) The determination o f impacts should be defensible, in that it involves a clear and transparent process whose adequacy can be independently verified by the public or third-party reviewers. 8.28 A number o f procedures, models, and matrices are available for the determination o f impacts. However, at a minimum, the following variables should be referenced: magnitude, scale and extent, duration, frequency, uncertainty and scientific probability. Only the TOR for hydrocarbons o f the Ministry o f Energy and Mines makes mention o f these variables. Other TORSshould consider their use. 8.29 With respect to the quality o f EIAs in Peru, the focus o f environmental assessment i s geared toward approval o f the project EIA, rather than toward ensuring long-term environmental management and sustainability (De l a Puente, 2005).’00 Scoping o f EIAs without public participation correlates with the low quality o f EIAs. Environmental Impact Assessment studies in Peru are a largely descriptive exercise with an “academic” focus on baseline data collection. Lesser emphasis i s gven to the determination, prediction, and analysis o f project impacts. There i s no formal requirement to assess the cumulative effects o f single projects, nor an established methodology. 8.30 EIA preparation i s the responsibility o f the project proponent. According to Peruvian law, only approved consultants or institutions can prepare EIAs within each sector. With the exception o f the Vice-Ministry o f Fish Production, all Ministries surveyed maintain consultant registries and a qualification process for completing environmental impact assessments. The maintenance o f these consultant registries i s largely a bureaucratic exercise; in practice, it does little to improve the standards and quality o f EIAs or to ensure the competence o f EL4 practitioners. Moreover, the registries are subject to lack o f transparency with regard to the contracts they award. 8.31 As i s common worldwide, the cost o f EIA preparation in Peru i s borne by the project proponent. There are no published standards or guidelines as to what EIA should cost in Peru; the wealth o f the sector often dictates the cost o f EIA preparation. Typically, in Peru, EIAs in the oil and gas sector are the most costly and elaborated, followed by those in the mining, electrical and transport sectors. EIAs in sectors that have low economic returns, such as the fishprocessing sector, are not highly elaborate and are done at low cost. Large international consulting companies therefore focus their efforts on those sectors with the highest return and number o f projects, namely the mining and oil and gas sectors. Mining EIAs dominate in number, as there are few large oil and gas projects currently under development in Peru (Furst, 2005).’0’ Public Participation

8.32 “Public involvement” i s the term used for a spectrum o f approaches that can help mitigate misunderstandings or disagreements with stakeholders. I t gives stakeholders the opportunity to participate in, and possibly have increasing levels o f influence over, business activities that may affect them (Canadian Association o f Petroleum Producers, 2003). Public 100

In a review o f EIA for mining and hydrocarbon projects in Peru, de la Puente (2005) states that EL4 i s an administrative procedure for obtaining environmental approval rather than a tool for environmental management. lo’ Personal communication to Miles Scott-Brown b y Dr. Thomas Furst. environmental scientist. Vector Peru S.A.C., Lima, Peru.

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participation in the EIA process has been initiated in Peru, and both formal and informal processes are in operation. Although most ministries have guidelines for public participation, there i s no standardized public consultation process across the anticipated life o f a project. While initiated early in some cases, public participation i s usually conducted only until the time o f the public hearing, which i s usually held within 30 days o f an approval decision. Consultative processes and mechanisms vary substantially between ministries. 8.33 Public participation in the EIA process in Peru i s largely informative in nature: to inform the public about a coming project and i t s potential impacts and management, and to inform the public about i t s legal rights. Formal public hearings are geared more towards dissemination o f project information than to providing a mechanism for public comment and input to enter the decision-making process and affect the outcome o f approval decisions. As stated recently by Manuel Pulgar-Vidal, “...public participation implies, among other rights, involvement at the true level o f the decision-making process, to have the right to reject a project, to participate in an effective manner in the benefits arising from the project and to demand from government objectiveness and representation in project decisions.. .” (Brunke, 2005). Holden et al. (2005) comment on the shortcomings o f the public participation process resulting from most consultation being conducted in Lima and the infrequent involvement o f the affected community. 8.34 Lack o f consistency in the approach to, and scope of, public participation in Peru has made it difficult or impossible for the opinions o f indigenous people to be taken into account in the EIA process. At the recent ECODIALOGO held in Iquitos in February 2006, indigenous people from the Peruvian Amazon expressed opinions. Their viewpoints conveyed that indigenous people see the development o f projects in the Amazon, such as infrastructure expansion, as infringingupon their habitat and threatening their home and source o f livelihood, since clear regulations providing for their protection do not exist.”’

Monitoring and Follow-Up 8.35 EIA follow-up i s defined as “the monitoring and evaluation o f the impacts o f a project or plan.. .for management of, and communication about, the environmental performance o f that project or plan.. ..”Io3Recently, academic groups have proposed a shift in EIA follow-up and monitoring from monitoring and evaluating impact predictions towards establishing l i n k s with environmental management, sustainability assurance, and communication with project-affected stakeholders.IO4 8.36 As in most countries with EIA systems, Peru’s EIA follow-up and monitoring process i s poorly developed and largely ineffe~tive.”~The responsible authority at the m i n i s t r y level grants approval o f the environmental impact assessment study. However, the responsible authority i s not necessarily accountable for the supervision and compliance o f the project. T h i s responsibility i s turned over to another agency (either within the ministry or independent o f it) that i s answerable for monitoring, compliance, and enforcement. Within the Vice-Ministry o f Energy, this responsibility i s assumed by OSMERG, a separate organization responsible to the lo* Opinions expressed by participants from AIDESEP, CONAIE, and CIDOB at the ECODIALOGO held in February 2006. 103 Morrison-Saunders, A. and J. Arts. 2004 (Eds.) Introduction to EM follow-up. pp. 1-21. In: Assessing Impact: Handbook of EIA and SEA Follow-up. London: Earthscan. Momson-Saunders, A. and J. Arts. 2005. Editorial: Learning from experience: emerging trends in environmental i m act assessment follow-up. Impact Assessment and Project Appraisal. Vol. 23 (3):170-174. ‘“The official word in Spanish isfiscalizacidn, which has no direct translation in English. “Compliance monitoring and enforcement” i s the closest translation available. Fiscalizacidn i s more concerned with legal and financial aspects o f compliance than follow-up o f environmental and social commitments contained within the EL4 and its related environmental management plan.

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Presidency o f the Council o f Ministries. Within the Vice-Ministry o f Mines, Ministry o f Transport and Communication and Agculture, the monitoring function i s assumed by another agency within the same ministry. 8.37 Compliance monitoring i s largely concerned with administrative procedures, and far less with ensuring that commitments made in the E M are upheld. In addition, financial constraints often impede effective compliance monitoring in the field. Finally, monitoring reports are not available to the public for review, and the public has no role in the EL4 followup process. The Peruvian E M system currently does three kinds offiscalizacidn:

8.38 0

0

Completed within the Ministry itself, e.g., Compliance Monitoring Directorate, General Directorate o f MiningIM Completed by independent government agency - e.g., OSINERG, which reports to the Council o f Ministers Completed by a third-partner private-sector consulting company that i s officially registered for this type o f work within the specific ministry, e.g., MTC

At the time o f E M preparation, only preliminary engineering details are usually 8.39 available. Consequently, the environmental management plans presented in EIA are largely conceptual and are intended as a guide to how they w i l l be implemented once the detailed engineering design i s finalized. The compliance-monitoring entity i s directed by legal requirements that are more concerned with formal compliance than with the actual commitments made in the EM. The overall result i s a weakened and largely ineffective E M follow-up process.

8.40 A number o f other observations and concerns exist about how compliance monitoring Cfiscalizacidn) i s actually implemented in the field: Random inspections cannot be made unless there i s a fatal accident or emergency situation (CED, 2002; IADB, 2002). Since the compliance-monitoring agency or consultant i s not based permanently in the field, but rather visits the project o n a scheduled basis, there are concerns about the number o f visits and the level o f detail possible, compared to a fulltime compliance-monitoring presence. Although companies are registered to conduct compliance monitoring and guidelines exist for some ministries, there are concerns about companies’ qualifications and the budget available for monitoring compared t o EIA preparation. There are questions about the technical competence o f third-party companies and h o w they are contracted. There are questions as to h o w the compliance-monitoring budgets are determined relative to compliance needs. The focus o f compliance monitoring i s aimed more at financial and legal compliance than o n the actual implementation o f EIA commitments. There are concerns about the capacity to monitor discharges and evaluate actual compliance. There are concerns about penalties and the implementation o f fines.’07

IO6

Direction General de Mineria - Direccibnde Fiscalizacibn.

According to a September 25, 2005, article in the Peruvian newspaper, El Comercio, OSINERG fined 17 petroleum companies in 2005 for environmentalinfractions, none of which has been paid. IO7

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8.41 Realizing the complexities associated with the follow-up and monitoring o f complex mega-projects, the Peruvian Government established the Inter-institutional Technical Coordinating Group (GTCI) for the Camisea Gas Project. GTCI was established under D.S. No. 120-2002-PCM to coordinate and strengthen the supervision, follow-up, and compliance monitoring of environmental and social aspects arising from execution o f the Camisea Gas Project .

Analysis of Case Studies 8.42 T o support the findings o f t h i s review, three EIAs, considered by governmental officers as best practice, were reviewed as case studies to assess the EIA preparation, review, and approval process against established best international EIA practice. Case studies were selected from the mining, electricity and o i l and gas sectors (Tables 4.4 - 4.6). The mining project i s the Antamina Copper-Zinc Mine located in the Department o f Ancash. Ths project has three components: an open-pit mine; processing facilities and infrastructure (port, pipeline, roads, and power transmission). The Kallpa Project involves the construction o f a 380 M W thermal generation plant in the district o f Chilca, in the Lima Department. The plant will consist o f two 190 MW turbines and a 220V electrical substation. The Lote IX project involves the drilling o f two development o i l wells in Lote IX, Piura.

Case Study I : Antamina The following i s an analysis o f the Antamina Mine operated by Compaiiia Minera 8.43 Antamina S.A. (CMA).

Table 8.4. Case Study Analysis: Antamina Mine " l.

_ I _

Analysis

Project Description

Antamina i s the world's third largest mine and the leading combined copper-zinc mine; it has a capital cost of US$2.3 billion. I t i s located in the Department of Ancash in the Peruvian Andes, approximately473 km north o f Lima. The project consists of three components: an open-pit mine; processingfacilities and infrastructure(port, pipeline, roads, and power transmission). The mine began production in 2001 and has an expected operating l i f e of 20 years. March 1998, EIA submitted for approval April 1998, public hearing (Lima) took place May 1998, MEM and INRENA presented observations to the EIA June 1998, CMA responded to all the observations July 1998, CMA filed the Road Addendum July 15, 1998, EIA approved

Timeline of EIA Activities

January 1999, Concentrate Pipeline EIA Addendum submitted for approval January 1999, public meetings in Huallanca, Chiquian, Chavin, San Marcos, Huaraz, Aquia, Chasquitambo, and Huarmey, and a Public Hearing (Lima) took place February 1999, INRENA presented observations March 1999, MEM presented observations March 1999, CMA answered all observations March 1999, MEM approved addendum

182

..-.. _.

.. --

EIA Coniponent Screening

According t o regulations o f the Ministry o f Energy and Mines, Environmental Issues, Mining, an EIA was required

Scoping

Scoping o f issues was done using a simplified failure modes and effects analysis (FMEA) and workshop. Workshop consisted o f experts only and did not involve the public or affected stakeholders.

EIA Preparation

EIA Content

In October 1996, CMA retained Klohn Crippen SVS SA. (KC-SVS) t o prepare an Environmental Impact Study (EIA) for the Antamina Project. The EIA was filed with MEM in March 1998. Addendums were submitted for a new access road (1998) and concentrate pipeline (1999). The EIA was prepared considering Peruvian Government EIA requirements, CMA environmental and socioeconomic policies, and World Bank guidelines developed for mining projects.

EIA approach, for the most part, consistent with World Bank standards and involved a three-part process: Issue scoping, impact assessment analysis, implementation. Detailed assessment o f project boundaries and impacts was done using a matrix approach as either significant or non-significant. Variables considered included magnitude, duration, geographical extent, and probable frequency o f occurrence o f expected interactions. N o analysis o f cumulative or regional effects. N o formal alternatives analysis including impact evaluation presented. An analysis o f alternatives for the concentrate transportation route was completed.

Analysis o f Alternatives

The EIA refers t o an analysis o f alternatives, but no formal analysis appears in the EIA document. An analysis o f alternatives consistent with the requirements o f 0.P 4.01 Environmental Assessment was not done. Environmental: impacts on surface water quality, loss o f habitat, heavy metal release, local impacts on air quality, reclamation, and long-term liability issues associated with closure, impacts on cultural resources.

Major Impacts

EL4 Evaluation and Decision

Socioeconomic: resettlement, immigration, increased housing demand. There are anticipated improvements in educational and health facilities, increased employment opportunities, new housing development and improved infrastructure and social services. Peruvian legislation in force in 1998 provided that MEM and INRENA were involved in EIA approval. I t i s likely that, today, interventions o f other ministries such as M T C would be involved.

183

k c o r d i n g to the EIA, C M A w i l l adopt environmental standards for the project lased on company policy, legal regulatory limits in Peru, and World Bank hidelines as well as the limits, objectives, and guidelines used in North America.

Mitigation and Monitoring

The project will employ a best management practices approach, as used by the nining industry worldwide, to control emission sources and prevent accidental .eleases during operations. During construction, control measures t o minimize listurbance and to prevent and control erosion and spills were developed for each xoject element (mine, port, roads, and power line) to limit environmental effects md protect watercourses and sensitive habitats. These measures were described :onceptually in the EIA and further elaborated by C M A as part o f a comprehensive xoject environmental management plan. During construction, operations, and :losure, C M A w i l l monitor the quality o f discharges t o the environment as well as h e ambient condition o f surface water, groundwater, air, and soil that may be affected b y such discharges to verify compliance with Peruvian regulatory requirements. In addition to direct monitoring o f water and air, C M A will implement Environmental Effects Monitoring (EEM) to document the health o f biological communities.

A resettlement policy and community-development plan were prepared. The community-development program builds on the principles o f respecting the local communities, engaging them in planning for change, emphasizing self-sustaining and community-driven initiatives, and securing benefits for the community from project development. E I A follow-up and compliance involves the following:

EIA Follow-up and Compliance

MEM performs periodic audits (usually 3 times a year) to the mine and port sites. I t also reviews the quarterly environmental monitoring information submitted by CMA.

DIGESA performs periodic surveillance o f the ambient air and water adjacent to the mine and port sites. Monitoring results are reported to local environmental monitoring committees.

E I A Cost

A total o f US$5-10 million was spent on EIA costs and permits. The Annual Environmental Budget i s between US$3-4 million. Public participation for the project followed Peruvian guidelines and included the following: public meetings in the project area, open house in L i m a and formal public hearing in Lima. The EIA was widely distributed and made available in Spanish and English. Following project approval, local environmental committees were set up in communities across the project. Current public consultation efforts include:

Public Participation

0

0

0

Public meetings to discuss environmental issues Distribution o f quarterly reports on CMA’s environmental monitoring program Delivery o f the Environmental Impact Assessment (EIA) and annual Sustainability Reports Joint monitoring work with the participation o f the community, local entities, government authorities, NGOs and other stakeholders Resolution o f environmental grievances and claims Guided visits by stakeholders to CMA’s operations Involvement by C M A in regional environmental work groups, sponsoring the participation o f the environmental committees and assisting in the development o f local environmental policies.

184

.... .. ....

.

- -.

. .

___

E I A Component Anafysis Suggested improvements to the EIA process are as follows:

EIA Improvements and Recommendations for Follow-up

The EIA only considered the impacts o f each mine component separately and should have assessed the project’s combined effect. A stand-alone alternatives analysis should have been completed compliant with O.P. 4.01 requirements The E M P was conceptual in nature and more details should have been provided. A cumulative-effects and regional assessment should have been done. Although public consultation and disclosure complied with Peruvian requirements, efforts could have been initiated earlier in the EIA process. Since project approval, C M A has adopted a comprehensive environmental management program to implement project environmental controls. This has overcome a weakness o f the EIA in which details o f environmental management plans were not fully available at the time o f preparation. Long-term liability issues are being addressed in response to new government legislation on mine closure. C M A i s actively monitoring the implementation o f EIA commitments and success o f project mitigation. A third-party company also conducts independent audits. Government monitoring and compliance review focus on compliance regarding project air and water discharges, solid waste management, and tailings impoundment stability.

On the social side, public consultation and involvement processes could have been initiated earlier during the project-approval process. Since project approval, C M A has taken a more proactive approach to public involvement b y forming environmental committees across the project. C M A is initiating these efforts without being directed t o by regulatory demands or requirements. C M A has also formed the Ancash Association to help foster sustainable development across the project. A fund o f US$1.5 million was established for this purpose. The EL4 for the Antamina Project demonstrates that EL4 is a tool to be used in a comprehensive environmental management process over the life o f a project. The EIA forms the basis for corporate commitments, which are then developed during project operations. An adaptive management approach i s a key part o f the successful environmental management program. source: Scott-Brown !006)

I85

Case Study 2: Kallpa Thennoelectric Plant 8.44 The second case study i s an EIA o f the 380 MW Kallpa Thermoelectric Generating Station; that EIA was submitted to the Ministry o f Energy and Mines in September 2005. The Project EIA was downloaded from the MEM website and reviewed. Table 8.5. Case Study Analysis: Kallpa Thermoelectric Plan

E I A Component

Analysis

Project Description

Globeleq Peru (S.A.), a division of Globeleq, i s proposing to construct and operate a 380 MW thermal generation plant in the district o f Chilca, Canete Province, L i m a Department. The plant w i l l consist o f two 190 MW turbines and a 220V electrical substation. The plant will use gas from the Camisea Project as an energy source and connect to the national grid. N o information i s provided on project costs.

Timeline o f EL4 Activities

September 2005, Submission o f EIA.

Screening

Regulations o f the Ministry o f Energy and Mines, Environmental Issues, Energy required an EIA.

Scoping

There is n o indication in the EIA as t o whether scoping was conducted.

EIA Preparation

The EIA was prepared by Walsh Peru S.A. The EIA complies with Laws 757 and 27446 and was prepared in accordance with the Guidefor Environmental Impact Studies for Electrical Activities, the Environmental Protection Regulation for Electrical Activities - D.S. No. 029-94-EM (0608-94) and World Bank Thermal Power Guidelines for N e w Plants (1998). Globeleq’s corporate policy i s to comply with the most stnngent o f either Peruvian or World Bank emission standards.

EIA Content

The EIA process consisted o f three phases: Background reviewifield work, impact analysis and report preparation. The impact evaluation methodology follows World Bank and best EA practice procedures. A cause-effect matrix was used to evaluate project impacts considering the following: duration, intensity, frequency, magnitude, and probability o f occurrence. A positive or negative impact value was determined and an impact significance value was assigned. No analysis o f cumulative or regional effects was conducted.

Analysis o f Alternatives

I N o analysis o f alternatives was described in the EIA document. Impacts were described for both the construction and operations phase. A summary of major impacts follows:

Major Impacts

Environmental: impacts to air quality, noise, visual quality, changes in land use. and faunal disturbance. Social: impacts on traffic flow, expectations for employment, increase in land prices and living costs, potential for social conflicts. Positive impacts include provision o f employment and improved availability o f services.

EIA Evaluation and Decision

1 Under evaluation by MEM.

186

l _ l _ _

ELA Component

-.

l ^ l

Analysis Monitoring w i l l be done during both construction and operation phases.

Mitigation and Monitoring

Monitoring during construction w i l l focus on contractor compliance with the project environmental management plan. A community-relations plan w i l l also be put in place to manage construction and operations impacts on local communities and residents. Monitoring during operations w i l l be done for stack emissions, air quality, noise, and vibration. Compliance monitoring on behalf o f the Government w i l l be done b y OSINERG.

EIA Follow-up and Compliance

Globeleq w i l l implement an environmental management plan during construction and operations; the plan w i l l include the following: Impact prevention Solid waste management Monitoring Occupation health and safety Community relations Management o f social conflict

A Contingency Plan and an Abandonment Plan are also provided. EIA Cost

N o figures available in the EJA.

Public Participation

Four participatory workshops and four focus groups were conducted to assess the local population’s perceptions o f the project and t o gain baseline information. Additionally, in accordance with the Regulation for Public Participation, two information and consultative workshops were held prior to the EIA and t w o others during preparation o f the EIA.

EIA Improvements and Recommendations for Follow-up

Suggested improvements to the EIA process include A stand-alone alternatives analysis should have been completed compliant with O.P. 4 01 requirements The E M P was conceptual in nature and more details should have been provided A cumulative effects and regional assessment should have been done considering other electncal generation projects and other industries The levei o f effort expended in the EIA appears t o be sufficient, but n o details are provided on project or EIA costs Public participation appears to be sufficient relative to the extent o f the project, but n o information is provided as to how information collected in the EIA was used in the decision-making process.

Source: Scott-Brown (2006)

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Case Study 3: EIA for the drilling of two development wells in Lote IX Piura Table 8.6. Case Study Analysis: Two DevelopmentWells in Lote IX, Piura

EIA Component

Analysis

-.

I

Project Description Timeline o f EIA Activities Screening Scoping

EIA Preparation

EIA Content

Analysis o f Alternatives

Major Impacts

~~

EIA Evaluation and Decision Mitigation and Monitoring

EIA Follow-up and Compliance EIA Cost Public Participation

.___ .-

The project involves the drilling o f two development wells in Lote IX, Piura. Lote IX i s an existing field. EIA was submitted in July 2005. N o further information on the status o f the EIA i s provided on the MEM website. Regulations o f the Ministry o f Energy and Mines, Environmental Issues, Energy required an EIA. There i s no indication in the EIA document that scoping was conducted. The EIA was prepared by E C O L A B SRL, Lima, Peru. N o information i s available on EIA cost. EIA approach, for the most part, consistent with World Bank standards and involved the following: project description, description o f natural and human environment, impact evaluation using a matrix approach and preparation o f an environmental management plan. N o analysis o f cumulative or regional effects. N o formal alternatives analysis, including impact evaluation presented. An analysis o f alternatives consistent with the requirements o f O.P. 4.01 environmental assessment was not done. Environmental: impacts to air quality and noise associated with drilling activities; impacts on soil quality from construction, spills and improper disposal o f drilling waste; loss o f vegetation and landscape alteration; and disturbance to wildlife due to noise and air quality impacts. Socioeconomic: visual impacts o f drilling rig, potential impacts on health due to operations and improper waste disposal, and risk o f accidents due to increased traffic. N o archaeological resources were encountered. N o information i s available on the MEM website regarding a decision on the EIA. Monitoring o f air quality, water quality in runoff, and noise w i l l be conducted. The environmental management plan outlines typical best management practices to minimize the impacts o f drilling activities. N o information on follow-up and compliance provided. According to established practice, OSINERG will be responsible. N o information i s provided on EIA costs. The status o f public consultation efforts is not clear. The EIA refers to participatory workshops, but the MEM website does not provide the respective annex with the EM.

188

EIA Component

EIA Improvements and Recommendations for Follow-up

Analysis

__

_.

-

activities, with the most effort expended on analyzing baseline information. Suggested improvements t o the EIA process include: A stand-alone alternatives analysis should have been completed compliant with O.P. 4.01 requirements. The EIA provides an extensive qualitative evaluation o f project impacts using a matrix approach, but project impacts should have been quantified as much as possible. The EMP was conceptual in nature, and more details should have been provided. Cumulative effects should have been addressed. Based on the information provided in the EIA, public participation does not appear t o be adequate.

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Table 8.7. Analysis of Case Studies Compared to Best International EIA Practice

EIA Component Was EIA scoping conducted? Was public participation involved In EIA scoping? Was EIA screening conducted? Was an analysis o f alternatives conducted? Was baseline data sufficient for prediction o f environmental impacts? Were data gaps identified? Was a quantitative evaluation o f project impacts conducted? Was consideration given to the assessment o f cumulative effects or indirect project impacts? Was an environmental management plan developed based on assessed project impacts? Was there implementation o f the environmental management plan and development o f an environmental management system? Was public consultation started at the earliest stage o f the project and continued throughout the life o f the project? Was there feedback in the consultation process to involve project-affected stakeholders in the EIA process? Were broad public hearings held? Was an EIA monitoring and follow-up program developed by the company to assess the effectiveness o f environmental and social management activities?

Antamina

Chilca

Lote 64

Partial Low Yes Partial

No No Yes No

No No Yes No

Partial

Yes

Yes

No

No

No

3

No

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Partial

No

Partial

Partial

No

Partial

Partial

No

Partial

No

No

Yes

Partial

Partial

Designing Effective Instruments of Environmental Policy Understanding the Limitations of Environmental Assessment

8.46 Environmental problems in Peru are as diverse as their causes. Without solid environmental regulations and interventions that are targeted to redress specific problems, i t i s impossible for EIA to deliver on the wrongly ascribed promise to be an environmental management tool. As discussed in other chapters o f this report, the main environmental challenges in Peru consist o f reducing the incidence o f waterborne diseases and illnesses caused by urban and indoor air pollution, as well as minimizing vulnerability to natural disasters. EIA cannot address these problems. It i s important to recall that EIA i s a planning tool for opening up governmental decision making to public scrutiny by providing citizens the opportunity to better understand the impacts and alternatives o f new projects that have potential significant environmental impacts. 8.47 The above discussions shed light on the deficiencies in environmental planning and monitoring o f compliance and enforcement in the EIA process. Coupled with these deficiencies i s the incipient development o f environmental regulations aimed at addressing environmental problems that are strongly linked to market failures, policy failures, or both. The existing situation contributes to an implicit and flawed expectation regarding the role o f EIA-in addition to i t s intended function o f being a planning tool, it i s expected t o perform as an instrument for the management o f environmental problems and the preservation o f environmental quality. For instance, EIA has become a de facto substitute for pollution-control regulations and effective land-use planning, whereas it should form part o f the land-use

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planning process. In countries with established EIA systems, managing environmental problems linked to market failures i s done with environmental policy instruments that differ from EIA. Indeed, managing and solving such problems i s only achievable through the design and implementation o f economic instruments or command and control regulations that address specific problems. These tools need to cover (i) pollution control; (ii) technical environmental specifications for sectoral environmental management; (iii) protection o f endangered species and conservation o f biodiversity; (iv) land-use zoning and (v) conservation o f forest, water and other natural resources. 8.48 As explained, EIA i s foremost a tool for environmental planning and not for environmental regulation or environmental management. Furthermore, EL4 i s a tool for identifylng potential adverse environmental impacts prior to a project’s implementation and proposing measures to mitigate a project’s environmental impacts. However, i t s usefulness may very well be undermined by market and policy deficiencies that act at cross-purposes with the objective o f promoting environmental management. Currently, EIA i s perhaps the only point o f contact between the environmental and productive sectors. Furthermore, other instruments such as emission standards and land-use zoning are, at best, incipient in Peru. 8.49 The ambiguity regarding the purpose o f EL4 in Peru has led to a situation in which neither environmental planning nor environmental regulation or management i s satisfactory; consequently, environmental problems persist. Clearly, if EIA i s to be used as an environmental management tool, it w i l l be important to develop additional instruments and regulations targeted to Peru’s specific environmental problems. In other words, it i s futile to look to EIA alone as a tool for redressing the existing market and policy failures in Peru and translating them to improved environmental outcomes. Various mechanisms exist for controlling environmental

degradation, including (i) direct regulation by government or “command-and-control” measures; (ii) economic and market-based instruments; and (iii) other approaches such as administrative procedures, legal actions, and formal negotiation (Shchez-Triana, 1992, 1998, 2001). These mechanisms are discussed in more detail in the following paragraphs.

Outdoor and Indoor Air Pollution 8.50 In Peru, outdoor and indoor air pollution results from market and policy failures. EIA i s not a tool that lends i t s e l f to controlling air pollution, since EIA i s unsuitable for redressing market and policy failures. Experience in other countries indicates that economic instruments and command and control regulations are far more effective and efficient than EIA for controlling air pollution. 8.51 Economic instruments or market-based instruments aim to modify the behavior o f economic agents by providing incentives for these agents to internalize the externalities that they may be producing. Economic instruments include tax differentiation, pollution charges, and tradable permits (Stavins, 2001). In some countries, tax differentiation has been used to reduce vehicle-related emissions by encouraging motorists to switch from leaded to unleaded gasoline, from high sulfur to low sulfur diesel, and by encouraging clean car sales (Panayotou, 1998). Many European countries assess differentiated taxes and fees on vehicles according to cylinder capacity, age, fuel efficiency, and other environmentally relevant aspects (Speck, 1998). A strong system o f enforcement and the monitoring o f investments are key to enhancing the effectiveness o f tax differentiation systems. 8.52 Fuel types vary in their potential to produce atmospheric emissions that pollute the environment (Table 8.8). In Peru, fuel taxes could be designed to promote a shift from using dirty h e l s such as fuelwood and diesel, to clean fuels such as gas. The Government might consider timing the implementation o f such taxes according to fuel prices. For example, if fuel prices decline, then the Government could withhold reducing pump prices immediately. This approach might incur less resistance than instituting a new tax. In addition, fuel-tax revenues

191

can help subsidize gas consumption by households in rural areas. Furthermore, increased fuel revenues would provide additional resources to finance the investments required for stateowned refineries to shift to producing cleaner fuel.

Table 8.8. Fuel Type by Level of Atmospheric Emissions

Coal (low sulfur) Coal (high sulfur) Fuelwood

H H H

M H H

M M H

L L H

Legend: L = low emissions, H = high concentration o f atmospheric emissions, blanks indicate no atmospheric emission, PM2.5 = particulate matter, SOX = sulfur oxides, N O x = nitrogen oxides, VOC = volatile organic compounds.

8.53 Command and control measures include ambient standards, emission standards, and technology- and performance-based standards. In Peru, the environmental regulatory framework includes requirements for ambient standards (ECAs) and emission standards (LMPs). Since PM2.5 and lead are priority air pollutants, the Government might consider adjusting ECAs and LMPs to control the air concentration o f these pollutants. For example, findings from scientific research suggest setting ambient air primary standards for particulate matter (PM2.5) at 14.0 pg/m3 (annual average) and 35 pg/m3 (24-hour average). Recommendations for technological standards include reducing the sulfur content in diesel to 500 ppm in the short term and to 15 ppm in the medium term. Other technological standards might include requiring retrofit particle control technology for diesel vehicles, and banning the importation o f used cars. 8.54 To control indoor air pollution, the Government might consider adopting a gas-pricing policy aimed at fostering the use o f compressed natural gas and liquefied petroleum gas. T h i s gas-pricing policy would promote available and affordable options for the poor to use as substitutes for fuelwood. Another economic instrument to control indoor air pollution includes the implementation o f subsidies for improved stoves. These subsidies would target poor families and people most affected by the adverse health impacts o f such pollution. Inadequate Water Supply, Sanitation, and Hygiene 8.55 Reducing the incidence o f waterborne diseases could be achieved through measures such as these: (i) reducing regulatory barriers to the construction o f water supply and sanitation projects; (ii) increasing subsidies to education campaigns for hand washing and the household disinfection o f water; (iii)setting and enforcing strict standards for drinking-water quality, particularly o f substances, such as most probable number o f fecal coliform, having adverse health impacts; and (iv) setting water standards for uses that could impair human health, including irrigation and recreation. In Peru, for agricultural uses, the Government might consider prohibiting irrigation o f vegetables with wastewater containing more than 2000 NMF' o f fecal coliform/lOO ml.

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8.56 Public disclosure o f water-quality parameters has been very effective in fostering continuous improvements in drinking-water quality. Reporting requirements include, for example, the Drinking Water Consumer Confidence Reports required by USEPA since 1999. Under this program, all drinking-water suppliers in the country should provide households with information on the quality o f their drinking water, including specified information regarding water sources and actual and potential contamination. In Peru, the Government might consider implementing similar regulations requiring water utilities to publicly disclose environmentalhealth related parameters on monthly consumer water bills such as pathogenic quality and data on morbidity and mortality associated with waterborne diseases by area served. Mexico has very effectively used regulations that require public disclosure o f water-quality parameters relating to environmental health for beaches and other recreational areas. GoP could consider a similar program to publicly disclose water-quality parameters relating to environmental health for water-based recreational and tourism areas.

Natural Disasters 8.57 The design and implementation o f regulations relating to land-use plans and the identification o f areas prone to natural disasters are more relevant and effective measures for minimizing vulnerability to natural disasters than EIA. The Government could implement policies on land-use planning for risk reduction that identify spatial uses for different human activities - housing, infrastructure and productive activities like agriculture. The approach to zoning should emphasize disaster prevention and mitigation; and it should take into account critical constraints, risks and limitations arising from both human activity and the environment. 8.58 In developed counties, the most frequent market-based instrument used to reduce vulnerability to natural disasters i s disaster insurance. Unfortunately, disaster insurance i s seldom used in developing counties for a variety o f reasons (Freeman et al., 2003): the high probability o f extreme weather events, the difficulty o f spreading risk in small economies (relative to the magnitude o f risk), the adverse-selection problem, and thin markets for insuring risk. However, a number o f potential risk-transfer mechanisms could be considered for Peru: catastrophe insurance or bonds, access to an international insurance fund (such as that proposed by the United National Framework Convention on Climate Change), private-public partnerships (such as the Turkish Catastrophe Insurance Pool) and parametric earthquake insurance. These and similar initiatives should be considered M e r . Deforestation and Biodiversity Loss 8.59 Market and policy failures are important causes o f deforestation and degradation o f Peru's ecosystems. In Peru, many markets simply do not exist for many environmental services. Very high transaction costs, for instance, prevent the development o f markets for valuing the ecological functions provided by the upper portions o f watersheds. Polluters and loggers have few incentives to avoid downstream impacts associated with their wastewater discharges or harvesting practices, since these social costs rarely translate into private ones. Another example o f a market failure i s the situation where private property rights are ill-defined or unprotected. Ths provides the opportunity for overexploitation o f natural resources and biodiversity, because i t i s difficult to assess and distribute the costs and benefits o f mitigating environmental degradation or abating pollution to individual polluters and parties affected by pollution or environmental degradation. Market-based instruments such as payments for environmental services could be considered by GoP to overcome these market failures. 8.60 Forest concessions are at the heart o f Peru's new forestry policy and are key to i t s eventual success. Existing gaps in the legal framework should be addressed to better attack illegal loggmg and trade in timber. Short term, illegal logging should be clearly defined as a criminal act, and specific sanctions should be established for specific infractions, with offenders

193

prosecuted and penalties assessed without other concurrent crimes having to be committed. In the future, efforts should be made to attract larger investors for the remaining forest concessions, which consist o f approximately 9 million hectares. Consideration should be given to creating a secondary market, where forest concessions could be traded. T h i s would attract private investment, forge alliances with international buyers focusing on certified markets, and strengthen concessionaires’ capacity to become part o f a chain o f production, and hence secure a demand for their timber. Water Pollution

8.61 Market failures in water pollution are pervasive in Peru. Despite persistent water pollution associated with municipal wastewater discharges and agricultural non-point sources, the attention o f environmental agencies has been restricted to few activities, namely mining, energy, fishmeal, tanneries, breweries, cement, and pulp and paper. Effluent standards are the instruments in place for water-pollution control. Typically, parameters for which l i m i t s (LMPs) have been established and regulated include primary pollutants such as Biochemical Oxygen Demand (BOD), Chemical Oxygen Demand (COD), Total Suspended Solids, PH, temperature, odor, color, and taste. These limits are primarily o f aesthetic and ecological significance and bear on water use for recreational purposes or water use for productive purposes such as in agriculture and industry. 8.62 Efforts to regulate water pollution have been few and isolated, with mining and tanneries being the only sectors that regulate substances such as lead, copper, arsenic, cyanide, and chromium that have potentially adverse health impacts. In some cases, these regulations are not effective. A case in point i s the mining sector where increases in the price o f gold on the international market could present incentives to foster environmental degradation within the country. Such price increases provide incentives for behaviors by small-scale miners that

maximize production at the expense o f environmental sustainability. Furthermore, control o f such degradation i s particularly difficult, because such mining activities are informal. In this case, appropriate options for mitigating pollution could include increasing the taxes on polluting inputs, such as cyanide and mercury, that are used in gold mining.

Solid Waste Disposal 8.63 Inadequate waste disposal i s another environmental problem where EL4 can prove ineffective without clear command and control regulations. There i s a blatant lack o f environmental regulations for the disposal o f solid wastes and for the management o f hazardous wastes. O f the 13,000 tons o f municipal solid waste generated, less than 20 percent i s disposed o f in sanitary landfills, while 65 percent i s placed in unsafe open dumpsites, in rivers and on beaches. The remaining 15 percent i s recycled, typically under conditions unsafe for human health, usually during collection and at the site o f final disposal. Important factors contributing to the existing situation o f waste management in the country are poor coverage o f wastemanagement services and lack o f landfills, which has contributed to the proliferation o f unsafe disposal methods and sites. Only eight sanitary landfills, most in the province o f Lima, operate in Peru. Typically, the most highly populated, low-income districts have the poorest coverage and regularity o f waste management services. For example, in San Juan de Lurigancho, Peru’s most highly populated district, waste management service coverage i s 47 percent, with an average frequency o f two times per week; final disposal coverage i s 42 percent; recycling i s 12 percent and coverage for other disposal services (to beaches and rivers) i s 46 percent. An explanatory variable in the existing situation with collection and final disposal o f municipal solid waste in Peru i s the lack o f precise regulations addressing the technical aspects o f design and construction o f waste-disposal facilities, typically landfills. Decree No. 057 o f 2004 provides regulations to implement the General Solid Waste L a w No. 273 14 o f 2002. However, the decree does not provide specific regulations in sufficient detail to ensure that landfills are adequately designed.

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8.64 Undoubtedly, there i s a need for detailed regulations that clearly address technical criteria. These include, among others, siting o f landfills, treatment o f leachates, gas collection and management, and management o f surface or storm runoff in the event o f flash flood or huayco events. These needed regulations should provide t e c h c a l specifications for the design, construction, and operation o f landfills. The preceding paragraphs show, that without clear regulations and instruments, it would be unrealistic to expect EIAs prepared by project proponents before project implementation to suffice for waste management. These regulations and instruments should address (i)technical specifications for the design, construction and operation o f landfills; and (ii) incentives for compliance o f waste generators and government officials responsible for waste management, through appropriate sanctions. Hazardous Wastes 8.65 Adequate hazardous-waste management requires an environmental regulatory framework far beyond EIA. I t i s estimated that, each day, the country generates 4,700 tons o f industrial waste. O f this amount, 81 percent or 3,807 tons are hazardous wastes. The main sources o f industrial hazardous wastes are reported to be metallurgy, metallic manufacture, printingpresses, oil refineries, and tanneries (DIGESA, 1998; Price, 2005). Approximately 65.5 tons o f hazardous wastes are generated by healthcare facilities (Price, 2005). One challenge to adequate management and disposal o f hazardous wastes in Peru i s lack o f adequate infrastructure to manage hazardous wastes. In Lima, there were only three autoclaves to treat infectious healthcare wastes, each located at the healthcare establishment that owns it. I t was reported that only 2 percent o f hazardous wastes receive any treatment or reach a secure disposal facility (Price, 2005). 8.66 GoP i s preparing regulations relating to Law No. 28256 o f 2004 on Transportation o f Hazardous Substances and Wastes. Among the topics to develop in the hazardous waste regulations, the GoP might consider focused and unambiguous regulations that provide sufficient detail to ensure adequate management and treatment o f hazardous wastes, allocate clear roles and hnctions to environmental authorities, ensure segregating hazardous and nonhazardous wastes, and define liabilities relating to compliance with hazardous wastes management and treatment. Clearly, each type o f waste (hazardous and non-hazardous) should be dealt with by a separate regulation. Furthermore, to ensure compliance, regulations should promote accountability by assigning responsibilities for specific, identifiable waste-management functions, such as waste collection and disposal, to specific positions in the municipal governments, and using sanctions for noncompliance by the officers in those positions. Clearly, in Peru, hazardous waste management i s beyond the realm o f EIA. 8.67 Policy failure i s also one o f the main causes o f hazardous-waste pollution. Explicit subsidies favor wasteful hazardous-waste precursors, or overuse o f such precursors, or both. For instance, agrochemical subsidies contribute to the overuse o f chemical inputs in agricultural production, leading to the contamination o f water, soil, and produce. Addressing the contamination impacts from agricultural projects through EIA could be highly ineffective and inefficient, since existing policies do not provide incentives for polluters to reduce the use o f chemical inputs or to seek alternative less-polluting inputs. Furthermore, if the cost o f abating pollution exceeds the value o f apcultural output, this disincentivizes polluters’ investment in the operation and maintenance o f pollution-abatement devices. Again, without first addressing the policy deficiencies that stimulate environmental degradation, it i s not possible to achleve far-reaching improvements in environmental quality outcomes. In effect, in addition to EIA, Peru needs specific regulations and instruments that address, among other aspects, appropriate pricing o f precursors o f pollution and environmental degradation, and appropriate pricing o f natural resources such as water.

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Water Resources Management 8.68 In the water sector, an example o f a policy failure i s water subsidies that encourage inefficient water distribution and overconsumption by those with first access, while depriving the “tail-enders”. In Peru, the Ministry o f Agriculture sets water fees in irrigation schemes. Fees are priced far below the economic cost o f water and even below the operation and maintenance costs o f the irrigation-scheme infrastructure. Because o f water’s l o w cost, together with low collection rates o f water tariffs, water i s wasted and used inefficiently. Government interventions that subsidize irrigation districts’ operation and maintenance costs contribute to environmental problems such as soil salinization in the northern Pacific basin valleys o f Peru. In this context, EIA may prove useless in trying to acheve far-reachmg and sustained results in environmental quality improvements, since it can provide incentives neither for operations to reduce waste o f water, nor for improved agriculture and irrigation practices to control soil salinity. In effect, in addition to EIA, Peru needs specific regulations and instruments that address, among other aspects, appropriate pricing o f water, efficient allocation o f water rights, and improved collection o f water tariffs. 8.69 The restrictions o f the 1969 law were only partially addressed in 1989 and 1990 legislation, and the inalienable “right to water” continues to be a powerful impediment to the use o f water charges. To promote more efficient use o f water resources and associated land uses, the Government could revise the 1969, 1989, and 1990 Water Laws to authorize higher, broadbased fees for water use. Regulatory reforms allowing for water pricing where i t does not yet exist, and for higher charges where it does exist, will help address massive water-use inefficiencies in the Coastal valleys, and w i l l lead to more rational resource management. Where they already exist, in Coastal irrigation projects, water-use fees are typically far below cost. Thus, in the short run, increasing water-use fees, and the longer-run improved landmanagement patterns that result, can be expected to address soil salinization through less overuse, especially for rice. Moreover, funds can be generated to invest in maintaining irrigation systems.

Fisheries Overexploitation

8.70

Another example o f environmental policy failure i s the current fishery-management system based on fishing licenses. Fish catch i s regulated by general permits that specify seasonal, but not volume, l i m i t s on a fishery. T h i s policy creates an incentive to catch the maximum volume o f fish in the shortest time possible. As a result, the fleet has become overdimensioned in both numbers and technology. Similarly, factories are geared to service a high throughput in a very short period. Fleet and equipment remain idle during the off-seasons, creating economic inefficiencies. In addition to these inefficiencies, the system encourages waste and overexploitation o f fisheries. Fishers sometimes use dynamite and other nonsustainable practices to maximize harvesting rates. When catch exceeds space in the hold, the surplus (mostly dead or dying) i s thrown back. 8.71 Economic instruments are far more effective and efficient than EL4 to control overexploitation o f fisheries. Experience in other countries indicates that, where individual tradable fishing quotas (whch allow catching o f a gwen percentage o f the available catch) are introduced, there are fewer incentives to overexploit fisheries and the industry i s more efficient. In Peru, tradable fishing quotas could be far more effective in promoting the sustainability o f fish stock, and mitigating pollution o f water bodies from activities in the fishery industry. Sectoral Environmental Management

8.72 EIA i s foremost a tool for environmental planning and not for environmental regulation or environmental regulation. Consequently, alternative environmental policy instruments should be considered for addressing the consequences o f policy failure in infrastructure construction

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and maintenance that are evident in weak environmental planning and management. A case in point i s the above-mentioned construction o f the Interoceanic Highway. In addition to a badly needed EIA, Peru requires (i) precise, unambiguous command and control regulations in the form o f technical specifications for construction, operation and maintenance o f roads and highways; (ii) regulations for land-use zoning; (iii) regulations for disposal o f waste and dirt from movement during road construction and (iv) pollution control regulations for camps and all potential urban and regional development activities induced by highway construction.

Conclusions and Recommendations 8.73 EIA i s Peru’s main tool for environmental planning. However, i t s effectiveness i s undermined by the lack o f a uniform perspective, among governmental authorities, o f i t s purpose. Specifically, there exists an ambiguity among government authorities as to whether EIA’s purpose i s environmental planning or environmental management. T h ~ ambiguity s has led to a situation in which neither environmental planning nor environmental management i s satisfactory. As a result, environmental problems persist. There i s a clear need for the Government to clarify the purpose o f EIA. T o make EIA an effective planning tool, it i s crucial to recognize the need to strengthen screening and scoping procedures and to improve mechanisms for allowing representative public participation, including indigenous communities. 8.74 The existing inconsistency in the approach, content, timing, and requirements o f the legal and regulatory process for EIA in Peru creates a lack o f standardization and uniformity in the project-planning and approval process. In response, C O N A M i s designing regulations for a unified EIA process for all ministries and sectoral authorities. This process will include screening and scoping criteria that are consistent with the existing legal framework and incorporate aspects o f best EIA practice. This will ensure consistency with the proposed SEIA regulations and avoid proliferation between sectors o f different EIA standards. To enhance EM’S effectiveness, it i s suggested that, for projects that pose no environmental threat or risk, the need for carrying out EIAs be minimized. Carrying out fewer EIAs by concentrating on significant projects with regional, precedent-setting impacts would greatly improve EIAs’ quality and increase opportunities for meaningful public consultation and community participation. 8.75 Given that EIA in Peru i s currently used primarily for administrative purposes rather than for mitigating complex environmental and social issues, there i s a need to clarify the system’s objective. Furthermore, the design o f the new regulations presents a potential opportunity to set uniform screening criteria for the identification o f projects with significant impacts. These criteria could be aligned with national environmental and social priorities such as protected areas and protected forests, indigenous peoples, vulnerable segments o f the population, health issues, and vulnerability to natural disasters. Additionally, the screening process could explicitly require an official statement from the National Geographic Institute o f Peru regarding the location o f the proposed project in relation to sensitive areas. T h i s service should have a cost for the project proponent. Important projects that involve significant biodiversity issues or protected areas might be referred to INRENA. 8.76 The new EIA regulations could also serve to promote the adoption o f environmental standards for the design, construction, and operation o f infrastructure projects in each sector. These standards might be officially adopted, and ensuring compliance with them should be the responsibility o f the sectoral units. By adapting and enforcing such Standards, localized, direct impacts would be managed through the engineering process (design, construction, and operation), rather than through the EIA process. T h i s would minimize the need for EIAs. Furthermore, minimum environmental performance standards should be developed that each sector would need to meet in order to conduct EIA. These minimum standards would include the staffing and equipping o f environmental units in each sector, procedures, environmental

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technical standards, enforcement capacity, and quality-control systems. C O N A M could conduct annual performance audits o f selected sectors. Noncompliance with these standards would trigger the need for improvement plans or ultimately for an EIA process that would involve national agencies such as INRENA.

8.77 With a view to attaining financial sustainability for environmental units, the design o f the EIA regulations might consider raising the cost o f environmental approvals, which presently i s only a token amount except for the Ministry o f Health. An alternative i s to raise the cost o f environmental approvals to a percentage o f projects’ capital costs. If control over receipt o f these funds were possible, that would greatly increase the financial resources available to each ministry to administer the EIA review and approval process. Additional financial resources are required for the optimal functioning and staffing o f the various sectoral environmental authorities. 8.78 Some form o f public consultation exists in those Peruvian ministries that currently conduct environmental impact assessments, but the requirements and processes for consultation are inconsistent and vary significantly among ministries. The new EL4 regulations might develop a unified terms o f reference and procedures for public consultation. These TOR and procedures would be applicable to all ministries and sectoral authorities, and consistent with best EIA practice and public consultation procedures. Standardized procedures for public consultation in Peru could be developed to include the following characteristics:

0

0

Timing o f public consultation procedures from the onset o f the project through approval and implementation Procedures for incorporating the results o f public consultation into the decision-making process Consistent disclosure processes for information dissemination and accessibility (e.g., location and language) for all stakeholders, including indigenous peoples Feedback o f the consultative process’s results to participants

8.79 To address delays in public consultation in the EL4 process, early public consultation should be institutionalized. The existing process consists o f public hearings that are held, on average, 30 days prior to a decision on project approval. However, a decision has essentially been made by the time such hearings are held. Consequently, the existing process should be reviewed. In addition, mechanisms should be established to allow the public to effectively contribute to the project decision-making process. To facilitate stakeholder participation, mechanisms could be established to reimburse stakeholder costs for attending public consultation sessions and public hearings in centralized locations rather than in project-affected areas. 8.80 If EIA i s to be used as an environmental management tool, i t is important to recognize the EIA’s limitations for this purpose, particularly where market and policy failures are strongly

linked to environmental problems. Consequently, clear and specific regulations targeted to specific environmental problems need to be developed. Various mechanisms exist for controlling environmental degradation, including (i)direct regulation by government or “command-and-control” measures; (ii) economic and market-based instruments; and (iii) other approaches such as administrative procedures, legal actions, and formal negotiation. Economic instruments such as fuel taxes or a gas-pricing policy could be more effective tools for redressing the existing market and policy failures in Peru and translating them into improved environmental outcomes. Command and control measures should be promoted and aligned with the country context and conditions; such measures include environmental standards for air pollution, PM2.5, and quality standards for drinking water.

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CHAPTER 9 OPPORTUNITIES AND CHALLENGES FOR EFFECTIVE ENVIRONMENTAL MANAGEMENT Since 1990, Peru has developed a National System for Environmental Management (Sistema Nacional de Gestibn Ambiental - SNGA) coordinated by the National Environmental Commission (Comisidn Nacional Ambiental- CONAM). The system s responsibilities include natural resources management, sectoral environmental planning and management, environmental health protection, and conservation of natural protected areas. Analysis of the existing organizational framework suggests a number of strategic options to strengthen SNGA ‘s capacity to address environmental problems. These options include (i) implementing a priority-setting mechanism to tackle environmental problems that afSect the most vulnerable groups, (ii) increasing accountability and transparency in environmental decision making, (iii) developing a social learning system aimed at continuous improvements in environmental policy design and implementation, and (iv) fostering investments in sustainable development programs’ O8

Introduction 9.1 To manage renewable natural resources, protect the environment, and mitigate environmental impacts associated with projects in key productive sectors, the Peruvian Government has made efforts to consolidate an organizational structure for environmental planning and management. Among these efforts, the GoP has done the following: (i) established an institutional system (Sistema Nacional de Gestibn Ambiental - SNGA) to harmonize environmental legislation and institutional responsibilities; (ii) created a national coordinating agency (CONAM) under the President o f the Council o f Ministers; (iii) developed sectoralbased environmental units in the Ministries o f Mines and Energy, Transport, Production, and Housing; (iv) established an agency responsible for managing water, forestry, and biodiversity resources (Instituto Nacional de Recursos Naturales - INRENA); (v) established a unit (DIGESA) within the Ministry o f Health to manage environmental health programs; (vi) consolidated a natural protected areas system; (vii) decentralized oversight o f environmental management plans and management o f forests and water resources; and (viii) given responsibilities to the Comptroller’s Office and the Ombudsperson to enhance accountability, transparency, and public participation. 9.2 The organizational structure in place for natural resources management and environmental protection has been effective in establishing a system o f natural protected areas, encompassing more than 12% o f Peru’s territory and lowering deforestation rates in comparison to neighboring countries (INRENA 2005). There has also been significant progress in watershed management. 9.3 However, as discussed in this report’s preceding chapters, the greatest challenges facing Peru are associated with urban air pollution and lead exposure; inadequate water supply, sanitation, and hygiene; indoor air pollution, natural disasters; and land degradation. The Peruvian model has evidenced significant weaknesses in trying to address priority environmental problems. Despite the economy’s evident reliance on natural resources and the

‘Os This chapter was prepared by Emesto Sinchez-Triana, William Reuben and Carolina Urmtia. T h i s chapter draws on background documents prepared by Manuel Glave and Rosa Morales (2006), Nelson Shack (2006) and Manuel Pulgar-Vidal(2006).

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negative impacts o f environmental degradation on economic growth and social development, environmental planninghas not been incorporated into the hghest policy-making level.

9.4 This chapter reviews the organizational framework in place to address environmental priority issues and suggests strategic options for government actions. The chapter has seven sections. Following this introduction, section two presents the findings o f an environmental expenditure review and examines mechanisms for environmental priority setting. Section three analyzes environmental agencies’ management capacity, including financial sustainability, human resource management, and institutional alignment and cooperation. Section four discusses accountability, transparency, and checks and balances within and among environmental agencies at various levels. Section five examines alternatives for aligning policy options that tackle priority environmental problems with organizational reform. Section six describes proposals for restructuring the governmental agencies responsible for water and forestry resources management, as well as those in charge o f managing natural protected areas. Section seven provides recommendations.

Planning and Priority Setting 9.5 The Peruvian system for environmental planning and environmental priority setting has improved since the creation o f the National Environmental Commission (CONAM) in 1994. However, there are severe shortcomings in the system’s ability to identify and address priority environmental problems. Examples o f these shortcomings are the inadequate funding o f the environmental sector and the decrease in the national government’s total environmental expenditure from 2001 to 2005.’@’ Peru’s historical levels o f environmental expenditure are inadequate to respond to the 9.6 country’s environmental priorities. Between 1999 and 2005, annual environmental expenditure has averaged US$85.39 million, an amount that represents 0.01% o f GDP (Shack, 2006). Thus, resources allocated for environmental protection represent a small fraction o f the estimated costs o f environmental degradation, w h c h as mentioned in this report’s preceding chapters, are estimated to represent 3.7% o f Peru’s GDP. Environmental expenditure as a percentage o f GDP i s also low by international standards, particularly when compared to OECD countries, which typically spend between 0.05% and 0.07% o f GDP.

9.7 The national government’s total environmental expenditure has decreased between 2001 and 2005 (Figure 9.1).This expenditure has also decreased as a percentage o f the national government’s total non-financial national public expenditure since 2000, although 2004 shows a slight increase. The only environmental expenditures showing positive rates between 2001 and 2005 are those related to emergency response systems to natural disasters and relief, and to biodiversity conservation (Figure 9.2). The damages caused by the El Nifio phenomenon explain the former, while the latter shows a shift in the government’s preferences to enhance the conservation agenda.”’

IO9 According to CONAM, “the fluctuations, generally reductions, o f the amount o f resources that the State invests in the environmental sector are not the result o f problems with the identification o f priority environmental problems[. ..] Every t w o years, with the participation o f sectoral environmental authorities, a process i s undertaken to update the National Environmental Agenda (Agenda Ambienfal Nacional), which i s the basic document for planning the actions to be carried out by the organizations that integrate the SNGA. The problem i s the result o f the difficulty o f integrating environmental issues, particularly at the highest political levels, in the planning and decision-making processes focusing o n development, particularly as a result o f the actions o f those interested in fostering productive, commercial, andor subsistence activities with profound environmental impacts.” ( Bemal, 2006; p. 10) ‘I’ According to CONAM, “it is important to indicate that the investment levels [...] show a clear difference o f orders o f magnitude between the amount invested in the areas o f water resource management and sanitation and those invested in other areas, such as biodiversity protection, which are much smaller than the former. This problem is largely explained by the fact that water resources, and particularly sanitation, are generally not perceived as issues of

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Figure 9.1. Evolution of National Environmental Expenditures in Peru 7.00%

400.000.000

5.00X

350,000,000 300,000.000

5.00% 4.00%

200,000,000 3 00% 150,000,000 2.00%

+Total

environmental expenditures (in noninal US$)

100,000,000

I .OO%

0.00%

Environmental expenditures as a percentage of the total nonfinantial national public expenditures

250,000,000

50,000,000

1999

2000

2001

2002

2003

2004

0

Source: Shack (2006)

9.8 Peru’s falling allocations o f resources for the environmental sector have taken place within a favorable economic context. Between 1999 and 2005, Peru experienced economic growth in real terms and on a per capita basis, while total government spending as a share o f GDP also increased. Thus, observed decreases in governmental environmental expenditure, both in monetary terms and as a percentage o f total governmental spending, seem to indicate a relative loss o f importance o f environmental degradation and the unsustainable use o f natural resources relative to other social concerns. 9.9 Analysis o f national government expenditures found that priority environmental problems such as control o f outdoor and indoor air pollution and o f lead exposure, and reduction o f waterborne diseases and vulnerability to natural disasters received very low or no budgetary allocations (Figure 9.3).

the environmental agenda, but o f the productive and social agendas, respectively, and therefore receive more attention and resources.” (Bernal, 2006; p. 10)

20 1

Figure 9.2. Evolution of Peruvian Environmental Spending from 1999 to 2004

--t Water

Resources Management Water Pollution Control Sanitation Air Pollution Control +Natural Disasters. Emergency Response and Relief Soil Degradation Prevention & Control (Erosion & Salinization Control) i -Forestry Resources Management (Deforestation Control) -Fishing Resources Management (Overfishing Control) Waste Management Rural Land U s e Urban Environmental Problems General Environmental Geographic Planning Biodiversity Protection Control o f Substances Reducing the Ozone Layer Climate Change Adaptation and Mitigation

4-

-+-

~

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9.10 There i s a strilung divergence between the issues perceived as a priority b y the Peruvian population and the current allocation o f environmental resources. Indeed, a study conducted by Instituto Cuanto in 1998 showed that the Peruvian population identified air and water pollution as among their greatest environmental concerns (1998). A GEA survey in 2004 confirmed these findings by identifying air pollution as the main priority for the Lima-Calla0 area’s population (GEA, 2004).

Figure 9.3. Rate of Growth of Selected National Environmental Expenditures from 1999 to 2004 I

100% 80%

60% 40% 20%

0% -20% -40%

-60%

Source: Shack (2006)

9.1 1 Several characteristics o f Peru’s planning and decision-malung mechanism contributed to the observed dwonnect in priority setting. The first o f these i s the lack o f analytical work to support governmental decision making. T h i s i s further aggravated by the lack o f representation o f certain sectors and stakeholders in the venues where decisions are made, resulting in a particularly apparent absence o f the most vulnerable groups’ voices and concerns. Another important missing element i s a formal mechanism for allocating financial and human resources according to key environmental priorities linked to poverty alleviation and social priorities. Besides increasing the effectiveness o f environmental policies and management for poverty alleviation, the incorporation o f these three elements would allow increased accountability in decision makmg and in policy design and implementation. 9.12 An international comparison o f environmental institutional arrangements suggests that those countries in which biodiversity conservation, natural resource management, and environmental health functions are assigned to specialized governmental agencies lead to work that i s more effective and resource allocation that i s more balanced (Table 9.2). T h i s may be because allocating these diverse responsibilities to a single agency may lead to unequal attention -and unequal budget allocation-to priority environmental problems. Studies conducted in different countries (World Bank, 2005a, 2006) indicate that international assistance i s more often available for projects and programs related to global environmental issues-such as biodiversity conservation and climate change mitigation-rather than for local environmental programs that benefit the most vulnerable groups. The same appears to be true in the Peruvian case (Figure 9.4). Malung one agency responsible for too many functions may lead to competition for resources for activities that require more balanced attention and resource allocation.

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9.13 Another reason for specialized agencies to attend to biodiversity conservation, natural resource management, environmental health protection, and reduction o f vulnerability to natural disasters may be the different coordination schemes required for effective policy design and implementation. Attending to environmental health problems requires significant collaboration between health and environmental agencies, whde effective conservation efforts and natural resource management depend on cooperation between agricultural and environmental sectors. 9.14 Institutional arrangements documented as successful, such as in the United States, have set in place a sectoral model for environmental impact assessment. When complemented by overall strict and stable environmental requirements and clear and transparent enforcement, this

model appears to increase the likelihood of effectively incorporating environmental considerations into other sectors. Models in which environmental impact assessment i s centralized under one institution’s mandate have not been documented as successful (Ortolano and Abracosa, 1986; Ortolano and Smkule, 1996; Ortolano, 1997; Sanchez and Morillo, 1998;

IADB, 2002).

Table 9.1. Institutional Arrangements for EnvironmentalManagement in peru,lll,llZ,l13 2006 ;ency

E

z

3

I

I I

Responsibility

Design o f national environmental policy Enfomcment o f environmental policies

i;

I J I

I Coordination o f national environmental I E n f o r c e m e n t o f pollution control measures

J

lJ 1J

I

J I J I

managcmsnt. Allocatioii of watcr righffi

EIA

I Reduction o f vulnerability to natural disasters Conservation and protected areas

J I J

I

I

I J

*

According to CONAM, “The design o f the National Environmental Policy and its coordination are exclusively the responsibility o f CONAM and the PCM, not o f the sectors, which are responsible for the promulgation and verification o f compliance with the specific sector regulations.” (Bernal, 2006; p. 9 ) According to CONAM, “INRENA is the entity that is responsible for the National System o f Natural Protected Areas (Sistema Nacional de Areas Naturales Protegidaspor el Estado - SINANPE).” (Bemal, 2006; p. 9) ‘I3According to CONAM, “INRENA shares responsibilities for biodiversity management in Peru with CONAM, which i s the National Focal Point o f the Convention o f Biological Diversity and with the Production Sector (through the Peruvian Sea Institute) in the area o f hydrobiologic resources (fish, mollusks, crustaceans, algae, etc.)” (Bemal, 2006; p. 8)

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Table 9.2. Institutional Arrangements for the Environmental Sector in Bangladesh, Coiombia, Hong Kong, Mexico, and the United States Institutions*

I

Mexico USA

HongKong

I

USA

Mexico USA

Colombia

Hong Kong* *

Colombia

USA

Hong Kong**

Colombia USA

Mexico

Mexico USA

* Practices documented as successful are h ** Although the Hong Kong Agriculture,

I

USA

Colombia USA

USA Hong Kong

Hong Kong

I

Colombia

I

I

hlighted in bold. sheries, and Conservation Department i s under the Secretary for Health, Welfare, and Food, it i s also responsible t o the Secretary for the Environment, Transport, and Works.

9.15 Peru’s Annual Budget Law made the National Public Budget Office (Direccidn Nacional de Presupuesto Pziblico - DNPP) responsible for linking the allocation o f financial resources to multi-year strategic sectoral plans (PESEM), Concerted Regional Development Plans (PDRC), Concerted Local Development Plans (PDLC) and Institutional Strategic Plans (PEI). However, in practice, the allocation o f resources follows an institutional rationale to finance each institution’s planned activities, rather than to establish and maintain cross-sectoral programs that do not respond to specific institutional priorities. As a result, budget formulation becomes a rather inert process o f resource allocation according to agencies’ expenditure levels in different categories and their expected increase for the next year. T h i s budgeting system leads to allocations that are considerably misaligned with national environmental priorities. Indeed, the ultimate decision with respect to the amount allocated to each agency i s a discretionary process guided by each agency’s negotiating power. Therefore, the current allocation o f environmental resources in part reflects differences in the negotiation capacities o f Congress and MEF and the different environmental agencies and stakeholders such as DIGESA and INRENA and N o s that represent other interests.

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9.16 Nevertheless, other plausible explanations for the way in which resources have been allocated include the lack o f reliable and complete data available to public institutions to support informed priority setting. Peru's current data collection infrastructure-including environmental laboratories, measuring stations, documentation centers, and basic cartography-is inadequate by many accounts. Companies are not required to monitor or report their effluent discharges. Furthermore, the National System o f Environmental Information (Sistema Nacional de Infomacidn Ambiental - SINIA) often faces problems in generating timely information. Lack o f financial resources frequently compromises the generation o f information. The GoP also faces important challenges in trying to implement environmental regulations and plans, since most environmental agencies lack sufficient management capacity to perform their functions in a sustainable manner. Major problems associated with management capacity are (1) insufficient and insecure fbnding, (2) lack o f a human-resource system based on merit and skills development, (3) lack o f incentives to implement a results-based management system and mechanisms o f organizational learning, and (4) limited capacity and incentives to coordinate with other agencies.

Management Capacity o f the Environmental Agencies 9.17 Capacities for human resource management vary from agency to agency. INRENA has highly qualified personnel. The large number o f experts in areas such as irrigation, water

resources management, forestry, and biodiversity conservation has resulted in continued emphasis on conservation, natural protected areas, forest, and water resources management. Although this has resulted in Peru's considerable success with these issues, it has also contributed to the absence o f an active assessment o f Peru's highest environmental priorities. In comparison, between 1992 and 2005, the human resource capacities o f DIGESA and other environmental agencies decreased because o f the downsizing o f the public sector (Hanrahan et al., 1995; Figueroa, et al., 1996; World Bank 2000,2005d).i15

Table 9.3. Institutional Capacity: Budget and Staff, 2006 Budget Staff total Officials Professionals Technical Auxiliary

CONAM $13,197,290 91 17 29 32 13

INRENA" $90,029,671 196 68 58 60 10

DIGESA $16,000,000 109 6 39 34 30

9.18

Environmental agencies face two main problems regarding fmancial sustainability. Some agencies lack the minimum funding to perform their h c t i o n s in a sustainable manner. Others are highly dependent on resources from the donor community. For example, the air and water GESTAs have not been given a specific budgetary allocation (partida presupuestaria) to ensure the funding o f their operations. National regulations mandate that GESTAs be funded on ~~

Several officials o f environmental agencies have expressed concern about the wave o f early retirement o f the most expenenced personnel s t e m n g f r o m the downsizing o f the public sector. 'I5A forthcoming IADB analysis o f enwonmental agencies' human capacities should detail the different agencies' opportunibes and challenges in human resource management

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an annual basis. However, in practice, the GESTAs have not been successful in securing funding for program to control air pollution and currently lack access to any source o f funding. Ths situation i s causing the capacity and motivation o f GESTA's members to deteriorate, as evidenced by the fact that the most successful GESTA functioning in Arequipa fully depends on international cooperation.' l6 9.19 In other cases, the existing resource allocation system does not provide incentives to make the best choices regarding environmental projects. For example, funds for addressing natural disasters are allocated only after earthquakes, floods, or landslides have impacted communities. Therefore, t h s financial mechanism may be providing a perverse incentive that encourages competent agencies to concentrate their efforts on responding to disasters rather than on trying to prevent disasters or minimize the impacts o f non-preventable disasters. In the late 199Os, environmental and natural resource projects (or environmental 9.20 components o f projects) funded by nonrenewable international cooperation amounted to an estimated US$411 million. These funds supported 21 1 environmental projects, while concessional loans supported 10 additional projects, totaling US$735 million (Guinand and Chavez, 1997). Funding by international donors has continued in different areas. By 2005, the most important bilateral sources o f aid were Japan, the United States, the Netherlands, Germany, Canada, and Switzerland. The most important sources o f multilateral aid in 2005 were the World Bank, IADB, EU, WFP, UNDP, ITTO, FAO, and GEF. The GoP identified as a major problem with external fkding i t s instability'" as an income source. From 2000 to 2005, donors gave greater attention to programs such as biodiversity protection and climate change mitigation (Figure 9.4). Coordination mechanisms between donors and Peruvian public environmental agencies exist but need to be strengthened.

Figure 9.4. Donations and Transfers by EnvironmentalCategory Sanitation

.5%

Control o f

whqtanrw

1.9%

-i

Biodiversi y Protection

0.2%

67.4%

Source: Shack (2006)

I16

Arequipa's GESTA-Air receives support from the Swiss Agency for Development and Cooperation (COSUDE). Guinand and Chavez (1997) show that recent initiatives to prepare investment projects (e.g., through sector work) on the environment were never converted into loans (e.g., Institutional Environmental Strengthening 11, Mantaro Valley 11, and Environmental Management o f the Rio Rimac Watershed 11).

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Inter-institutional Coordination

9.21 Important efforts have been made to ensure coordination for implementing plans and regulations across sectors and different territorial units and between the sectoral and territorial dimensions o f environmental management. However, the challenge remains significant for two reasons: (1) Peru’s great geographic diversity requires the coordination system to possess sufficient flexibility to address the regions’ different environment issues; and (2) due to the sectoral division o f environmental agencies, rivalries exist and there are few incentives for agencies to cooperate. 9.22 CONAM has focused its efforts o n designing a cross-sectoral and decentralized management system known as the National Environmental Management System (Sistema Nacional de Gestidn Ambiental - SNGA). Specific coordination structures have also been created to manage different environmental problems and natural resources requiring intersectoral and geographical coordination. However, the results o f these initiatives vary widely according to the complexity o f managing specific natural resources. This i s the case for the Air and Water GESTAs, which were created to involve private and public stakeholders in defining a management plan to protect and use natural resources. Although the GESTAs include participation by key stakeholders, GESTAs’ management plans have not been successfully implemented. For example, thirteen GESTA-Air were established in 200 1. O f these, two have produced plans for air quality management that have been approved, and three are in various stages o f the approval process. The remaining eight are s t i l l collecting the necessary data to draft plans (Glave and Morales, 2006). O n the other hand, the GESTA-Water was established in 1999 by Presidential Decree and i s divided into five working groups. Their proposals for E C A and L M P have not yet been approved internally or by DIGESA and INRENA. 9.23 Major environmental issues still lack the minimum coordination structure for defining priorities and action plans. Th~si s the case for environmental problems such as indoor air pollution, vulnerability to natural disasters, and overexploitation o f fisheries. The delay in initiating coordination activities for these environmental issues might be due to the lack o f representation o f groups affected by these problems on CONAM’s Board o f Directors. 9.24 C O N A M has promoted the decentralization o f coordination responsibilities through the creation o f six Regional Executive Secretariats (Secretarias Ejecutivas Regionales - SER) and 26 inter-institutional coordination agencies called Regional Environmental Commissions (CARs), which include local governments, NGOs, universities, and economic sectors interested in the region’s environmental sustainability. However, potential overlaps and gaps in the functions and responsibilities o f organizations at the sub-national level, coupled with high staff turnover, could hamper the organization’s functioning. For example, there are potential ambiguities about whether C A R or the environmental units within local governments are the entities responsible for GESTA implementation. In some cases, the regional government assumed the presidency o f the GESTA and thus became highly involved in implementing action plans. However, in other cases, a lack o f interest by some regional governments leads to suboptimal implementation o f action plans. 1 1 8 7 1 1 9 According to CONAM, “...[T]here are currently only six SERs, which cover multi-region areas: Cusco-PunoApurimac, Arequipa-Moquegua-Tacna, Loreto-San Martin, Junin-Pasco, Cajamarca-Lambayeque-Atnazonas y Ancash - L a Libertad. There are currently 26 CARs; they cover the totality o f the national territory, constituting public-private spaces for the discussion and concertation o f Regional Environmental Policies, Agendas, and Action Plans, but they do not have in their mandate a function for enforcing environmental legislation.” (Bernal, 2006; p. 10) ’I9 According to CONAM, “There is great clarity about the distribution o f responsibilities between the CARs and the recently established Units o f Natural Resource and Environmental Management o f the Regional Governments. Complications regarding the coordination of activities and fulfillment o f specific mandates have arisen in each instance due to problems with the very high turnover o f the staff responsible for those Units (in the specific case of the Pun0 Regon, there have been seven different Managers between early 2002 and mid-2006).” (Bemal, 2006; p. 10)

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9.25 Such uncertainties, in addition to lack o f political will and accountability, have reduced the effectiveness o f these decentralization initiatives. Local implementation o f environmental initiatives i s being affected by the absence o f a roadmap that defines what, when, and how environmental policy i s going to be decentralized. To avoid the duplication o f roles and functions, the increase o f transaction costs, and the ambiguity o f accountability responsibilities among decentralized agencies, the Peruvian environmental sector could learn from the decentralization process that the social sectors are already experiencing. Organizational Learning

9.26 Management practices in Peru are beginning to incorporate the concept o f results-based management aimed at adopting formal mechanisms to promote organizational learning. Transparency with respect to results-based performance i s important, but so i s transparency with respect to the effectiveness o f environmental expenditures to address environmental priorities and admmistrative practices. A wide range o f goals and indicators has been set through the National Environmental Agenda. These goals and indicators might be strengthened by setting measurable goals and quantitative indicators, and periodically evaluating achievements. T h i s would allow corrections in processes of reforming and improving their practices.”’ 9.27

Strengthening o f Peru’s environmental management framework might also include systematic processes o f learning from experiences that can help guide actions in the present and future. Peru’s environmental system would benefit from having a comprehensive evaluation system. Baselines could be created at the beginning o f interventions, and government institutions could systematically conduct performance and impact evaluations. With regular evaluations, the learning process would be strengthened, and institutional adjustment and adaptation would build on Learning, in the context o f Peru, would be particularly important in three respects: 1. Learningto adaut and adjust specific policies and institutions. One example o f this type o f learning would be enabling government capacity to systematically reevaluate environmental priorities periodically with the use o f rigorous and consistent methodologies and adjust environmental expenditures accordingly. Another example would bear on adjusting to new developments in science and technology, as i s the case with understanding the causes o f health problems linked to air pollution (e.g., fine particulate matter) or lead exposure. A third example involves assessment and learning, on an ongoing basis, regarding potential institutional instruments (e.g., accountability mechanism) to make environmental management more effective. 2. Learning fiom past experiences. An example relating to this type o f learning concerns using experience to continuously improve systems for air quality monitoring. Experiences such as these are extremely valuable in identifylng what works and what does not work in monitoring and implementation. 3. Learning fiom good practices in environmental revenue generation at the local government level. An interesting issue regarding Peru’s environmental management i s the greater allocation o f revenue for environmental management at the local levels compared to the national level. According to CONAM, “One o f the objectives o f the National Environmental Agenda i s to define sectoral specific goals whose fulfillment or unhlfillment can be used to gauge progress in the implementation o f environmental policies. Additionally, CONAM has been developing some instruments to measure the achievements o f results by the organizations with environmental responsibilities.” (Bemal, 2006; p. 10) 121 According to CONAM, “The process for the elaboration o f the National Environmental Agenda, which covers a two-year period, implies a participatory revision o f accomplished results and the definition o f future goals and objectives for environmental management. The conduction o f this process, which is not exempt fiom difficulties, has been one o f the greater strengths o f CONAM throughout its stewardship. [. ..] This process enables the Government to reevaluate and adjust periodically i t s environmental priorities.” (Bemal, 2006; p. 11) According to CONAM, “Regarding the issue o f the capacity to learn fiom previous experience, CONAM makes a permanent effort to systematize the processes that i t carries out and to transparently communicate achievements and obstacles.” (Bemal, 2006; p. 11)

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Decentralization Process and Results

9.28

Several initiatives have promoted the decentralization o f environmental responsibilities in Peru. The Decentralization L a w specifies the purpose o f environmental decentralization: improving territorial zoning plans, sustainable management o f natural resources and environmental quality through the promotion o f inter-institutional coordination and citizens’ participation. However, in practice, only a few functions have been effectively decentralized, and most o f them involve regional rather than municipal or district governments. Some functions concerning forestry and natural-disaster management have been decentralized to municipal governments (Table 9.4).

Table 9.4. Environmental Functions Decentralizedto Regional Governments Sector Fishing

Mining

Energy Tourism Health

Decentralized functions Research and information on technological services to preserve the environment. Control the application o f fishing norms and enforcement o f sanctions for noncompliance. Approve and supervise EIA and its adaptation to small and traditional mining. Control the application o f norms for small and traditional mining and enforce sanctions for noncompliance. Evaluate and approve EIA for activities related to electricity on a small scale. Evaluate and approve the EIA o f gas providers. Verify the application o f norms for the preservation o f natural resources linked to tourist activities. Disseminate, adapt, and ensure compliance with national norms on environmental health and workplace health. Disseminate, control, and evaluate the application o f norms related to the management of public health services at the regional level. Identify, prioritize, and evaluate, in coordination with local governments, issues concerning environmental health and workplace health.

9.29 Despite modest progress in decentralizing environmental functions, local governments have been increasingly involved in implementing environmental plans. In 2003, total environmental expenditures were higher at the local level than at the national level. However, it i s important to note that the high amount o f local governments’ operational expenditures i s largely due to the inclusion o f expenditures related to solid waste management in this category (Figure 9.6). Waste-management systems have a positive impact on improving the population’s living conditions, the value o f urban real estate, and business opportunities like tourism.

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Figure 9.5. Environmental Expenditures by National, Regional, and Local Governments, 1999-2004 (US$ Million in Current Dollars)

120 110 100

90

a0

(Qperatimo)

I Regionel Govl

70

(OPe=tbnS)

60

(OPeraharS) National Govt

50

(Imesbnents)

40

c RcgDnalGovl

30

(Invesbnents) LOWlGQVt

20 10

0

1999

2000

2001

2002

Year

2003

Source: Abugattas (2005)

Accountability, Monitoring and Enforcement Capacity Accountability Mechanisms

9.30 There i s evidence o f a systemic bias in environmental agencies’ attention away from the needs o f groups most affected by environmental degradation. As shown in previous sections, priority setting has excluded social and poverty impact criteria as a decisive parameter. Furthermore, budget allocations respond to particular bureaucratic and economic interests. T h i s bias contributes to perpetuating the historical inequality between the population’s different segments. T h i s situation contrasts with the fact that Peru, unlike many other countries in the region, has important elements in i t s legal framework to support more equitable use of natural resources and fair distribution o f environmental degradation’s impacts. These include the rights to a clean environment, enacted in the Constitution, and the guarantee o f community participation in decisions that may affect community members. The Constitution also allows legal recourse to prevent the violation o f h d a m e n t a l rights. An appropriate accountability system would help create conditions for addressing inequalities through recourse to constitutional rights and available legal resources. However, as shown below, the accountability framework o f Peru’s environmental system i s faulty and requires urgent improvement. 9.3 1 With respect to horizontal accountability, Peru has established an accountability framework that includes three main institutions: the Congress, the Office o f the Comptroller General, and the Ombudsperson’s Ofice. There i s a specialized commission on Andean, Amazonic, and Afroperuvian Peoples, Environment and Ecology; however, environmental policy debate and monitoring are usually spread out among different specialized commissions o f the Congress, such as Agriculture; Energy and Mining; Housing; and Health. Likewise, the Ombudsperson’s Office does not possess a technical unit specializing in environmental issues. Furthermore, this office lacks a specific reporting capacity for dealing with compliance or with citizens’ rights linked to the e n ~ i r 0 n m e n t . l ~ ~ According to CONAM, there i s a specialized Commission in Congress to address environmental issues. The Commission has existed for over 10 years, although it has changed names andor fused with other commissions. (Bernal, 2006; p. 9 )

21 1

9.32 Since 1998, the Office o f the Comptroller General has been conducting environmental audits o f specific projects and programs with a potentially high environmental impact. The methodology for environmental audits currently applied has been built through an ongoing learning process, including pilot audits with the collaboration o f international experts. In 1999, the Office o f the Comptroller General performed 17 environmental audits and used this experience to publish the Methodological Guide to Environmental Management Audits. In 2002, the Office o f the Comptroller General created a specific unit in charge o f environmental protection and the preservation o f cultural assets (Gerencia de Medio Ambiente y Patrimonio Cultural - MAC). T h i s unit has two responsibilities: (1) planning, organizing, implementing, and evaluating enforcement actions conducted by entities such as decentralized public institutions, decentralized agencies, and project management units; and (2) conducting audits of environmental and cultural assets in vulnerable geographic areas (e.g., watersheds). Despite this progress, it i s important to recognize that the Comptroller’s Office faces financial and technical limitations in fulfilling i t s responsibilities, forcing the agency to limit i t s role to highly critical areas. 9.33 Public accountability i s diluted by agencies’ lack o f clear responsibilities and capacities to hold environmental institutions responsible and by the implementation o f environmental policy. Likewise, accountability on environmental issues between the state and citizens i s hampered by the lack o f apparent channels for citizens to voice their concerns and complaints regardingthe protection o f their rights. 9.34 Information and transparency concerning environmental management have improved over the past five years. Furthermore, the Access to Information Law, approved in 2002, requires all public institutions to publish their information, including that related to environmental issues. Currently, all ministries and public institutions related to the environment have their own portals, which provide timely and useful information. The policies, approaches, and programs o f all the ministries and public institutions are made available through those portals. In most cases, they offer interactive tools for receiving and responding to queries and complaints from the public. There have also been initiatives to use public information as an enforcement mechanismto comply with environmental standards. 9.35 Mechanisms to disseminate information in a manner that i s easily interpretable can allow communities to play a role as informal regulators, while also promoting accountability on the part o f those being regulated. An example i s the pioneering public disclosure scheme in Indonesia (PROPER) that encouraged small firms to improve their performance with respect to environmental pollution (World Bank, 2005b). Interestingly, in a second phase o f the same program, the government has moved to make such a disclosure plan compulsory, rather than voluntary (Leitmann and Dore, 2005). Arguably, a compulsory plan forces greater social ac’countability than a voluntary program. 9.36 The 2005 General Environmental Law requires C O N A M to establish and publicly disclose a “Registry o f Environmental Good Practices and Offenders.” T h i s registry will identify entities that comply and those that do not comply with their environmental obligations. Nevertheless, there remain many problems in disclosing and accessing environmental information. In many sectors, requirements for disclosing information exist but are not implemented. For example, in the case o f air quality enforcement, the different sectors, having established maximum allowed l i m i t s (LMPs), are required to make publicly available a table specifying the sanctions associated with noncompliance (Glave and Morales, 2006). Currently, only the Ministry o f Mining and Energy has made this information available through the Internet. In addition, the information made available through these portals usually lacks a clear indication o f the environmental rights and the minimum standards that every citizen i s entitled to expect from environmental services, expressed in a simple and measurable way, allowing any citizen to monitor performance and to demand the fulfillment o f her or h i s rights. Finally, it i s clear that most Peruvians lack access to the Internet or do not know how to use it to channel

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their views and voice. Peru’s large network o f community radio stations (ANC) and local media has not been adequately used to create and disseminate information, promote policy debate, and support accountability. 9.37 In the past decade, efforts were undertaken to include public participation in environmental management. These efforts range from participation in the design o f environmental regulations to the involvement o f a diversity o f actors in the implementation o f environmental programs. For example, the regulation o f national standards for ambient air quality was the result o f a two-year consultation process with civil society and the private sector. On the other hand, the Program for Sustainable Cities, which was implemented by the National Civil Defense Institute in urban settlements, has involved the participation o f several stakeholder groups in the promotion o f sustainable urban development. These groups include civil society, local and regional governments, academic institutions, and relevant ministries and institutions. Another example i s the decentralized Forest Management Committees (Cornit& de Gestidn de Bosques) responsible for ensuring the participation o f civil society and the private sector in monitoring and controlling deforestation. To date, INRENA has approved only 17 o f the 35 Forest Management Committees. However, the implementation o f public participation initiatives has not been fully satisfactory. Institutional mechanisms, particularly resources, to adequately manage and incorporate public participation mechanisms into decision making are not hlly operational. 9.38 From the demand side, the Peruvian conservation movement i s very strong and emerges primarily from the well-established training programs at the Universidad Agraria (UNALM). There have been numerous priority-setting exercises for protected areas since the late 1980s, and there i s a strong and active local N G O movement organized in two very active networks o f environmental NGOs: the National Environmental Society (SNA)6 and the Peruvian Environmental Network (RAP). Moreover, two organizations represent Peruvian indigenous communities: the Inter-ethnic Association for Peruvian Rainforest Development (Asociacidn Inter-ktnica de Desarrollo de la Selva Peruana - AIDESEP) and the Peruvian Agroforestry Coordination Office for Indigenous Peoples and Small Farmers (Coordinadora Agroforestal Indigena y Campesina del Peru - COICAP). 9.39 SNA includes more than 50 civil society organizations workmg on environmental issues. Within SNA, these civil society organizations are classified into three categories. The first i s nongovernmental organizations (NGOs), including large, nationally based organizations having a presence in at least two o f Peru’s three regions. The second i s regional networks formed by NGOs acting within a specific geographical area. The third i s national networks, including organizations regrouped by specific areas o f intervention, such as radio, environmental education, sustainable urban development, water, forestry, and sustainable agriculture. The Peruvian Environmental Network i s formed by 38 NGOs workmg on environmental issues across the country. These networks have played an important role in the dissemination o f good practices in environmental management and in the creation o f spaces for discussion, learning, and designing proposals on specific environmental management issues. Examples o f these discussion platforms are the National Commission o f Biological Diversity (CONADIB), the Discussion Group on Hydrocarbons and Natural Protected Areas, Management Committees o f Natural Protected Areas, and the National Health An Network. 9.40 At the national level, C O N A M has conducted six Eco-dialogues involving diverse stakeholders. These Eco-dialogues have provided important opportunities for the voicing o f concerns by different environmental stakeholders. However, at the regional and local levels, the numerous spaces for institutionalized public participation in Peru have not provided a systematic forum to address environmental issues. Environmental issues do not consistently constitute a crosscutting element o f the agendas o f recently created decentralized participatory mechanisms such as the Local and Regional Coordination Committees, the local Mesas de Concertacidn para la Lucha Contra la Pobreza, and relevant participatory processes such as the

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formulation o f Joint Development Plans (Planes Concertados de Desarrollo) and the Participatory Budget (Reuben and Belsky, 2006).’24 Monitoring Capacity

9.41 One major problem regarding monitoring i s the lack o f reliable time series data on the state o f the environment and natural resources. An example o f this i s the sporadic history o f air quality monitoring networks in Peru. PAHO and the Ministry o f Health established these networks in the late 1960s in several cities, including Lima, to monitor TSP and sulfur dioxide levels. These networks lasted until the late 1980s, when they were dismantled. Before 1990, there was no reference to the delivery and use o f data generated by these networks as an input to air pollution control strategies. T h i s i s so despite the existence o f stations belonging to these networks. In the late 1990s, DIGESA installed and operated two monitoring stations in Lima and purchased a mobile station to carry out air quality monitoring in other urban centers. However, this newest network’s hnctioning has been interrupted several times, due to weaknesses in equipment calibration, resultingin information gaps. 9.42 A second major monitoring problem i s the lack o f a system o f homogeneous, resultsfocused indicators o f environmental quality. Moreover, it i s crucial that evaluation systems not be static but instead able to adjust to new developments in science, technology, and other fields. For example, in the 197Os, the conventional wisdom was that high ambient concentrations o f total suspended particles (TSP) represented a serious health problem. More recently, with improvements in measurement technologes and analytical techniques, fine particles with diameters o f 2.5 microns or less (PM2.5) appear to be the real culprits. T h i s finding, in turn, has led to significant changes in developed and developing countries’ strategies for controlling air pollution. Recently in Peru, the importance o f PM2.5 on health impacts i s being recognized. The government o f Lima i s considering efforts to move ahead with the installation o f a PM2.5 monitoring system to obtain better information for decision making on strategies to control air pollution. 9.43 Systems for monitoring and evaluation that are publicly available seem especially crucial, not only for t e c h c a l learning, but also for purposes o f democratic legitimacy and public confidence. This involves the use o f both ex-post evaluations and ex-ante assessments o f policymaking and impacts built on broadly shared sustainable development goals. Efforts by communities of participation in the valuation o f experiences are also crucial to avoid learning traps. Enforcement Capacity

9.44 The lack o f real power to monitor and enforce the application o f environmental laws and regulations i s a major deficiency in the country’s environmental institutional framework. Although the 2005 Law increases CONAM’S responsibility to enforce environmental policies, C O N A M currently has no enforcement capacity. I t has the right to request implementation o f administrative, civil, and/or penal sanctions when there i s noncompliance with existing policies, norms, and/or directives. However, the real enforcement power remains with the ministerial environmental units. These are politically stronger than CONAM, but far weaker than the economic development units in their respective m i n i s t r i e ~ . ’ ~ ~

lZ4 According to CONAM, ‘ I . . . [In] the Regional and Local Environmental Commissions throughout the country.. . local and regional environmental policies, agendas, and action plans have been discussed and concerted. (Bernal, 2006; p. 9 ) 125 CONAM commented, “We agree With the opinion that CONAM currently lacks the capacity to enforce environmental legislation, and for that reason, recommendations such as the creation o f a centralized environmental regulatory agency (Procuradurz’a Ambiental) under CONAM should be further emphasized in the text.” (Bernal, 2006; p. 11)

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9.45 In many cases at the ministerial level, quality standards have not been defined; thus, enforcement has been impossible. This i s the case for most o f the GESTA-Air that have already completed action plans to clean the air and prevent further deterioration. However, these GESTA-Air lack any enforcement capacity, since the different ministries have not yet completed the definition o f LMPs required to carry out audits and l e v y sanctions for noncompliance. In fact, the ministries have little incentive to complete this task, since C O N A M and the sectoral environmental units have little negotiating power within and among the sectors. Policy Options and Organizational Structure

9.46 As explained in previous chapters, Peru faces several environmental challenges. These include poor outdoor air quality as a result o f pollution from particulate matter and lead; inadequate water supply, sanitation, hygiene, and disposal o f wastes; natural disasters; indoor air pollution; soil degradation; overexploitation o f fisheries; deforestation; and loss o f biodiversity. The institutional fiamework in place has not been effective in reducing the cost o f environmental degradation associated with these challenges. 9.47 Analysis o f the organizational structure o f Peru’s environmental sector points to the need to undertake several reforms to improve i t s performance. There i s a definite need to give each agency clear duties and functions, avoid overlaps and conflicts o f interest, build their capacities to deliver and be responsive to environmental needs, and provide them with the incentives and mechanisms to coordinate with other agencies withln and outside the sector. I t i s suggested that an independent task force be formed to look into alternative structural reforms. The Task Force could be formed by Congressional representatives, the Presidency o f the Council o f Ministers, MEF, CONAM, the Ministries o f Agriculture and Health, the Strategic Planning Center (CEPLAN), and representatives o f those groups most affected by environmental degradation. Options to choose such representatives include parents’ associations, particularly because children under five are the group most affected by air pollution and waterborne diseases. Among the options for the Task Force to consider are the ones described below. Addressing Environmental Health Problems

9.48 Study of the costs of environmental degradation in Peru lends support to the need for Peru to address environmental health problems in a concerted manner through the design and implementation of policies and the strengthening of the governmental structure. Environmental health problems and their solutions are cross-sectoral by nature. In this context, it would be advisable to build capacity in MEF, CONAM, the Ministry o f Energy and Mines, the Ministry o f Housing, and the Ministry o f Health for the design and implementation o f policies to address environmental health problems. 9.49 Bolster and streamline the regulatory and enforcement role to properly address environmental health challenges. Given the priority o f environmental health issues and the social and economic costs linked with it, the analysis suggests that strengthening DIGESA’s design and implementing environmental health policies (including those related to the quality o f drinking water) i s urgent and a priority task. Strengthening DIGESA by increasing i t s allocation o f financial and human resources would allow this Directorate to implement safe water programs, including handwashing campaigns and other awareness campaigns for personal hygiene, and to coordinate programs to control air pollution and phase out lead exposure. 9.50 Concurrently with strengthening DIGESA, it would be important to establish an Agency for Environmental Health (Institute de Salud Ambiental). T h i s Agency could be given responsibility for monitoring and enforcing regulations to control air pollution, lead exposure, and hazardous waste management. This i s particularly important regarding pollutants

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that affect human health such as PM2.5, heavy metals, and hazardous wastes. It i s advisable to provide autonomy and independent sources o f funding for the Agency for Environmental Health. The sources o f funding could be provided by environmental fees imposed on fuels and precursors o f pollutants hazardous to human health. 9.51 Designing and implementing policies for air pollution control requires a concerted effort accompanied by organizational strengthening. T o tackle air pollution, it would be advisable to strengthen inter-institutional coordination on fuel pricing among C O N A M and the Ministries o f Economy and Finance, and Mines and Energy. Similarly, under the leadershp o f DIGESA and CONAM, the Government could design and implement PM2.5 emission standards for mobile, diffuse, and stationary sources. A restructured Agency for Environmental Health could assume responsibility for monitoring and enforcing regulations to control ambient air quality standards and air pollution emissions fiom mobile, stationary, and diffuse sources. 9.52 The Ministries of Health, Housing, and CONAM could design and implement a strategy to reduce the cost of environmental degradation associated with inadequate water supply, sanitation, and hygiene. Jointly, MEF, CONAM, and DIGESA could work together to design and implement policies aimed at reducing the burden o f waterborne diseases. The Ministry o f Housing and DIGESA could be responsible for scaling up ongoing pilot projects on safe water and handwashing. The Ministry o f Housing could strengthen ongoing programs to extend the coverage o f water supply and sanitation services. 9.53 A restructured Agency for Environmental Health could assume responsibility for monitoring and enforcing regulations to control pathogenic and toxic pollutants affecting water quality. The agency would be responsible for monitoring and disclosing data on environmental-health-related water-quality parameters for drinking water, irrigation, and recreational bodies o f water. On a regular basis, the agency would disclose data on concentrations o f coliforms in drinking water supplied by water utilities and in irrigation districts, and data on concentrations o f pathogens in bodies o f water used for recreational activities such as beach areas and lakes. Dissemination o f data on morbidity and mortality associated with waterborne diseases by c i t y and department could also help raise public awareness o f these environmental health problems. Among other responsibilities, t h s agency would enforce compliance with primary water-quality standards and would impose penalties on administrators or owners o f water utilities, irrigation districts, or recreational sites that do not comply with these standards. 9.54 Efficient fuel pricing and promotion of efficient stoves, particularly in community kitchens, could become the core of a strategy for control of indoor air pollution. The design and implementation o f a strategy to control indoor air pollution needs a joint effort by the Ministries o f Economy and Finance, Health, Mines and Energy, and CONAM. In addition to designing and implementing a program to promote efficient stoves at community lutchens and at the household level, the Ministries o f Energy, Health and Housing and C O N A M could collaborate in establishing a technical unit to certify improved stoves marketed in the country, for both fuel efficiency and reduced pollution. Reducing Vulnerability to Natural Disasters

9.55 Establish an agency to reduce vulnerability to natural disasters. Due to the significant impact o f natural disasters on Peru, the government might consider creating an autonomous agency, under the Ministry o f Housing, Construction and Sanitation, in charge o f nonstructural measures to reduce vulnerability to natural disasters. INDECI should continue to be responsible for emergency relief and reaction, making use o f i t s already demonstrated strengths to organize relief interventions. The PROFONANPE model could be followed to create a fund to reduce vulnerability by fmancing the disaster prevention plans proposed by

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regional and local governments. The fund would become an important incentive for local governments to move forward with the preparation o f local prevention plans and their implementation. 126

9.56 In the short term, an office for reducing vulnerability to natural disasters could be part of the establishment and funding of the new CEPLAN. This could be complemented by establishing a parallel office in the Ministry o f Housing, given the major impact o f natural disasters on housing. T h i s approach would also help to promote policies for disaster prevention and risk assessment across the various ministries and functional areas, from development planning, to watershed management, to public works projects.127 9.57 The proposed agency would have to work in close coordination with local and regional governments, the CCLiR, and the Mesas de Concertacidn para la Lucha Contra la Pobreza to make the disaster prevention plans a part o f the local and regional Planes Concertados de Desarrollo. T h i s would emulate the successful experience o f the Sustainable Cities Program (Programa de Ciudades Sostenibles). Proposals to Restructure the Organizational Framework for Natural Resources Management and Conservation

9.58 Clear separation of regulatory and investment functions in forestry management. Longer-term and greater support should be given to SUNAT, OSINFOR, and INRENA to strengthen their ability to enforce compliance and their ability to impose and collect fines. The ambiguous relationship (which surfaced as recently as December 2005) between INRENA and OSINFOR limits the effectiveness o f both. The GoP should consider placing OSINFOR in the P C M to enhance i t s stature and likely effectiveness. Ths was the origmal intention when the Forestry Law o f 2000 (Ley Forestal y de Fauna Silvestre) created OSINFOR. However, OSINFOR was never developed as an autonomous agency and finally was absorbed by INRENA, thus creating a potential conflict o f interest, since the same agency has both regulatory and investment responsibilities. 9.59 A report submitted by Apoyo Consultoria in 2003 opened a menu of options to address some of the problems summarized above. The first option was to create an autonomous agency concentrating natural resource management and directly reporting to PCM. The second option was to create two new agencies to complement INRENA’s responsibilities: a special committee within PROINVERSION to manage forestry concessions, and an autonomous entity responsible for land management. The third option was to maintain the current institutional framework, strengthening INRENA, developing OSINFOR, clearly defining their responsibilities, and making these agencies accountable for fblfilling their obligations. 9.60 Increase soil conservation capacity. Soil conservation also needs reforms in legislation and institutional strengthening. The 1995 Land Law provided important legal According to CONAM, “We find interesting the proposal o f establishing an agency that i s responsible for addressing issues o f vulnerability to natural disasters. ... [However] it would be more adequate for such agency to have a crosscutting focus and a trans-sectoral vision. The idea o f following the PROFONANPE model for the establishment o f a fund i s interesting, although it could be better to create a special account in the National Environmental Fund (an entity similar to PROFONANPE) that is currently in operation.” (Bemal, 2006; p. 11) 127 According to CONAM, “The creation o f an office for reducing vulnerability to natural disasters within the framework o f CEPLAN should be studied with detail, to clearly define its planning and policy promotion functions and differentiate them from the more operational functions that should be the responsibility o f [such an] agency.. ., and those o f the National Civil Defense System. In this regard, it is necessary to indicate that the P C M is already working, in close coordination with CONAM, in the development o f actions for the incorporation o f risk management approaches in the regional and local planning processes.” (Bernal, 2006; p. 11)

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instruments to promote public investment in land conservation and monitoring capacity. Analytical work to be developed by the Ministry o f Agriculture could include the identification o f incentives for private investment in soil conservation and management. Similarly, the centralized and decentralized institutions with soil management responsibilities require reliable and updated data on the status o f soil degradation and the natural and social process o f increasing soil salinization and erosion. Since the disappearance o f ONERN in 1992, monitoring and evaluation o f soil conservation has not been undertaken systematically, and adequate information for decision making i s not available. The Ministry o f A p c u l t u r e should be given a mandate-and the necessary resources-to carry out these monitoring and evaluation tasks, which are needed particularly for agriculture production.

9.61 Integrate and further decentralize water management. Much o f INRENA’s attention i s focused on the irrigated areas o f the Coast where it jointly administers the irrigation districts with the ATDRs; ultimate authority for water storage release rests with the AACHs. INADE focuses on construction and engineering issues in the large-scale Coastal irrigation projects. The

Government and several stakeholders have drafted a bill for water resources management that would address various institutional gaps and overlaps that presently impact the effectiveness o f water management in Peru. By pulling water management responsibilities out o f INRENA and assigning this global task to a new Water Resources Agency, the bill proposes to insulate the government from water users’ short-term demands. The bill would grant the new agency an overall coordinating role, in addition to responsibility for assuring sustainable long-term availability o f water resources; this includes reconciling short-term demands with long-term best interests.

9.62 Under the proposed bill, water management will require an institutional setup that conveniently addresses the directive to decentralize management of water resources and the need to encourage management of river basins and irrigation districts by local councils and committees. According to the bill, the proposed water agency would be responsible for regulating decentralized councils and committees that operate at the local level, with the involvement o f a wide range o f stakeholders. Thus, i t would have to build the capacity to develop a reliable information system, a monitoring mechanism with a sound set o f goals, the legal and financial resources to enforce regulations, and a communication and participatory framework to raise awareness about water challenges. It would also have to involve citizens and civil society organizations in demand-side management. 9.63 Provide greater autonomy in the administration o f natural protected areas. Peru i s one o f Latin America’s most successful countries with respect to the creation o f protected areas, and PROFONANPE i s a model for sustainable financial management in the region. Nevertheless, problems faced by the system include dependence on resources from the donor community and the need to administer resources in a more timely and effective manner. To achieve financial stability, the Government might consider establishing mechanisms to generate i t s own financial resources, including the development o f fees for access to protected areas and the establishment o f a concession system for park and service management. 9.64 Establish co-management programs. To effectively decentralize protected areas, comanagement programs might be established to fully integrate indigenous communities into the management o f protected areas, particularly in the Amazon Region. In areas with l i t t l e or no indigenous population, similar programs might be established with departments and municipalities. In both cases, management plans might also be modified to create an explicit role for local communities in drafting and implementing management plans, and in sharing benefits derived from the protected area, even if a full co-management regime i s not immediately established. The programs could lead to the complete decentralization o f protected area management to regional and local governments and councils, helping ensure that these areas are managed in concordance with local customs, needs, and priorities. Similarly, conservation efforts would significantly benefit from the implementation o f a set o f programs

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by the Ministries o f Agriculture and Social Development or regional and provincial governments. These could include rural development programs in buffer areas, sustainable productive projects as permitted within other areas o f the park, and other activities designed to increase the positive benefit accruing to local economies from the presence o f protected areas.

9.65

Strengthen fisheries resource management. Fisheries resource management in Peru s t i l l has an incomplete legal and institutional framework. In spite o f significant achievements by

D Y N A M O and DINSECOVI, environmental regulations (Reglamento de Gestidn Ambiental para las Actividades Pesqueras) have not yet been approved for this sector. DINAMA and DINSECOVI could improve their management effectiveness by encouragmg and enabling public participation, and by taking the decentralization process forward. Currently, only responsibilities bearing on environmental impact statements have been decentralized to the regions. The GoP might consider efforts aimed at establishing participatory mechanisms to involve key stakeholders in consensus building regarding a sustainable fisheries policy, and restructuring the sector’s legal and regulatory framework by closing loopholes and eliminating exceptions in existing laws and regulations. Recommendations for Institutional Strengthening

9.66 Although Peru has made progress in its environmental management framework, many challenges remain. l h s section suggests ways to address some o f the issues mentioned above. The following sets o f institutional challenges have been identified as the most important: (i) setting environmental priorities, (ii)aligning environmental expenditures with priorities and improving environmental agencies’ financial sustainability, (iii) fostering decentralization, (iv) promoting enforcement and accountability, and (v) ensuring participation and social accountability. Setting Environmental Priorities

9.67 MEF’s role in setting priorities. As illustrated in the previous sections, vulnerable populations and the overall society would benefit from the implementation o f a priority-setting mechanism. This-mechanism shouid consider (a> the impacts o f environmental degradation on the Criteria for Setting EnvironmentalPriorities poor and most vulnerable groups, (b) the most urgent needs as perceived by the population, (c) Environmental degradation’s impacts environmental degradation’s costs to society, and on the poor and most vulnerable (d) a cost-benefit analysis o f environmental groups measures. Satisfactory implementation o f this The most urgent needs as perceived by mechanism requires a dual strategy that includes the population influence in political processes and technical Environmentaldegradation’s major capacity that involves the establishment o f a strong risks and costs to the overall society working alliance between MEF and CONAM. Environmental measures’ cost-benefit Creating a group within MEF to conduct, in close ratio collaboration with CONAM, analytical work to identify priorities would provide analytically sound foundations for environmental priorities across sectors and budget allocation in response to those priorities. On the other hand, C O N A M would benefit from this influence and focus on the coordination o f environmental policy design and implementation among the sectors. 9.68 Strengthen CONAM’s consensus-building role. To incorporate the population’s perceptions regarding the most urgent environmental issues, C O N A M would benefit from having the mandate to systematically conduct public opinion polls on the urgency o f environmental issues. These surveys would provide a forum for the most vulnerable segments o f the population to voice their concerns, while providing C O N A M with negotiating tools

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before Congress, donors, and other stakeholders. For additional effectiveness, this process would benefit from the private sector’s and c i v i l society’s formal participation.

9.69 Development of information and analytical work. Development o f research and analytical work by specialized governmental agencies can complement CONAM’s and MEF’s monitoring and priority-setting functions. SINIA’s capacity development-and i t s close coordination with INEI and Peru’s relatively strong academic institutions and think tanks to generate, collect, and disseminate environmental information-should be supported. I t i s necessary to strengthen SINIA’s equipment and the s k i l l o f i t s staffing to enable i t to hlfill its role. More importantly, however, S M I A requires the necessary authority to get responsive feedback--from agencies, line ministers, and sub-national governments-to i t s requests for information. This authority i s generally built up through technical assistance and a set o f incentives that C O N A M could provide to responsive agencies. An example worth examining i s the Instituto Nacional de Ecologia (INE) in Mexico. INE i s Mexico’s main environmental research institute, and it i s specifically designed to carry out analytical work to support environmental policy design and decision making across sectors. I t operates in close coordination with private and public institutions, and it has significant credibility in the private sector and among national and international stakeholders. 9.70 Information disclosure. It i s crucial that a more systematic effort be made to raise awareness o f environmental issues. Ways to improve public information, and promote transparency, accountability, and awareness include the publication o f data in support o f key environmental indicators (including health statistics or pollution loads); wider use o f public forums to air development initiatives; and broader and more detailed review and discussion o f environmental management tools. In Colombia and Indonesia, among other countries, the publication o f key environmental performance indicators has been instrumental in raising environmental awareness and placing environmental issues on the national agenda. Mechanisms to disseminate information in a manner that i s easily interpretable can allow communities to serve as informal regulators; such mechanisms also promote accountability on the part o f those being regulated (World Bank, 2005b) 9.7 1 Strengthen regional monitoring and priority setting. To address environmental issues at the regional level, each region should be responsible for incorporating i t s specific priorities into the national environmental agenda. The lack o f accountability for identifying these priorities leads to top-down priority setting and lack o f representation. For instance, on the country’s Pacific Coast, current major environmental priorities (other than the national priorities o f air pollution and vulnerability to natural disasters) involve urban environmental management problems such as water and noise pollution. In coastal zones and in the Sierra, massive soil erosion and salinization hinder agricultural productivity. The Selva, with a constant influx o f highland colonists, represents the “next frontier” and, in the absence o f safeguards, this influx places forest and biodiversity resources at risk. 9.72 Create the capacity to evaluate results and impacts and learn f r o m experience. All the institutions in Peru’s environmental system would benefit from incorporating the evaluation o f results and impacts into their management routine. Without the capacity to evaluate, these entities will not be able to learn and build in institutional change. To achieve t h s , they need to systematically create baselines and entrust evaluations to independent consultants or organizations. Peru has an excellent set o f researchers, think tanks, and academic institutions that could be contracted to conduct these evaluations. The creation o f a competitive evaluation fund managed by MEF and C O N A M could be a good way o f encouraging an evaluation and learning culture in the system. The fimd could also support the organization o f learning activities such as retreats to discuss evaluation results and workshops for cross-learning and analyzing international best practices. These learning activities should try to involve a broad audience o f the institutions’ staff and participants from partner organizations, like NGOs, research institutions, and universities.

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Aligning Environmental Expenditures with Priorities and Improving Environmental Agencies’ Financial Sustainability 9.73 A Planning Process to Align Environmental Expenditures with Priorities. Public resources allocated to support environmental sustainability are scarce and have been decreasing in absolute and relative terms since 2000. In absolute terms, they decreased from Soles 964 million to Soles 558 million; and in per capita terms from Soles .37 in 2000 to Soles .20 in 2004 (Shack, 2006). Therefore, the effectiveness o f environmental expenditures w i l l increasingly depend on the GoP’s capacity to allocate resources according to environmental priorities. As discussed above, mechanisms to align resources and priorities are not in place. Therefore, it i s suggested that CONAM, with the support o f the Presidency o f the Council o f Ministers (PCM) and MEF, establish a planning process to align the sector’s multi-year strategic plan (PESM) with the environmental priorities identified through the priority-setting process. State Policy No 19 o f the National Agreement and the National Environmental Policy could provide an adequate framework to carry out this task. A similar strategic planning process could be undertaken with the Regional Governments. Additionally, given the number o f environmental activities supported by donors or implemented by regional and local governments, the GoP might consider efforts aimed at planning environmental roundtables involving public institutions, donor agencies, and civil society to discuss priorities, coordinate actions, and develop a joint strategy. At the decentralized level, it would be advisable to stress the importance o f complying with CONAM’s directive to systematically include key environmental aspects in the agendas o f the Joint Development Plans (Planes Concertados de Desarrollo) and the Participatory Budget. The Poverty Reduction Roundtables (Mesas de Concertacidnpara la Lucha Contra la Pobreza) and the more recently established Regional and Local Coordination Councils could play a pivotal role in these regional and local processes.’28 9.74 Create Capacity in MEF to Monitor Environmental Expenditure. Adequate assessment o f policy implementation requires reliable monitoring and evaluation o f environmental expenditures according to results and impacts. The proposed environmental policy team in MEF could carry out this periodic monitoring. As an alternative, the unit that currently monitors social expenditures could also track the effectiveness o f environmental expenditures. To do so, it could develop results and impact indicators for each o f the priority issues, and incorporate data delivered by participatory monitoring mechanisms into the M&E system. The reports o f the unit would help MEF and C O N A M to identify expenditure gaps and biases and propose corrective measures. I t i s important to note that, for environmental expenditures to be adequately monitored, C O N A M should be responsible for defining the expenditures that are eligible in this category. 9.75 Improve Self-Financing o f Environmental Agencies. Because current fiscal public resources are shnking, i t i s important to establish incentives and mechanisms to improve the capacity o f public environmental agencies to generate their own resources. For example, in the case o f the Intendencia de Areas Naturales Protegidas, some alternatives include the development o f ecotourism services and the collection o f fees for access to protected areas. These initiatives could involve the participation o f indigenous peoples, NGOs, and local communities o f the surrounding areas. Improvement in the collection o f permits and concession fees by the environmental agencies could also be encouraged. Reliable databases and cadastre systems would be essential to improve fee collection and accountability. T h i s capacity also needs to be transferred to regional and local governments to improve their finances and properly fund environmental priorities. 128

According to CONAM, “At the level o f the regional and local governments, CONAM has issued a directive indicating the need for regional governments to incorporate the environmental management actions that have been identified and prioritized within the framework o f the Regional Agendas, as part o f the Concerted Development Plans and the ParticipatoryBudgets o f each o f those regions.” (Bernal, 2006; p. 12)

22 I

Strengthening Interagency Coordination

9.76 CONAM and MEF to play a joint coordination role. MEF and C O N A M might explore new strateges for improving coordination among environmental authorities and building their management capacity. A necessary condition i s to establish a system for collecting credible data on environmental agencies’ institutional performance. These data are needed for planning coordinated activities, monitoring compliance with such plans, and monitoring overall institutional performance. The active dissemination and public disclosure o f such data can create strong incentives for compliance with coordinated plans and for improved institutional performance. The Ecodidogo Nacional i s an annual meeting o f environmental authorities, environmental units o f ministries, and CARS. It i s h l l y open to the public and should be maintained and funded as a mechanism to foster coordination, learning, accountability, and transparency. MEF and C O N A M could also explore new strateges for improving coordination between them and other ministries, DIGESA, INRENA and subnational environmental units. A number o f more specific coordination mechanisms i s available; these fall into two categories: incentives for cooperative behavior and control to sanction noncooperative behavior. I t would be important for MEF to support Ecodidogo Nacional by allocating specific, additional budgetary resources each time the event takes place.Iz9 9.77 Results-based agreements to improve control. Regarding control, MEF has used an effective mechanism to ensure compliance with sectoral policies; it i s the signing o f resultsbased agreements with national agencies and sub-national governments. MEF and the leading sectoral a g e n c y 4 O N A M in this case-monitor compliance o f the agreement based on a small, clear set o f critical standards indicators and milestones, which are part o f the agreement. Budgetary disbursements are subject to a given degree o f compliance, and allocations in the following budget cycle are decided according to the previous cycle’s results. 9.78 Setting coordination incentives. Possible coordination incentives with sub-national environmental units include enhancing MEF’s ability to cofinance investment projects at the regional level, linked to results agreements. In countries with a decentralized environmental structure, cofinancing i s often the most important tool that national authorities have to ensure national-regional coordination. A mechanism similar to the one described for budget allocation and disbursement could be applied to monitor compliance with results agreements. Conventional control mechanisms would be used to ensure that project funds are well spent. These mechanisms would help to bolster MEF and CONAM’s ability to monitor environmental performance. 9.79 Setting quantifiable goals. The process o f developing environmental performance could be closely tied to efforts requiring environmental units to set specific quantifiable goals in their action plans, and to systematically monitor their progress toward those goals. Ideally, t h s performance evaluation system would measure direct impacts on environmental quality, such as reduction in waterborne diseases or in outdoor and indoor concentrations o f particulate matter less than 2.5 microns in size (PM2.5). Fostering Decentralization

9.80 Peru has made important progress in i t s decentralization process. As discussed in previous sections o f this chapter, decentralization o f environmental competences i s limited and, in most cases, i t i s limited to the regional level. CONAM stated, “Ecodihlogo i s a meeting that i s held biannually with the goal of discussing emerging environmental issues and, more specifically, (a) informing about fulfillment o f the EnvironmentalAgenda agreed to in the previous biannual period, and (b) disclosing to the public the National EnvironmentalAgenda for the following biannual period” (Bemal, 2006; p. 12).

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9.8 1 Determining what to decentralize. International experience shows that decentralization i s particularly convenient when participation in decision making, and implementation and monitoring by local stakeholders, play a central role to ensure quality outputs and effective results. The Government could consider decentralizing-to regions, departments, and municipalities-responsibility for enforcement o f secondary water quality standards such as biochemical oxygen demand, total suspended solids, phosphorous, potassium, and total dissolved solids. Enforcement o f wildlife, forestry, and waste management regulations, as well as forestry concessions, could also be considered among the responsibilities to decentralize. 9.82 Defining a decentralization scheme. I t i s important that, in close coordination with the National Decentralization Council and regional governments, C O N A M and other environmental agencies define a decentralization scheme for the environmental h c t i o n s that are set for decentralization. T h i s scheme should define the results agreements that are going to determine the rules o f engagement between the different levels o f government involved-as well as the monitoring mechanisms, incentives, and set o f indicators that will control their performance. I t i s advisable that civil society play a role in this process, making use o f the already rich participatory setup that has been created in Peru's decentralization activities. These activities include mechanisms for local planning (Mesas de Concertacion para la Lucha contra la Pobreza), budgeting (Presupuesto Participativo), coordination (CCLs), and monitoring (Comitds de Vigilancia Ciudadana).

Promoting Enforcement and Accountability

9.83 Enforcement mechanisms should be strengthened. One o f the major limitations in the existing institutional framework i s the lack o f clarity regarding the enforcement o f environmental laws and regulations, particularly regarding transparency in the environmental planning and management process. As o f 2005, discussions were underway on the need to reform the environmental enforcement and licensing framework, particularly among stakeholders who question whether the current system o f granting environmental licenses and enforcement within line ministries i s efficient, neutral, and unbiased. Likewise, there i s the view that an embedded conflict o f interest exists when the line ministry in charge o f promoting a specific economic activity has the capacity to effectively regulate it on environmental grounds. This view has led to two proposals being debated at the highest levels o f government. One proposal centers on the creation o f a centralized environmental regulatory body (Procuraduria Ambiental) to address the enforcement o f all productive sectors (as proposed by the Prime Minister). An alternative proposal centers on the establishment o f independent environmental regulatory bodies for each sector, following the model o f the already h c t i o n i n g OSINERG (as proposed by the Minister o f Energy and Mines). The Ministry o f Justice has yet to assess these proposals. In this assessment, the Ministry would have to take into account the options that provide more legitimacy to the environmental management process and are most costeffe~tive.'~' 9.84 A centralized environmental regulatory body. Lessons from international experience suggest that it would be advisable to create a centralized environmental regulatory body, such as the Mexican Procuraduria Federal de Proteccidn a1 Ambiente (PROFEPA). The creation o f such an agency grants legitimacy to the environmental sector as a whole by providing efficient, neutral, and unbiased enforcement while eliminating potential conflicts o f interest within sectors. T h i s agency can also implement incentives for public-private partnerships to improve environmental management systems and programs to disclose environmental perfonnance indicators that promote demand-driven environmental improvement in the private sector. In Peru's case, this environmental regulatory body could focus i t s responsibilities on I 3 O According to CONAM, ". .. [A] centralized environmental regulatory body (Procurudunu Ambientul).. .should necessarily be linked to the National EnvironmentalAuthority" (Bemal, 2006; p. 9).

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environmental priority problems, namely those associated with environmental health issues such as outdoor and indoor air pollution, and hazardous waste management.

9.85 Support to accountability agencies. As analysis shows, accountability mechanisms also need to be strengthened. The Comptroller’s Office has established a specialized unit to monitor the integrity and performance o f environmental agencies. However, due to financial and technical constraints, the unit l i m i t s itself to strategic interventions in critical areas. This unit has a great potential to enhance the environmental system’s accountability. Therefore, it i s suggested that this unit be supported with the necessary financial and techmcal capacity to expand i t s coverage and role. The Ombudsperson’s Office also has a significant potential to improve the accountability framework o f the public environmental system. However, as indicated above, it does not have a technical unit specializing in environmental issues, and it lacks a specific reporting capacity to deal with the fulfillment o f citizens’ rights linked to the environment. The Ombudsperson’s Office, in coordination with C O N A M and civil society organizations, could put in place a simple but effective accountability mechanism that consists o f identifjmg a simple set o f standards to measure the hlfillment o f basic environmental rights, such as the right to clean air and water. Using simple language, these standards could be broadly disseminated among the population with the help o f civil society organizations, d n g use o f national and local media. Every six months, the Ombudsperson’s Office could produce report cards measuring each region’s or province’s degree o f hlfillment o f those standards, promote town hall meetings to &scuss the inability to comply with authorities and civil society, and jointly find remedies and solutions. Ensuring Participation and Social Accountability

9.86 The need to increase public support for change. Participation and social accountability should be strengthened to mainstream the environmental agenda. A major constraint on effectively addressing environmental issues i s the lack o f public awareness regarding the extent, severity, and significance o f key problems and environmental priorities. In the absence o f public pressure, there appears to be little likelihood that the government will assign the environmental sector the priority it warrants. Likewise, it i s important to have legitimate representation by the groups most affected in the design and formulation o f environmental policy. I t i s clear that greater public awareness needs to be fostered among decision makers and the public at large to promote a significant change in public policy on the environment. Examples o f ways to improve public information and promote transparency, accountability, and awareness are the publication o f data on important environmental indicators (including pollution loads, concentration o f priority pollutants, and health statistics); wider use o f public forums to air development initiatives; broader and more detailed review and discussion o f ENS;and other environmental management tools. 9.87 Strengthen the demand side of accountability. The analysis described in this chapter’s preceding sections reveals that Peru has active civil society organizations that play a crucial role in implementing projects and delivering services to poor sectors o f the population; those established in Lima participate in policy debates. However, the capacity o f civil society to participate in monitoring policy implementation and holding environmental institutions accountable i s limited. International experience indicates that civil society can play a crucial role when citizens’ organizations demand accountability from public institutions. International NGOs and donors could support the development o f the technical capacity o f civil society organizations to promote social accountability initiatives. These initiatives could be implemented independently, or in association with environmental agencies, or with horizontal accountability institutions, such as that suggested for the Ombudsperson’s O f i c e in the previous section. 9.88 Creating an enabling environment for social accountability. The public sector needs to meet two conditions to create an enabling environment for social accountability: (i)the

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production, disclosure, and dissemination o f reliable, timely, and relevant information; and (ii) the establishment o f inclusive channels o f voice. Peru has a wide range o f participatory channels at the national level. These include the Acuerdo Nacional, the Mesa Nacional de Concertacidn para la Lucha Contra la Pobreza, and the Ecodiblogo. At the sub-national level, Peru has the Local and Regional Coordination Committees (CCLR), the Participatory Budget, and the local Mesas de Concertacidn, all of which could become excellent conduits for voice and social accountability. Table 9.5. Summary of Main InstitutionalRecommendations Responsibility Analytical work and environmental policy design Coordinating environmental policy design and implementation as well as negotiating with sectors

Recommendation Establishment o f a small group in MEF Strengthening C O N A M

Enforcement o f primary standards and environmental health regulations

Strengthening the Environmental Health Institute t o act as a Procuraduria Cfiscalizacibn,vigilancia y

and stakeholders

control)

Environmental Impact Assessment (EIA) for largescale projects EIA for local projects Reduction o f vulnerability to natural disasters

National Ministries with EMS certification Regions, departments, and municipalities Separation from I N D E C I and incorporation into the Housing Ministry o f a specialized group Strengthening and granting budgetary independence to National Protected Areas Department

Management o f national protected areas

(Zntendencia)

Management o f local protected areas

I

Enforcement, monitoring, and evaluation o f secondary standards regulations, economic instruments for water pollution control, charges, and fees. Enforcement o f wildlife, forestry, and waste management regulations Forestry concessions Analytical work and policy design for fisheries sector

Departments, municipalities, indigenous communities Regions and departments

Regions and departments

I

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Regions and municipalities Strengthening IMARPE

Table 9.6. Institutional Arrangements for EnvironmentalManagement, 2006

z Responsibility

I Design o f national environmental policy Enforcement of environmentalpolicies

$

U

I # I

I Coordination o f national environmentalpolicy l v Design of pollurion control masum

I Enforcement o f pollution control measures I

Enforcenient of natural resources managentair Allocation o f water rights and forestry concessions Environmentalpermitting

EIA Reduction o f vulncrdbihty to natural disasters Conservation and pro~ectcjarcas

4

I

I

d

I

I

I

I

I

d

226

I

I

Table 9.7. Proposed Institutional arrangement^'^'

I

Enforcement of pollution control measures

II

I

l

II

I

I

I

I

I

I

I

d

I

Enviironmmtai pcmitting

I

I

l

I

I

l

I

d

I l l I l IW

Enforcement o f natural resources management regulations

t

l

I

I d

d

I

d c ,

d

J

I

;

,

I

I

Reduction of viilnerabiltty IO natural disasters

d

d

G

d

d

d

1

I I

Conservation and protected areas

allocation

!

13’ According to CONAM, “... [Tlhe hnctions for policy and coordination o f the National Environmental Management System should be attributed to a single entity, CONAM. The application and enforcement o f norms should be distributed among different entities. I t i s also not clear that the regional and local governments have functions that are dependent o f national authorities and that these governments have more limited scope for action.” (Bemal, 2006; pp. 10-1 1)

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CHAPTER I O A WAY FORWARDi3’ 10.1

Over the past two decades, Peru has carried out numerous activities aimed at protecting

i t s environment. These include restructuring i t s legal and regulatory frameworks, undertaking numerous policy initiatives, and expanding and strengthening i t s institutional capacity for

protecting and managing the natural resources and environmental quality vital to sustainable growth and poverty reduction. The government has made significant advances, among them establishing a system o f national parks. Significant milestones in the evolution o f Peru’s Environmental Management Framework include the passing o f the Environment and Natural Resources Law (Cddigo del Medio Ambiente y 10s Recursos Naturales) in 1990; the development o f sectoral environmental authorities, which was spearheaded by the mining and energy sector in 1993; the establishment o f a national environmental authority, the National Environment Council (Consejo Nacional Ambiental - CONAM) in 1994; and more recently, the enactment o f the Environment Law in October 2005. However, Peru s t i l l faces the serious challenge o f slowing and reversing environmental degradation. 10.2 This chapter summarizes the conclusions o f the country environmental analysis (CEA) and provides recommendations to assist the Government o f Peru in the revision o f policies to address priority environmental problems. This chapter also outlines a program o f policy and institutional reform and complementary investment directed toward areas that impose a high cost on the economy, but which have not yet been tackled (Table 1). An increased focus i s needed on improving the quality o f life for the growing number o f poor people living in urban and rural areas. The goal o f the recommendations presented in this chapter i s to support the country’s efforts to move toward more equitable and sustainable economic growth. 10.3 The analysis o f the cost o f environmental degradation done as part o f this CEA shows that the most costly problems associated with environmental degradation are, in decreasing order, inadequate water supply, sanitation and hygiene; urban air pollution; natural disasters; lead exposure; indoor air pollution; soil degradation; inadequate municipal waste collection; and deforestation. The burden o f these costs falls most heavily on vulnerable segments o f the population, especially the poor, who are often exposed to higher environmental health risks than the non-poor and lack the resources to mitigate those risks. I t i s estimated that the impact o f environmental degradation on the poor relative to the non-poor i s 20% higher per 1,000 people, while t h s impact i s 4.5 times higher per unit o f income. Children under the age o f five bear a large percentage o f the total cost o f environmental health damage. Most o f these costs are borne by children from poor families, highlighting the importance o f environmental degradation as a barrier to inequality reduction. The effects o f environmental degradation associated with these principal causes are estimated to cost more than 3.9 percent o f GDP, mainly due to increased mortality and morbidity and decreased productivity. T o identify alternatives aimed at abating the cost o f environmental degradation, this CEA examines institutional and policy issues in the functioning o f the country’s environmental management system and suggests some costeffective interventions. 10.4 The cost o f environmental degradation in Peru i s higher than in other countries with similar income levels. Studies o f the cost o f environmental degradation conducted in Colombia, an upper-middle-income country in Latin America, and several lower-middle-income countries in North Atiica and the Middle East show that the monetary value o f increased morbidity and mortality typically lies below 2 percent o f GDP in these countries. In comparison, the value in Peru i s 2.8 percent o f GDP. 13’

This chapter was prepared by Emesto Sanchez-Triana and Santiago Enriquez.

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10.5 The results o f the cost analysis o f environmental degradation are roughly consistent with those o f a 1997 national survey on environmental awareness (Instituto Cuanto, 1998). In that survey, 85% o f the population expressed the view that environmental problems should be solved promptly, and survey respondents identified water and air pollution as the most pressing concerns, followed by urban management o f wastes and public areas.

Revisiting Environmental Priorities for the Most Vulnerable Groups 10.6 As noted above, a study was conducted as part o f the CEA to identify the environmental problems that are associated with the most significant economic costs (Larsen and Strukova, 2006a). The study estimated that the economic costs o f environmental degradation, depletion o f natural resources, natural disasters and inadequate environmental services (such as inadequate sanitation) amount to 8.2 billion soles, equivalent to 3.9 percent o f GDP in 2003. As mentioned previously, the analysis shows that the most costly problems associated with environmental degradation are, in decreasing order, inadequate water supply, sanitation, and hygiene; urban air pollution; natural disasters; lead pollution; indoor air pollution; and agricultural soil degradation. The costs o f inadequate household solid waste collection and deforestation are minor in comparison to the former categories. 10.7 The burden o f these costs falls most heavily on vulnerable groups. The poor, or lowincome households, are often exposed to higher environmental risks than h g h e r income groups and lack the resources to mitigate those risks. Environmental health impacts often have more severe repercussions on the poor than on the non-poor because the latter tend to have more resources to cope with such events, better access to health services and a better general health condition. Environmental impacts and natural disasters can also result in loss o f income or assets that i s more detrimental to the livelihoods o f the poor than o f the non-poor. 10.8 The impacts o f urban air pollution relative to income are more severe for the poor than for the non-poor. I t i s difficult to ascertain whether health impacts from urban air pollution have a higher incidence on the poor or the non-poor. The non-poor may have a higher incidence o f health impacts per 1000 people because a relatively larger share o f t h s population i s at least 60 years old, and cardiopulmonary mortality predominantly occurs among the elderly population. However, it i s possible that the age-specific death rate and/or respiratory incidence rate i s higher among the poor, and these factors could result in health impacts being higher among the poor. Health impacts relative to income are considered a useful indicator, because illness and premature mortality result in medical treatment costs and lost income, in addition to pain, suffering and activity restriction. Based on this indicator, health impacts are between 75 and 300 percent higher among the poor. 10.9 The impacts o f waterborne diseases are several times higher for the poor than for the non-poor. Both child mortality and child diarrheal prevalence have a strong correlation with poverty. Official data indicate that the child mortality rate among the poorest 20 percent o f the population was 5 times higher than among the richest 20 percent, while child diarrheal prevalence among the poorest 20 percent was two times higher than among the richest 20 percent. Based on these data and on the hgher relative share o f children in the poor population, it i s estimated that health impacts per 1,000 people are three times higher in the poor population than in the non-poor population. The difference i s even greater when impacts relative to income are considered, with impacts in the poor population estimated to be 10 times higher than for the non-poor.

10.10 The impacts o f indoor air pollution are highly concentrated among the poor. Around 10 percent o f the urban population and more than 85 percent o f the rural population use solid fuels for cooking and heating. Data are not available on the percentage o f poor and non-poor populations that use solid fuels. However, based on urban and rural poverty rates o f 40 and 65 229

percent, respectively, it i s reasonable to assume that almost the entire 10 percent o f the urban population and around 65 percent o f the rural population that use solid fuels are poor. Under these assumptions, an estimated 80-85 percent o f the total health effects would be among the poor. T h i s share could be even higher in the plausible cases that poor households use more polluting stoves and have worse general health conditions.

10.11 The priorities identified by the cost analysis o f environmental degradation are roughly consistent with public perceptions. Water contamination and air pollution were identified as the environmental issues o f greatest concern in a 1997 national survey on environmental awareness. At that time, 85 percent o f survey respondents expressed the view that environmental problems must be solved promptly (Instituto Cuanto, 1998). In a different survey conducted in 2004 in the Lima-Callao region, 80 percent o f respondents identified air pollution as the principal environmental problem in the area (GEA, 2004).

EnvironmentalHealth 10.12 Negative health impacts represent more than 70 percent o f the costs o f environmental degradation. Increases in morbidity and mortality resulting from urban air pollution and lead exposure; inadequate water supply, sanitation and hygiene; and indoor air pollution have an estimated cost o f 5.85 billion soles. 10.13 In spite o f the important reductions that Peru has achieved in child mortality from diarrheal illnesses, diarrheal prevalence in both adults and children remains high. Poor households are most severely affected, since their relatively l o w income and education interact with lack o f access to basic services to generate a very high risk o f diarrheal illness. An analysis conducted as part o f the CEA estimated the costs and benefits o f interventions for environmental health improvements including (a) handwashing by mothers or caretakers o f young children, (b) improved rural water supply, (c) safe sanitation facilities in rural areas and (d) drinking water disinfection at point-of-use. The analysis concluded that benefits would exceed the costs o f each o f these interventions and that, if implemented, they could reduce the cost o f environmental health effects by more than 360 million soles per year. 10.14 Indoor air pollution (IAP), which i s associated with the use o f solid fuels for coolung and heating, has a well-documented relationship to negative health effects, particularly acute lower respiratory illness (ALRI) in children under age five, and chronic obstructive pulmonary disease (COPD) and lung cancer in adult females. IAP i s most severe in poor rural communities and predominantly affects women and children, who spend more time in closed areas with high concentrations o f pollutants associated with the use o f solid fuels. The analysis conducted as part o f the CEA evaluated various interventions to eliminate indoor air pollution from solid fuels, including the installation o f improved wood stoves with chimneys and upgrading to clean fuels in both individual households and in community kitchens. Benefits accruing from substituting improved stoves for unimproved ones in households were found to be almost seven times larger than the costs. Substituting liquefied petroleum gas (LPG) for unimproved stoves, or substituting LPG for a combination o f unimproved stoves and LPG, was also estimated to have higher benefits than costs. Conversely, the benefits o f substituting clean fuel (LPG) for improved stoves were found to be slightly smaller than the costs o f LPG at current market prices. Substituting improved stoves for unimproved ones in households, substituting clean fuels for unimproved stoves and clean fuel in households, and the use o f clean fuel in community kitchens could reduce the cost o f environmental health effects by 250 million soles per year 10.15 Urban air pollution i s one o f the most widespread and serious problems in Peru’s cities;

i t i s responsible for an estimated 3,900 premature deaths per year. There are two major air pollutants o f concern to health in Peru, namely particulate matter (PM) and associated small

particles created from chemical reactions involving sulfates and nitrates, and lead. Both o f these

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originate principally from transport and industrial activities. Peru is already undertaking substantive measures to eliminate lead in fuels. Thus, the CEA discusses more thoroughly the risks associated with exposure to PM, particularly P M smaller than 2.5 microns (PM2.5), which has a strong documented relationship with negative health effects. The problem o f air pollution i s most critical in the country’s industrial corridors, such as Lima-Callao, which bears almost 75 percent o f the estimated cost o f associated health impacts. Pollutant concentrations in downtown Lima are higher than in other Latin American cities with severe air pollution, such as Mexico City and Santiago, and are considerably higher than cities outside the region, including Los Angeles, Tokyo and Rome, which have successfully reduced their ambient concentrations o f air pollutants, despite having larger industrial and transportation sectors. 10.16 As part o f the preparatory work for the CEA, a study evaluated several interventions aimed at reducing urban air pollution. These included the introduction o f l o w sulfur diesel; the use o f compressed natural gas in buses and taxis; changes in the bus fleet to larger, cleaner buses; improved inspection and maintenance programs for vehicles; retrofitting particulate control technology for vehicles; a phaseout o f two-stroke engines in “baby taxis”; better facilities for the use o f bicycles and the introduction o f industrial abatement technologies. The three most efficient interventions were (a) retrofitting diesel powered trucks and buses; (b) introducing a vehicle inspection and maintenance program with rigorous vehcle-emissions testing; and (c) using low sulfur diesel (planned to be introduced in 2010), which would unambiguously result in net economic benefits stemming from associated reductions in health impacts. Additional actions that the GoP might consider implementing in the short run include establishing national ambient standards for PMlO and PM2.5 in priority urban areas, and strengthening technology-specific emission standards for P M and its precursors, particularly sulfur and nitrogen oxides. A program to monitor air quality might be implemented to ensure the effective application o f such norms. Medium- to long-term actions that the GoP might also consider include (a) establishing a plan to upgrade the vehicle fleet and (b) adopting integrated land-use and sustainable transport policies to promote sound mobility systems and reduce average fuel consumption per trip. 10.17 Environmental health issues should be Peru’s f i r s t priority in the short run. Based on the severity o f the health impacts o f environmental degradation, as well as their higher incidence in vulnerable groups, Peru should focus i t s efforts on conducting interventions to reduce urban atmospheric concentrations o f particulate matter (PM2.9, mitigating the impacts o f indoor air pollution stemming from the use o f solid fuels for cooking and heating, and reducing the incidence o f waterborne diseases. 10.18 Environmental health problems could be more effectively addressed by an independent entity with clearly defined responsibilities for environmental health management. A decentralized entity should be created within the Ministry o f Health to tackle air-quality problems by regulating fuel quality and emissions o f PM2.5, lead and toxic pollutants, and h e 1 quality. To deal with water contaminants that affect human health, t h i s entity should enforce bacteriological quality, POPS, VOCs, and heavy metals, among other pollutants. The urgency o f

controlling water pollution to protect and improve public health cannot be overemphasized. Most o f the sectoral agencies responsible for regulating the control o f water pollution have focused on a limited range o f activities and have established legal l i m i t s on a reduced number o f parameters. The majority o f these parameters have aesthetic or ecologcal significance, but minimal importance for human health. The dearth o f relevant regulations in this area i s a problem that should be urgently solved, because waterborne diseases are a significant cause o f morbidity and mortality in Peru. In this context, the GoP should consider developing specific regulations and enforcement mechanisms in the short run to control water-quality parameters that have health implications, such as pathogens, volatile organic compounds and persistent organics. I t i s further recommended that an autonomous Environmental Health Agency be created with responsibilities for enforcing health-related parameters. Parameters o f aesthetic,

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ecological or productivity relevance should be regulated separately by INRENA or the proposed National Water Authority.

Natural Disasters 10.19 Peru’s incidence o f natural disasters i s nearly twice that for Latin America as a whole (CharvBriat, 2000). Peru’s geographical location partly explains this high incidence, as the country i s located in one o f the planet’s most seismically active areas and i s recurrently affected by the atmospheric and oceanic conditions caused by El Nifio. The most prevalent types o f disasters during the 2000-2004 period have been strong winds, floods and heavy rains. However, floods, earthquakes, frost and snow, and drought have affected a larger number o f victims. Different data series show an increasing frequency o f natural disasters over both the short and long term. Although some o f these disasters have distinct natural sources, othersnotably flooding and landslides-are increasingly influenced by human activities that modify environmental conditions and create a greater predisposition to more severe effects. Soil erosion and deforestation have contributed to higher flood risk in exposed and low-lying areas, and contribute to conditions for mass soil movement resulting in landslides and huuycos. Urbanization and greater demographic density have led to higher exposure to potential disasters in specific areas that concentrate socioeconomic activities. 10.20 Reducing vulnerability to natural disasters should constitute the GoP’s second shortterm priority. These events have resulted in a significant cost to the country’s human and physical capital. I t is estimated that more than 2 million people were affected by natural disasters during 2000-2004, at an annual cost o f approximately US$325 million (Larsen and Strukova, 2006a). The poorest and most susceptible have paid the highest costs for these disasters in damages, deaths and lost assets. These groups tend to be more vulnerable to natural disasters for a variety o f reasons, including the construction o f housing where land i s cheap, frequently near river bottoms and on steep hllsides; the lack o f land-use control in these areas; poor quality construction; lack o f basic mitigation measures; and the marginal livelihoods and limited capacity for economic resilience o f these groups. 10.21 T o address this problem, i t i s necessary to develop an integrated response to natural disasters that emphasizes prevention, vulnerability analysis and risk assessment. In this regard, the GoP should consider establishing an autonomous agency in charge o f non-structural measures to prevent natural disasters. This new agency could function independently o f existing entities focusing on emergency r e l i e f and reaction. A crucial element o f the strategy would be the creation o f a fund to provide incentives for local governments to advance the preparation and implementation o f prevention plans. Additional non-structural and structural measures that the GoP should consider making the reduction o f disaster risk and vulnerability a national priority, adopting disaster-prevention and risk-assessment tools at all levels o f government, managing risks in land use and urban planning, and disseminating appropriate and safe construction technologies.

Natural Resource Management Fisheries

10.22 Peru’s fishing grounds are the richest in the world. Over 274 million h4T o f fish were harvested from Peruvian waters between 1950 and 2001, with anchovies constituting over 75% o f the total harvest during that period and currently representing approximately 10 percent o f the global annual marine catch. The importance o f the anchovies lies not only in i t s social and economic value as a fishery, but also in i t s role in sustaining a large and diverse food web that supports a wide array o f ecosystem goods and services essential to maintaining marine

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biodiversity and productivity. Fisheries also target additional pelagic species, such as sardine, horse mackerel and chub mackerel, as well as coastal species that include the hake (merluza). Inland fisheries in the Amazon and Highland areas yield an annual 30,000-80,000 MT. The fisheries sector i s a significant contributor to the Peruvian economy, generating around 6% o f employment, 1% o f GDP, and accounting for 11-16% o f total export earnings (which makes it the second largest earner o f foreign exchange after mining). 10.23 The sustainability o f Peru’s fisheries i s critically threatened by several factors. The overcapacity o f the fishing fleet and the occurrence o f El Niiio have resulted in extreme resource volatility and overexploitation o f fisheries o f various species, including anchovies and hake. Economic inefficiencies plague the sector, with vessels remaining idle for most o f the year and the sector absorbing a substantial amount o f capital to service i t s heavy debts. Additional issues that should be tackled to ensure the sustainability o f Peru’s fisheries include (a) negative environmental/ecosystem impacts; (b) weak governance and inadequate oversight, manifested in the existence o f legal loopholes and the granting o f “exceptions” that have allowed the sector’s capacity to grow in spite o f existing regulations limiting such growth; (c) weak accountability and lack o f transparency resulting from the influence o f a powerful lobby and the conflict of interests that stems from PRODUCE’S dual role in environmental oversight and production; and (d) social and equity issues, including the need to develop a domestic market for direct consumption o f species that represent a potential protein source for the poor, and the dissipation and drain o f resource rents that the government might collect from the sector to support other socially desirable goals, such as poverty reduction. 10.24 Continuation o f the existing situation w i l l most likely result in severe overexploitation o f fisheries and the waste o f scarce economic resources that could be used as a platform to develop a more diversified and resilient economy. Recommendations to address the sector’s challenges include (a) immediately exploring options to reduce capacity and effort in the fishing sector; (b) establishing participatory mechanisms to involve key stakeholders in consensus buildingregarding a sustainable fisheries policy; (c) strengthening the sector’s research capacity to support an ecosystems approach to management, including assessing the onset and impact of El Niiio on the anchoveta fishery; (d) establishing a system o f marine protected areas to safeguard critical nursery habitats for threatened species and areas o f high productivity for artisanal fisheries and aquaculture; and (e) rehabilitating the sector’s legal and regulatory framework by closing loopholes and eliminating exceptions in existing laws and regulations, as well as transferringenvironmental oversight and monitoring o f environmental safeguards to an independent agency with authority to issue sanctions. Soil Degradation

10.25 Cultivable land i s a scarce commodity in Peru: arable land amounts to only about 0.155 hectare per capita, one o f the lowest among developing nations. This makes soil erosion, which affects the whole country, a significant challenge. Lack o f updated statistics precludes a robust assessment o f the severity o f the problem. However, data from the 1970s indicated that moderate-to-severe erosion affected 18.9 million hectares in Peru, and light-to-moderate erosion affected another 109.9 million hectares. Different estimates (of which the most recent date from 1986) consistently conclude that soil loss arising from erosion i s over 300,000 hectareslyear. Soil salinity i s also known to affect a significant share o f Peru’s cultivated land. Again, lack o f monitoring makes it impossible to confirm the magnitude o f the current problem, but studies conducted in the 1970s found that salinity affected 69% o f the soils evaluated, and qualitative evidence suggests that the situation has worsened over time. Larson and Strukova (2005) recently estimated that farmers’ lost revenue loss caused by soil erosion and salinization i s between 544 million and 918 million soles per year. While problems associated with land degradation, particularly soil erosion, have worsened over time, they are s t i l l low compared to other countries where similar analyses have been done.

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10.26 Natural factors, including topographic variations and seasonal rains exacerbated by the periodic occurrences o f El Nifio, make the country’s soils vulnerable to erosion. However, these natural causes are aggravated by human activities such as overgrazing, deforestation and poor cultivation practices. Similarly, soil salinity problems are created by a combination o f natural factors, such as the soil’s naturally high levels o f mineral salts, and human activities, such as inefficient irrigation. Concerns regarding soil degradation are deepened by the Peruvian government’s evident and progressive disinvestment over the past 30 years in mechanisms to address the problem. Policy and public management reforms that would help redress this situation include conducting a new national inventory o f soil erosion and salinity, modifying water regulations that fix resource prices below the economic cost o f these resources and contribute to their inefficient use, and carrying out feasibility analyses o f soil conservation investments as a basis for adopting cost-effective conservation measures. Water Resources Management

10.27 Peru i s endowed with abundant water resources. I t has a national average freshwater supply o f almost 60,000 cubic meters per capita, a figure that i s several orders o f magnitude larger than that o f other Latin American countries such as Mexico and Argentina. However, water resources are unevenly distributed throughout the territory, and the largest share o f the population and economic activities are located in the dry coastal region, generating considerable stress on the resource. The agricultural sector consumes the vast majority (86%) o f available water at the national level, a pattern that i s emulated in the coastal region, where 58% o f the country’s irrigation infrastructure i s located. The use o f gravity and flooding irrigation methods, as well as very low irrigation fees whose collection i s problematic, largely explain a l o w water efficiency o f 35%. These factors have also contributed to drainage and salinization problems in the coastal valleys. Historically, water-resources management has focused mainly on sectoral users, in particular i r r i g a t i ~ n ’and ~ ~ water supply infrastructure. Recommendations to address the water sector’s challenges include continued implementation and strengthening o f a comprehensive water-rights system, continued improvements in irrigation practices and effectiveness, promotion o f integrated land and water management, and strengthening nverbasin organizations. Deforestation

10.28

With an estimated 68.74 million hectares o f natural forests covering roughly 35.5% o f

i t s territory, Peru’s forest cover i s the eighth largest in the world and second only to Brazil in Latin America. 99.4% o f the forests are located in the eastern (Oriente) part o f the country, while the Coastal region has been depleted almost entirely from i t s forest cover o f mangroves

and dry and sub-humid forests, and some 300,000 hectares o f forests remain in the Andean highlands. Recent estimates suggest that Peru’s deforestation rate between 1990 and 2000 was roughly 150,000 hectares per year, representing an annual cost o f approximately US$130 million (INRENA, 2005; Elgegren, 2005; Larsen and Strukova, 2006a). Proximate factors leading to deforestation in Peru include slash-and-bum agriculture, large-scale agriculture and forest plantations, narcotics traffickers who clear forests to grow coca and build illegal runways, cattle ranchmg, and the development o f roads and infrastructure. Yet, increasing demand for land and resources, driven by demographic growth, rural poverty rates o f as much as 70%, undervaluation o f the environmental services provided by forests, and policy failures represent some o f the ultimate causes o f deforestation. 10.29 The 1975 Forest and Wildlife Law that governed the forest sector until the year 2000 had serious flaws, including the lack o f recognition o f the needs o f indigenous populations, the granting o f excessively small (1,000 hectares) annual forestry contracts, and the encouragement 133 An Irrigation Strategy was discussed and approved underlining the importance o f the subsector among the authorities. This strategy was used as a basis for the Water Resources Strategy discussions.

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o f an exploitative relationship between small loggers and the timber industry and intermediaries. The new Forestry and Wildlife Law o f 2000 strengthened the sector’s institutional framework by introducing 40-year timber concessions for 5,000 to 50,000 hectares, allocated through transparent public bidding. Among the most important features o f the law are (a) requirements for sustainable management plans based on forest inventories and census, and (b) access rights to forest resources. However, implementation o f the new law has been characterized by inadequate planning and scheduling o f the initial public bidding process; poor mapping o f the concessions, in turn creating access difficulties to concessions and conflicts with concessionaires who argue that they received something different from what they bid for; lengthy delays in administrative processes that make timely harvesting difficult; and inadequate monitoring o f illegal timber trade. One major factor limiting the sector’s development has been the concessionaires’ general lack o f adequate capital; access to credit; or sufficient techmcal, business and forest management experience. Recommendations to address the sector’s challenges include revising the criteria for concession awarding to increase the probability o f successful forestry enterprise development; strengthening institutional capacity, particularly in terms o f monitoring and enforcement capabilities; and fostering the participation in forest management o f subnational governments, indigenous groups and other stakeholders. Biodiversity 10.30 Peru i s recognized as one o f the world’s 12 megadiverse countries, hosting 70% o f the world’s biological diversity and a very large number o f endemic species. Peru’s biological diversity represents a source o f comparative advantage for the development o f commercial species, including the alpaca and vicuiia, Brazil nuts, tropical fish, the peccary (for meat and hide), orchds and medicinal plants. Although these species may not have the same commercial potential as crops such as potato or maize, they constitute the basis for a more diversified agricultural activity that can contribute to the country’s sustained economic growth. Among other conservation efforts, Peru has established 61 natural protected areas that cover 13.74% o f i t s total territory, a relatively high figure compared to other biologically diverse countries in Latin America and other regions. Peru’s biological wealth has attracted much attention from international organizations and nongovernmental organizations (NGOs), which have supported numerous efforts to establish baseline data and monitor biological diversity in different biodiverse or biologically fragile sites. 10.31 While progress has been achieved in the use and conservation o f biodiversity, Peru faces the challenge o f integrating a consistent biodiversity management framework supported at the highest political level. Specifically, there i s a need to guarantee the sustainability o f existing conservation efforts, particularly since current legislation does not assign clear responsibilities to different entities with mandates for biological conservation, and neither does i t foster interagency coordination; the application o f existing regulations and policies i s chronically deficient; there i s limited capacity to properly manage biodiversity at the regonal and local levels; and the country lacks a standardized monitoring system to assess the status of, or changes in, biological diversity. To that end, the CEA recommends strengthening the institutional capacity o f key actors, clearly defining the roles and h c t i o n s o f CONAM, supporting national efforts to value biological diversity and environmental services, building on Peru’s comparative advantage in biological diversity, and refining coordination mechanisms among donor agencies. 10.32 The GoP i s considering addressing the institutional weaknesses that affect the management o f water and biodiversity by establishing two independent and financially sustainable agencies. The first o f these agencies i s a national water authority that has been included in a water resources management bill. This agency would have a mandate for overseeing the allocation o f water rights by Water User Boards and enforcing secondary waterquality standards for parameters such as biological oxygen demand, chemical oxygen demand, PH, iron, manganese and salts. The bill proposes a series o f instruments to financially support the national water authority, including water fees based on the quantity and quality o f water

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assigned to users, as well as pollution charges on parameters regulated by secondary waterquality standards. A second agency would be in charge o f the conservation and use o f biodiversity, including the management o f national parks. Resources to fund the functioning o f this agency would come from PROFONANPE and would be collected through fees charged for entrance to national parks and for the use o f biodiversity. If these reforms come to fruition, INRENA would be redefined as a specialized agency responsible for managing forests and soils. Under this scheme, INRENA would carry out i t s activities through watershed councils and be funded through stumpage fees and taxes on forests or soil degradation.

EnvironmentalAssessment 10.33 The analysis o f existing institutions, policies and programs suggests that current environmental protection efforts can be better aligned with the priorities o f the population or with the most pressing problems associated with the cost o f environmental degradation. The negative impacts o f environmental degradation on human health and decreased productivity now represent the most significant environment-related burden for vulnerable groups and constitute the most significant obstacle for sustainable economic growth. Yet, most institutional efforts have l e f t environmental health programs in second place, a situation that highlights the predominant influence o f the international environmental agenda and tradition in Peru’s environmental priority setting, as well as the need for the development o f more robust accountability and social learning mechanisms within the environment sector. 10.34 Peru’s institutional framework assigns the main regulatory responsibilities for pollution control and environmental management to the environmental units created within each sector’s authority. The Energy and Mining sector spearheaded these efforts by developing sectoral norms based on the use o f Environmental Impact Assessments (EIAs), Environmental Adaptation and Management Plans (PAMAs), and Maximum Permitted L i m i t s (LMSs), and by establishing an independent entity to enforce environmental norms in the electricity and hydrocarbon subsectors. The Ministries o f Production, Transport and Communications, and Housing, Construction, and Sanitation followed suit in establishing specialized environmental units.

10.35 Peru’s sectorized approach to environmental management and pollution control has resulted in wide variation across sectors in the development o f appropriate regulations to safeguard the environment and limited institutional capacity to apply those regulations effectively. Currently, each sectoral ministry i s responsible for defining the EIA process and terms o f reference for environmental impact studies. The result has been a lack o f consistency in the approach, content, timing and requirements o f the EIA legal and regulatory process, which creates a lack o f standardization and uniformity in the project planning and approval process. Ministerial staff are largely inexperienced in EIA, and significant turnover and lack o f financial resources for training have inhibited a response to this situation. Public participation has not played a significant role in project approval, since most consultations are held after major decisions have been made. Furthermore, these consultations usually take place in centralized locations where local interveners cannot participate. Responsibilities for EIA approval, monitoring and compliance are segregated among different entities, while consultants participating in the former are legally impeded from continuing with the latter. T h i s results in a disruption o f the environmental management process and a lack o f enforcement o f EIA commitments and legal standards. Therefore, EIAs have become a bureaucratic obstacle for projects with minimal environmental impacts, while failing to serve as a decisionmalung tool for managing and resolving complex environmental and social issues. 10.36 Peru took an important step toward strengthening the use o f EIA with the April 2001 approval o f the National System for Environmental Impact Assessment. However, to significantly enhance the efficiency o f EIAs, Peru should follow up by developing appropriate

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regulations and institutional efforts. Specific recommendations in t h i s area include the following: (a) Develop uniform standards and terms o f reference for EIA in Peru that are consistent with Peruvian law and international best practice. (b) Conduct an analysis o f the I d s between the EIA and the land-planning process. (c) Develop an EIA guide that incorporates a life-cycle approach to project development with sustainability assessment considerations and long-term public engagement. (d) Revise the current monitoring and follow-up process and broaden enforcement responsibilities to ensure compliance with EIA commitments. (e) Strengthen public participation by developing standardized procedures for the timing o f public consultation from the project’s onset through i t s approval and implementation, incorporating the results o f public consultations into the decision-malung process, disseminating information and making it accessible, providing feedback to participants on the results o f the consultative process, and reimbursing stakeholder costs for attending consultations in centralized locations.

Institutional Analysis 10.37 The set o f environmental and natural resource laws and regulations issued since the 1960s have given place to a complex and unique institutional framework for environmental and natural resource management in Peru. The Constitution o f 1993 established the Peruvians’ right to a safe environment and assigned the property o f all natural resources to the State. Other institutional milestones include the 1990 Code o f Environment and Natural Resources, the establishment in 1994 o f the National Environmental Council (CONAM), the establishment in 1996 o f the Structural Framework for Environmental Management, and the 2004 approval o f the Law o f the National System o f Environmental Management. 10.38 Peru’s model for environmental management i s based on CONAM’s role as a coordinating body with the capacity to propose, manage and evaluate the national environmental policy that i s implemented by environmental units within sectoral ministries. To date, the Peruvian model has evidenced significant weaknesses, including its lack o f capacity to function as an integrated system. In addition, the level o f development o f environmental regulatory frameworks and institutional capacity range widely from one sector to another. Environmental planning has not been incorporated into the hghest policy-making level, despite the economy’s evident reliance on natural resources and the negative impacts o f environmental degradation on economic growth and reduction o f inequality. Although Peru has considerable environmental regulations, they are inadequate for a number o f reasons. First, in many cases, urgently needed regulations do not exist. Second, some regulations are incomplete and lack critical details. Thlrd, some regulations are overly prescriptive and potentially inappropriate for local economic and social circumstances. 10.39 Other institutional constraints include inadequate data on environmental quality and institutional performance; limited and uneven technical capacity in the environmental agencies o f some sectors as well as interest groups that exert excessive influence on environmental authorities; and substandard enforcement, mainly due to the sectors themselves being responsible for enforcing environmental regulations without any independent control. In addition, there i s a weak legal and institutional framework to enforce regulations endowed with appropriate incentives and controls. T h i s fiamework i s even more fragile because o f the existence o f a scant system o f accountability. Accountability institutions like the General Comptroller and the Ombudsperson lack the t e c h c a l and financial capacity to oversee the performance o f environmental institutions. Furthermore, gaps and potential conflicts o f interest affect reporting lines o f public environmental agencies. Additionally, the absence o f timely and reliable information flows, and o f institutionalized spaces for dialogue, hampers the ability o f civil society to provide oversight and channel its voice. 10.40 Sound environmental management and the sustainable use o f natural resources are indispensable for Peru’s sustainable economic growth. Unless these conditions are met, the

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heavy burden o f environmental degradation will continue to constrain the country’s economic rise. Addressing these serious issues requires the systematic incorporation o f environmental priorities at the highest policy-making levels. This w i l l require establishmg strategic and systematic tools for priority setting, and establishing a set o f indicators to monitor the interaction between the environment and the economy. T h i s will also require progress toward meeting environmental goals, changing natural assets and their impact on Peru’s wealth, and strengthening institutions’ capacity to address environmental priorities. Institutionalizing the systematic evaluations o f policy impacts and institutional perfonnance could foster the capacity o f Peru’s environmental system to learn from experience and could create feedback loops promoting institutional improvement and change.

Conclusions 10.41 The highest costs o f environmental degradation in Peru are, in decreasing order o f magnitude, inadequate water supply, sanitation and hygiene; urban air pollution; natural disasters; lead exposure; indoor air pollution; land degradation; deforestation and municipal waste. Combined, these environmental problems cost 8.2 billion soles, or 3.9 percent o f Peru’s GDP. The poor and vulnerable populations bear a disproportionately high amount o f this cost. To address these problems, this report identifies a number o f cost-effective policy interventions that could be adopted in the short and medium t e r m to support sustainable development goals. 10.42 In recent decades, there has been considerable progress in addressing the biodiversity conservation agenda. The high mortality and morbidity rates suggest the need to increase emphasis on environmental health interventions. However, the environmental management agenda has yet to catch up with this shift in priorities to strengthen environmental health programs, because mechanisms in the current institutional structure to signal these changes are not yet in place. Improved monitoring and dissemination o f information on environmental outcomes, assignation o f accountabilities for environmental actions and outcomes, and involvement o f a broad range o f stakeholders are three important mechanisms to allow these signals to be picked up.

The report’s main recommendations are summarized in Table 10.1.

23 8

Table 10.1. M a i n Recommendations o f the Report

Need for strategic and systematic tools for setting priorities

Strengthening environmental institutions

Restructuring environmental assessment

High costs o f environmental degradation associated with lead pollution

Design and implement a policy (through laws and regulations) to set environmental priorities at the national, regional and local levels. This should be based on learning mechanisms to periodically review, and learn from, the experiences o f implementation o f environmental policies. Install and implement systems to monitor and evaluate environmental management and the extent to which the objectives o f environmental priorities are efficiently met. Periodically evaluate progress in implementing policies t o tackle environmental priorities. This should be done with the support o f the collection o f data, results and experiences achieved through intersectoral coordination and learning. Establish leadership and institutional arrangements and capacities t o set priorities in environmental policy design and implementation. Align environmental expenditure with priorities and improve the financial sustainability of environmental agencies. Realign and streamline the institutional setup by filling in institutional gaps, avoiding overlaps, and creating regulatory and enforcement frameworks and capacities. Improve interagency coordination, and plan and build capacity to adequately harness decentralization o f key environmental competencies. Strengthen institutional learning and build the necessary feedback loops t o mainstream improvements and change. Support the technical and financial capacity o f accountability agencies that oversee environmental performance and create an enabling environment for civll society to voice its views, public participation and social accountability. Modify laws and regulations on parameters o f effluent standards so that pathogens, and toxic and hazardous substances are regulated. Develop uniform standards and terms o f reference for EIA. Conduct an analysis o f the links between EIA and the land-planning process. Secure the necessary resources to provide training courses and capacity buildingin EIA. Develop an EIA guide that incorporates a life-cycle approach to project development with sustainability assessment considerations and long-term public engagement. itoring and follow-up process and Revise the current environm broaden enforcement respon Strengthen public participation. Introduce more rigorous approaches to testing vehicle emissions. Control air-pollutant emissions with lead concentrations from stationary sources. Identify other sources o f lead pollution.

239

Reduce health risks associated with ambient air pollution

Reduce health risks associated with inadequate water supply, sanitation and hygiene Morbidity and premature deaths associated with indoor air pollution

Vulnerability to natural disasters

Need for improved management o f water resources

b

*

Establish national ambient standards for PM2.5 and PMlO in priority urban areas and strengthen technology-specific emission standards for P M and its precursors (particularly sulhr and nitrogen oxides). (Cost: Low) Implement a program t o monitor air quality t o keep track o f PM2.5, PMlO and ozone in priority urban areas. (Cost: Modest) Implement air pollution control interventions, including: (a) promoting retrofitting o f diesel-powered vehicles; (b) implementing a program o f testing vehicle exhausts; (c) reducing sulfur content in diesel to less than 500 parts per million, including increasing clean imports o f diesel with low-sulfur content; and (d) emissions control from stationary, mobile and non-point sources. (Cost: Modest to high) Promote handwashing programs that target children under the age o f five. (Cost: Low) Promote safewater programs that include disinfection o f drinking water at pointof-use. (Cost: Low) Promote the use o f cleaner fuels in areas that predominantly use fuelwood in an accessible, safe and cost-effective manner. Implement a program to promote improved stoves. Extend the coverage o f rural electrification programs. Include, in housing subsidy programs for rural low-income housing, requirements for building codes and housing design in poor communities to allow for improved ventilation and optimal chimney design. Establish the reduction o f disaster risk and vulnerability as a national priority. Promote disaster prevention and risk assessment through comprehensive incorporation o f tools at all levels o f government. Support disaster planning in the context o f decentralization. Improve budgetary planning and devote greater financial resources for disaster prevention and planning. Incorporate risk analysis in public investment projects. Foster greater participation in developing disaster plans. Establish a national framework for integrated watershed management. Establish a policy on land-use planning. Manage risks in urban planning and development. Diffuse appropriate and safe construction technologies. Support the Bill of Water Resources Management Continue implementing and strengthening a comprehensive water-rights system. Undertake a benefit-cost analysis o f an alternative system to control wastewater discharge. Design and implement a policy to control water pollution. Promote integrated land and water management. Set water fees equal to opportunity cost o f water. Set water pollution fees for saline discharges. Strengthen river-basin organizations. Strengthen water-users associations Strengthen inter-institutional coordination o f water-resources management. Develop more secure infrastructure and disaster-management systems. Strengthen the decentralization process. Promote stakeholder participation.

240

Biodiversity conservation

Soil degradation

environmental mana ement

Better position forest concessions for success. Improve INRENA through institutional strengthening. Improve mapping, zoning and forest inventories. Provide better control o f illegal logging. Support decentralization o f forest management. Promote more active participation o f stakeholders in forest management. Strengthen technical assistance to the forestry sector. Strengthen international markets. Address land tenure and titling problems in forestry concessions and surrounding areas. Strengthen participation o f indigenous populations. Strengthen institutional capacity o f key actors. Increase resources (financial support and technical assistance) to create an adequate biodiversity monitoring system, including ago-biodiversity. Build on Peru’s ‘comparative advantage’ in biological diversity, including a g o biodiversity. Speed up the process o f review and approval o f C O N A M roles and functions. Strengthen GoP efforts to disseminate biological technical knowledge and training. Support national efforts to value biological diversity and environmental services. Refine the coordination mechanisms among donor agencies. Conduct new national inventories o f soil erosion and soil salinity. Revise the 1969 Water Law t o authorize flexible charges for water use. Strengthen institutional capacity t o address soil degradation. Broaden responsibilities o f INADE. Conduct comprehensive feasibility analysis o f soil-conservation investments. Establish participatory mechanisms to involve key stakeholders in the sector’s decision making. Initiate a process in the short run to consider options to reduce capacity and effort in the fishing sector. Issue environmental quality standards and maximum permissible limits Strengthen the sector’s research capacity to assess the impact o f El Niilo events on the anchoveta fishery. Initiate a system o f Marine Protected Areas. Rehabilitate the sector’s legal and regulatory framework. Develop policies to operate effective regional waste disposal sites. Establish and enforce regulations to segregate and treat hazardous wastes.

24 1

ANNEX 1: TECHNICAL SUMMARY OF THE COST OF ENVIRONMENTAL DEGRADATION Outdoor Air Pollution and Lead Exposure Particulate Matter

Particulate matter (PM) i s the outdoor air pollutant that has most often shown the strongest association with health effects; this i s especially the case for particulates that are 10 microns in diameter (PM10) or smaller (Ostro, 1994). Research in the United States in the 1990s and, more recently, by Pope et al. (2002) provides strong evidence that even smaller particulates (PM2.5) have the largest health effects. Therefore, the focus o f this report i s PMlO and PM2.5. Only Lima monitors PM. Annual average ambient concentrations are presented on Table Al. 1 Table Al.l. Annual Average Concentrations of TSP and PM2.5 in Lima-Calla0 (pg/m3)

Source: DIGESA (2005)

The total population o f other cities with more than 100 thousand inhabitants i s about 4.5 million. None o f these cities has P M monitoring data. However, excluding them from estimating the health impacts o f urban outdoor air pollution would represent a serious omission. Therefore, annual average P M levels were assigned to these cities based on World Bank modeling o f annual average PMlO concentrations (Table A l .2).13’ The risk ratios or dose response coefficients from Pope et al. (2002) are likely the best available evidence o f the mortality effects o f ambient particulate pollution (PM2.5) in the world today. Pope et al. (2002) found a statistically significant relationship between levels o f PM2.5 and all-cause mortality, cardiopulmonary mortality, and lung cancer in the United States, using data on more than 1 million individuals over a 16-year period (Table Al.3). The share o f cardiopulmonary and lung cancer deaths in total mortality sometimes varies substantially across countries. Therefore, when the risk ratios are applied to countries other than the United States, it may reasonably be expected that the risk ratios for cardiopulmonary and lung cancer mortality provide more reliable estimates o f mortality from PM2.5 than the risk ratio for all-cause mortality. Consequently, this report uses these risk ratios to estimate mortality from PM2.5 in Peru.

134 13’

Data on PMlO were not officially presented b y DIGESA. www.worldbank.org/nipr/Atriudmapping.html.url

242

Table A1.2. PMlO Estimates and Population in M a j o r Cities in Peru

I

Arequipa Ayacucho Cajamarca Chiclavo Chimbote cuzco Huancayo Ica Iauitos Juliaca Piura Pucallpa Sullana Tacna Trujillo

I

Average annual PMlO concentration, pg/m3 96 66 61

I

I

Population, 2002 680 119 119 494 253 305 322 206 215 190 355 233 191 234 620

54

45 77 68 64 40 81 69 .. 58 64 77 55

~~~

Adjusted Relative Risk Ratios (RR) Cause o f Mortality All-cause

Cardiopulmonary Lung cancer All other causes

1979-1983

1999-2000

Average

1.04 1.06 1.08 1.01

1.06 1.08 1.13 1.01

1.06 1.09 1.14 1.01

To estimate mortality from urban air pollution in Peruvian cities, baseline data on cardiopulmonary and lung cancer deaths are required. For Lima-Callao, estimates o f cardiopulmonary and lung cancer mortality are based on Gonzales (2004) and PAHO (2002), as presented in Table Al.4. The high rate in Centro results from the large number o f elderly in thls section o f the city. The overall estimated crude mortality rate for Lima-Calla0 i s 4.0, and the cardiopulmonary and lung cancer share i s 35 percent. The data in Table A l . 4 may represent an underestimate o f mortality in some sections due to underreporting. For other cities, a crude urban mortality rate o f 5.5 per 1,000 was applied (Peru en numeros, 2003), along with an average cardiopulmonary and lung cancer mortality rate o f 30 percent o f total deaths. Table A1.4. Crude Death Rate and Cardiopulmonary Mortality in Lima-Callao

I

Monitoringsites Cardiopulmonary (CP) and Lung Cancer (LC) mortality (per 1,000 population)

1

Este

,o

I

Sur

1.1

I

Norte

1.1

I Centro I Callao I 2.6

1.1

There i s an absence o f chronic bronchitis (CB) incidence data for Peru. Consequently, the rate from WHO (2001) and Shibuya et al. (2001) for the AMRO D region o f WHO (of which Peru i s part) i s applied to estimate C B cases from P M pollution, using a dose-response coefficient from Abbey (1995), i.e., a 0.9 percent increase in C B per 1 pg/m3increase in PMlO. Other morbidity health endpoints considered are hospital admissions o f patients with respiratory problems, emergency room visits (or hospital outpatient visits), restricted activity days, lowerrespiratory infections in children and respiratory symptoms. These are the most common health

243

endpoints considered in most worldwide studies on air pollution. In the absence o f incidence data for Peru, the coefficients are expressed as cases per 100,000. It would be preferable to have incidence data and use coefficients that reflect percentage change in incidence. Increases in asthma attacks among asthmatics have been related to air pollution in many studies. However, this requires data on the percentage o f the population that are asthmatic and on the frequency of asthma attacks, which i s not readily available for Peru. The health effects o f air pollution can be converted to disability adjusted life years (DALYs) to facilitate a comparison to health effects from other environmental risk factors. DALYs per 10 thousand cases o f various health endpoints are presented in Table A1.5.

DALYs lost per 10,000 cases

Health Effect

75,000 22,000 160 45 3 65 0.75

Mortality Chronic Bronchitis (adults) Respiratory hospital admissions Emergency Room visits Restricted activity days (adults) Lower respiratory illness in children Respiratory symptoms (adults)

Table A1.6 presents the disability weights and average duration o f illness that have been used in this report to calculate DALYs. The weights for lower respiratory illness (LN) and chronic bronchitis (CB) are disability weights for the region o f Latin America presented by the US National Institutes o f Health.'36 Disability weights for the other morbidity endpoints are not readily available and are estimates by Larsen (2004a), based on weights for other comparable i l l n e ~ s e s . ' Average ~~ duration o f CB i s estimated based on age distribution in Peru and agespecific C B incidence in Shibuya et al. (2001). Years lost to premature mortality from air pollution i s estimated from age-specific mortality data for cardiopulmonary and lung cancer deaths, and have been discounted at 3 percent per year. Average duration o f illness for the other health endpoints i s from Larsen (2004a).

Mortality Lower respiratory Illness - Children

Respiratory Symptoms - Adults RestrictedActivity Days - Adults

& Hospital Admissions Chronic Bronchitis

1.o 0.28 0.05 0.10 0.30 0.40 0.20

(7.5 years lost) 10 days 0.5 days 1 day 5 days 14 days* 20 years

Table A1.7 provides the baseline data used to estimate the cost per case o f illness and total cost o f outdoor air pollution (PM). Some o f these data require explanation. The value o f time for adults i s based on urban wages. Economists commonly apply a range o f 50-100 percent o f wage rates to reflect the value o f time. The rate o f 30 soles per day i s an average urban wage in Peru. Seventy-five percent o f this rate has been applied for both income-earning and non-income-earning individuals. There are two reasons for applying the rate to non13' 13'

See: httr,://www.fic.nih.gov/dcvv/weiahts.xls The disability weight for mortality i s 1.O.

244

income-earning individuals. First, most non-income-earning adult individuals provide a household function that has a value. Second, there i s an opportunity cost to the time o f nonincome-earning individuals, because they could choose to join the paid labor force.'38 There i s very little information about the frequency o f doctor visits, emergency visits, and hospitalization for CB patients in any country in the world. Schulman et al. (2001) and Niederman et al. (1999) provide some information on this from the United States and Europe.'39 Figures derived from these studies have been applied to Peru. Estimated lost work days per year i s based on frequency o f estimated medical treatment plus an additional seven days for each hospitalization and one extra day for each doctor and emergency visit. These days are added to reflect time needed for recovery from illness. To estimate the cost o f a new case o f CB, the medical cost and value of time losses have been discounted over a 20-year duration o f illness. An annual real increase o f two percent in medical cost and value o f time has been applied to reflect an average expected increase in annual labor productivity and real wages. The costs are discounted at three percent per year, a rate commonly applied by WHO for health effects. Table A1.7. Baseline Data for Cost Estimation Cost Data for All Health Endpoints Cost o f hospitalization (soles per day) Cost o f emergency visit (soles) - urban Cost o f doctor visit (soles) (mainly private doctors) -

Value o f time lost to illness (soles per day) Chronic Bronchitis (CB) Average duration o f Illness (years) Percent o f C B patients being hospitalized per year Average length o f hospitalization (days) Average number o f doctor visits per C B patient per vear

I

Baseline

1 Source

300 150

Per consultations with medical service providers and health authorities

22.5

75% o f urban wages in Peru

20 1.5% 10 1

Based on Shibuya et al. (2001) From Schulman et al. (2001) and Niederman et al. (1999)

Percent o f C B patients with an emergency doctorkospital outpatient visit per year Estimated lost work days (including household work days) per year per C B patient

15%

Annual real increases in economic cost o f health services and value o f time (real wages) Annual discount rate

2%

Estimated based on frequency o f doctor visits, emergency visits and hospitalization Estimate

3yo

Applied by WHO for health

Hospital Admissions Average length o f hospitalization (days) Average number o f days lost t o illness (after hospitalization) Emergency Room Visits Average number o f days lost t o illness

2.6

6 4

effects

Estimates

2

Restricted Activity Days Average number o f days o f illness (per 10 cases)

2.5

Lower Respiratory Illness in Children Number o f doctor visits Total time o f care giving by adult (days)

1 1

Estimated at 1-2 hours per day

13' Some may argue that the value o f time based on wage rates should be adjusted by the unemploymentrate to reflect the probability o f obtaining paid work. '39 CB i s a major component o f COPD, which i s the focus o f the referenced studies.

245

Lead Exposure A significant amount o f lead was found in gasoline in Peru in the 1990s (0.75 dl),and unleaded gasoline accounted for only 25 percent o f gasoline consumption in 1996 (Lovei, 1998). In 1993, the Peruvian Ministry o f Health reported that the monthly average lead concentration in the air in Lima was 2.1-2.6 pdm3from April to June, and 1.5 pdm3from July to December. These concentrations by far exceeded the annual maximum limit o f 0.5 @m3 (Jacoby, 1998). The Government o f Peru subsequently adopted a gradual phaseout o f lead in gasoline. Since 1998, the lead content was progressively reduced (D.S. No. 019-98-MTC), and D.S. No. 034-2003-MTC orders a complete elimination o f lead in gasoline. The Government policy has already brought significant improvements. Table A l . 8 presents lead concentration in Lima-Calla0 for the period 2000-2004. Although lead concentrations in the air are now quite low, health effects o f lead exposure can s t i l l be quite substantial. Lead has accumulated in soil and water, and lead exposure can come from multiple sources such as industry, water, paint, and food. Table A1.8. Ambient Lead (Pb) Concentrations in Lima-Callao (pg/m3) Year

2000 2001

I

I I

2002 2003 2004 Average

I

Calla0

0.089 0.072

---

0.193 0.180 0.13

I

I I

South I

I I

0.100 0.116

0.290 0.279

I

I I

0.192

0.090

1

North

0.184

I

0.182 0.13

_--

0.213 0.24

I

East

0.187 0.170

I

I I

Center

0.281 0.324

0.186

---

0.242

0.214

0.208 0.20

I

0.362 0.30

Three major studies have analyzed blood lead levels (BLLs) in Peru. A study o f more than 2,000 children and nearly 900 women in Lima-Callao was conducted in 1998 (Espinoza et al., 2003). A study o f BLLs in 360 adults in the cities o f Lima, Huancayo, L a Oroya, and Yaupi was conducted in 1994-1995 (Ramirez et al., 1997). In addition, a study o f 40 children in Lima was conducted in 1995 (Jacoby, 1998). Table A1.9 presents the results from the study by Espinoza et al., (2003). This i s the most recent study, and it i s likely to be closer to the situation today than the other two studies. The weighted average BLL in Espinoza et al. (2003) was 7.1 pddl in children and 3.3 pddl in adults.'40 The three studies o f BLL in Peru are all from urban areas. Therefore, the estimation of health effects presented in this report i s limited to cities with a population o f over 100 thousand inhabitants. The total population in these cities i s almost 12.5 milli~n.'~' Fewtrell et al. (2003) provide a practical methodology to estimate the health effects of lead pollution. Using a lognormal distribution o f average BLL and standard deviations from available studies, the model provides an estimate o f the population shares with different BLLs. Health effects are then estimated by applying dose-response coefficients from the international literature to observed levels o f BLL. The estimated population BLL i s presented in Table A1.lO, based on adjustment o f -40 percent to BLL from Espinoza et al. (2003) to reflect declining Pb air pollution, a l o w and hgh standard deviation, and a lognormal distribution o f BLL.'42The low and high cases correspond to the l o w and high standard deviation. 140 Samples from some highly contaminated areas are not included for calculation o f average BLL in order to provide a more representative picture o f the urban population. 14' The estimated health effects o f particulate matter (PM) are also limited to these cities. This makes i t possible to compare the cost o f lead and particulate pollution. 14* A low and high standard deviation was estimated based o n the standard deviation reported in Espinoza et al.

246

I

I I 1

Table A1.9. Blood Lead Levels in Children and Women in Lima-Callao in 1998 Sample Size

Average BLL (pg/dl)

Sample Standard Deviation

Children

40 44 60 72 75 84 103 119 138

5.29 5.54 10.54 5.80 7.54 5.91 6.24 6.64 9.39

6.94 2.89 7.43 2.89 4.26 1.82 2.56 2.66 3.89

166 185

8.68 6.72

4.44 4.27

200 206 213

6.37 6.64 8.44

4.14 6.99 5.56

203 202

3.77 4.13

2.03 2.85

Table A1.10 Estimated Population with Elevated Blood Lead Levels Low Case

Population (1,000s) % in this age group Mean BLL Standard deviation Potwlation share with BLL 5-1 0 uddl Population share with BLL 10-15 p d d l Population share with BLL 15-20 pgldl

Total

Age groups

population*

0 to 4

5 to 14

15+

12,500 100%

1,250 10% 4.3 2.48 0.26 0.09 0.04

2,561 20% 4.3 2.48 0.26 0.09 0.04

8,689 70% 2.0 1.33 0.00 0.00 0.00

0.001 0.001 0.44

0.001 0.001 0.44

0.00

Population share with BLL 270 pgldl Population share with BLL 180 pgldl TOTAL PoDulation share with BLL > 5 uddl

(2003) and the adjustment in BLL to reflect lower Pb air pollution now than at the time o f the Espinoza et al. study in 1998.

247

High Case

Oto4

I

Population (1,000s) 12,500 % in this age group 100% Mean BLL Standard deviation Pomlation share with B L L 5-10 uddl Population share with B L L 10-15 pgldl Population share with BLL 15-20 addl Population share with BLL > 20 pgldl Population share with B L L 160 pgldl Population share with B L L 270 pgldl Population share with B L L 280 addl TOTAL Population share with BLL > 5 pg/dl

1,250 10% 4.3 4.06 0.18 0.09 0.05 0.14 0.03 0.02 0.02 0.46

I

Age groups 5to14

2,561 20% 4.3 4.06 0.18 0.09 0.05 0.14 0.03 0.02 0.02 0.46

I

15+

8,689 70% 2.0 2.17 0.10 0.01 0.00 0.00 0.00 0.00 0.00 0.11

With the population BLLs in Table A1.lo, reduced intelligence in children i s the main health effects o f Pb. Studies have found an average loss o f 1.3 I Q points per 5 pgldl BLL in children. Fewtrell et al. (2003) apply a lower threshold o f 5 pgldl BLL below which no I Q loss occurs, and an upper threshold o f 20 pgldl BLL above which no further I Q losses are expected (i.e., a loss o f about 3.5 I Q points for BLL > 20 ~ g / d l ) . 'For ~ ~ some children, an I Q loss w i l l cause mild mental retardation (MMR), occurring at an I Q o f 50-70 points. Thus, children with an I Q o f 70-73.5 points are at risk o f MMR from lead exposure (Figure A1.1). Following the assumption o f a normal distribution o f I Q in the population, i t i s possible to estimate the number o f children with MMR from lead exposure by estimating the number o f children with IQs o f 70-73.5 points (Table Al.11). Figure Al.l. Mild Mental Retardation (MMR)from Lead Induced I Q Loss

I

Source: Fewtrell et al. (2003)

Table A l . l l . Children at Risk of MMR IQ Interval I(1): I(2): I(3): I(4):

Percent of Children in IQ Interval

70-70.65 70-71.95 70-73.25 70-73.50

0.24% 0.80% 1.45% 1.59%

143 Fewtrell et al. (2003) apply a linear relationship through the midpoint o f each 5 pg/di BLL interval, with a maximum loss of 3.5 IQ points.

248

i=l

* IQ(i)* P / 5

where Pi i s the population share o f children with an I Q loss o f IQ(i) per chld, IQ(i) i s the loss per child ranging from 0.65 points for I Q (1) to 3.5 points for IQ(4), and P i s the population o f children under the age o f five years.'44 The number o f children developing MMR each year from lead exposure i s estimated as follows: ;=A

*I(i)*A/5

i=l

where Pi i s the population share o f children with an I Q loss o f IQ(i) per child, I(ii) s percent o f children in I Q interval i=l,. ..,4 in Table A l . l l , and A i s a regional adjustment factor o f 2.6 for the WHO region o f AMRO D to which Peru be10ngs.I~~

Water, Sanitation, and Hygiene Table A2.1 presents key data that were used to estimate the health effects o f inadequate water supply, sanitation, and hygiene in Peru. The table also presents disability-adjusted life years (DALYs) per cases o f diarrheal illness, which are used to estimate the number o f DALYs lost. The disability weight for diarrheal morbidity i s 0.1 19 for c h l d r e n under five and 0.086 for the rest o f the population, and the duration o f illness i s assumed to be the same (i.e., 3 - 4 days). However, the DALYs per 100,000 cases o f diarrheal illness are much higher for the population over five years o f age. T h i s i s because DALY calculations involve age weighting that attaches a low weight to young children and a higher weight to adults that corresponds to physical and mental development For diarrheal child mortality, the number o f DALYs i s 34. This reflects an annual discount rate o f three percent o f life years lost. Baseline data for estimating the cost o f morbidity are presented in Table A2.2. The value o f time for adults i s based on national average wages. Economists commonly apply a range o f 50-100 percent o f average urban and rural wage rates to reflect the value o f time. The hourly rate o f 2.6 Sf, or about 21 soles per day, reflects around 75 percent o f the average weighted wage in Peru.'47 These rates for value o f time are applied to both income-earning and non-income-earning adults. There are two reasons for applying the rates to non-income-earning adults. First, most non-income-earning adults provide a household function that has a value. Second, there i s an opportunity cost to the time o f nonworking individuals, because they could choose to join the paid labor force.'48

144 Since this report provides estimates of annual health effects, the population o f children i s divided by 5 (see notes in Table 3.2.2). 145 The adjustment factor reflects regional prevalence of diseases that induce cognitive impairment. Therefore, cases o f MMR ftom exposure to lead are likely to be higher in the regions with high prevalence of these diseases (Fewtrell et al., 2003). 14' I t should be noted that some researchers elect not to use age weighting, or report DALYs with and without age weighting. 14' This corresponds to a daily urban average wage rate of about 30 soles and rural wage rate of 20 soles. 14' Some may argue that the value o f time based on wage rates should be adjusted by the unemploymentrate to reflect the probability of obtainingpaid work.

249

Table A2.1. Data for Estimating Health Impacts

I I Data I Source Under-5 child mortality rate in 2003 Diarrheal mortality in children under 5 years (% o f child mortality) Total annual diarrheal mortality in children under 5 Diarrheal 2-week prevalence in children under 5 years* Estimated annual diarrheal cases per child under 5 years

940-265 0 15.4% 3.2

Estimated annual diarrheal cases per person (> 5 years)

0.46-0.63

Hospitalization rate (% o f all diarrheal cases) - children under 5 years Hospitalization rate (% o f all diarrheal cases) - population over 5 years Percent o f diarrheal cases attributable to inadequate water supply, sanitation and hygiene D A L Y s per 100,000 cases o f diarrhea in children under 5 DALYs per 100,000 cases o f diarrhea in persons > 5 years D A L Y s per case o f diarrheal mortality in children under 5

Ministry o f Health and W H O Ministry o f Health, GBD2002 (WHO)

34 4.613%

Peru DHS 2000 Estimated from Peru D H S 2000 Estimated fYom a combination o f Peru DHS 2000 and Colombia INS Ministry o f Health

0.075% 0.05%

90%

WHO (2002b)

30-40 100-130 34

Estimated from W H O tables

2004 in this report. Diarrheal prevalence according to the DHS 2004 was 15.1%, which i s very similar to the prevalence rate reported in the DHS 2000.

Table A2.2. Data for Cost Estimation of Diarrheal Illness Percent o f diarrheal cases treated at medical facilities (children < 5 years) and with medicines Percent o f diarrheal cases treated with ORS (children < 5 years) Percent o f diarrheal cases treated at medical facilities (population > 5 years) and with medicines

Data

38%

DHS 2000

21%

DHS 2000

27%

Average cost o f doctor visits (urban and rural) - S/. Average cost o f medicines for treatment o f diarrhea - S/. Average cost o f ORS per diarrheal case in children (S/.)

85 50

Average duration o f diarrheal illness in days (children and

3-4

Hours per day o f caregiving per case o f diarrhea in children Hours per day lost to illness per case o f diarrhea in adults Value o f time for adults (care giving and illadults) soleshour Hospitalization rate (% o f all diarrheal cases) - children under 5 years Hospitalization rate (% o f all diarrheal cases) -population nver - . -- 5- vears - __Average length o f hospitalization (days) Time spent on visitation (hours per day) Average cost o f hospitalization (soles per day)

2 2 2.6

Percent o f diarrheal cases attributable to water, sanitation and hygiene

250

3

0.075% 0.05% 2 4 300 90%

1

Source

Estimated from a combination o f

I Colombia data and Peru DHS LUUU

Per consultations with pharmacies, medical service providers and health authorities Assumption Assumption Assumption Based on urban and rural wages in Peru Based on data on intestinal disease hospitalization from the Ministry o f Health Adjusted from Larsen (2004a) Assumption Per consultations with hospitals (WHO, 2002b)

According to the USAID Hand Washing Survey (2004), nearly 70 percent o f households in Peru boil their drinking water either all the time or sometimes. Table A2.3 presents the data used to estimate the annual cost o f boiling drinking water. I t i s assumed that the average daily consumption o f drinking water per person i s 0.5-1 .O liters among households boiling water. Residential cost o f energy i s estimated based on data fiom Peru Statistical Yearbook 2003. The average stove efficiency i s for electric, natural gas, and kerosene. Table A2.3 Data for Cost Estimation of Boiling o f Drinking Water

Indoor Air Pollution Table A3.1 presents key data that were used to estimate the health effects o f indoor air pollution in Peru. The table also presents DALYs per cases o f ARI and COPD, which are used to estimate the number o f DALYs lost. The disability weight for ARI morbidity i s the same for children and adults (i.e., 0.28), and the duration o f illness i s assumed to be the same (i.e., 7 days). However, DALYs per 100,000 cases o f ARI i s much higher for adults. T h i s i s because DALY calculations involve age weighting that attaches a l o w weight to young children, and a higher weight to adults, corresponding to physical and mental development stages.'49 For ARI child mortality, the number o f DALYs lost i s 34. T h i s reflects an annual discount rate o f 3 percent o f l i f e years lost. DALYs lost per case o f COPD morbidity and mortality i s based on life tables and age-specific incidence o f onset o f COPD reported by Shibuya et al. (2001) for the AMRO D region. A disability weight o f 0.2 has been applied to COPD morbidity, which i s for the region o f Latin America as published by the US National Institutes o f Health.'" A discount rate o f 3 percent i s applied to both COPD morbidity and mortality.

'49 I t should be noted that some researchers elect not to use age weighting, or report DALYs with and without age weighting. See: http://w.fic.nih.gov/dcpp/weightshtS.xls

25 1

Table A3.1. Data for EstimatingHealth Impacts

I

I

Urban

Female COPD mortality rate (% of total female deaths) Female COPD incidence rate (per 100,000) ARI 2-week prevalence in children under 5 years Estimated annual cases of ARI per child under 5 years Estimated annual cases o f ARI per adult female (> 30 years) ARI mortalitv in children under 5 years (% of child mortalify) under 5 DALYs per 100,000 cases of ARI in female adults (> 30) DALYs per case o f ARI mortality in children under 5 DALYs per case o f COPD morbidity in adult females DALYs per case of COPD mortality in adult females

1

Data

Source

Rural

WHO (2002a) and Shibuya et al. (2001)

2%

33 19.8% 20.6%

DHS2000*

3.4

3.6

Estimated from DHS 2000

0.6

0.7

Estimated from a combination o f Columbia data and Peru DHS 2000 WHO (2002a) and Ministry of Health, Peru '

12-18%

700

700

34

34

2.25

2.25

6

6

I

Estimated from WHO tables

Annual new cases of ARI and COPD morbidity and mortality (Di) from indoor air pollution from solid fuels were estimated from the following equation:

Di= PAR *D:

(1)

where D : i s baseline cases o f illness or mortality, i(estimated from the data in Table A3.1), and PAR i s given by: PAR = PP*(OR-l)/(PP*(OR-1)+1)

(2)

where PP i s the percentage o f population exposed to solid fuel smoke (10 percent o f the urban and 87 percent o f rural population), and OR i s the odds ratios (or relative risk ratio^).'^' Data used to estimate the cost o f morbidity are presented in Table A3.2. Treatment cost represents private sector healthcare services, as these are likely to better reflect economic cost. Cost o f mortality i s discussed in the last section o f this Annex. Percent o f ARI cases in the age group older than five years treated at medical facilities i s estimated from the percent o f treated cases among children (DHS, 2000) and the ratio o f treated cases among children under five to treated cases among the population above five years o f age. The value o f time for adults i s 75 percent o f urban and rural average hourly wages, which are 3.8 S/. and 2.5 S/., respectively. The rationale for valuation o f time was discussed in the section on water, sanitation, and hygiene, and in the urban air pollution section.

The difference between relative risk ratios and odds ratios i s minimal when disease incidence i s relatively low.

252

I

I

Table A3.2. Data for Cost Estimation Baseline

Source

Urban Rural Percent o f ARI cases treated at medical facilities (children < 5 years) Cost o f medicines for treatment o f acute respiratory illness (population < 5 years) Percent o f ARI cases treated at medical facilities (females > 30 years)

63.6

51.2

30

30

49

46

Peru DHS 2000 Per consultations with pharmacies Estimated from a combination o f Colombia data and Peru DHS 2000 Per consultations with pharmacies Assumption based on Schulman et al. (2001) and Niederman et al. (1999)

Estimated

lost

workdays

(including

household

Estimated based on frequency o f doctor visits, emergency visits, and hospitalization Per consultations with pharmacies, medical service providers and health authorities Assumption Assumption Assumption 75% o f urban and rural wages in Peru Larsen (2004b)

Agricultural Land Degradation An estimated 5.5 million hectares are under cultivation in Peru, o f which about 1.7 million hectares are irrigated, and permanent pasture constitutes nearly 18 million hectares (Peru Statistical Yearbook 2003). There i s a general perception that the Sierra region i s overexploited due to difficulties o f agricultural production on the mountain slopes and improper land use practices, and that major salinity problems occur in the Costa region due to improper irrigation and drainage (Umali, 1993).

Land Area Afected by Salinity There are very few studies o f the extent o f land degradation and how degradation affects agricultural productivity in Peru. No systematic and comprehensive studies have recently been undertaken o f soil salinity levels in the Pacific Regon. Statistics (http://www.inei.gob.pe/) indicate that about 307 thousand hectares in Peru are salt-affected. Figure A4.1 presents salinity-affected areas, which are in bright yellow, and are particularly widespread in the departments o f Piura, Lambayeque, and Ica. In the absence o f precise data, it i s assumed in this report that one-third o f saline lands are abandoned due to their low quality. That means that 350-1000 S/. in annual income i s lost per hectare, reflecting an approximate estimate o f the economic return to cultivated land. On the remaining two-thirds o f salinity-affected lands, it i s assumed that crop yields are reduced by 10-

253

25 percent for cotton and by 15-30 percent for rice due to ~ a l i n i t y . ” ~O f land affected by salinity, an estimated 70 percent i s used for rice cultivation, and 30 percent i s used for cotton cultivation. Figure A4.1. Salinity Affected Land in P e r u

Source: http://www.minag.gob.pe/

Land Area Affected by Erosion

As major studies indicate, the Sierra region i s the most affected by soil erosion. The Peru Statistical Yearbook 2004 indicates that 66 percent o f severely eroded soils are in Sierra. The major reason for soil erosion i s the abandonment o f agricultural terraces. Table A4.1 presents different types o f land use in Sierra (Peru Statistical Yearbook 2003). Table A4.1. Land Use in Sierra Total Area Million

%

39.2

100

Hectares

Arable Land

Million

%

1.3

3

Hectares

Permanent Crops Million %

Hectares

0.02

0

Pastures

Forest

Million

%

10.6

27

Hectares

Million

%

2.1

5

Hectares

Protected Land Million %

Hectares

25.2

64

In the absence o f data about the share o f land area that i s eroded due to agricultural activity, i t i s assumed that 60 percent o f agricultural cropland i s eroded in Sierra (CONAM, 2001). I t i s also assumed that only 45 percent o f cultivated land i s used annually, which corresponds to the share o f land under cultivation in Costa and Sierra from the Peru Statistical Yearbook 2003. The main practice for coping with erosion i s the construction o f terraces (Valdiva, 2002). Valdiva presents yield estimates for potatoes, corn and barley for the Northern (Cajamarca), Central (Lima) and Southern (Cuzco) regions o f Peru with and without terraces (Table A4.2). On average, yield gains from agricultural terraces are 5 4 0 % for potato and corn, which are the major crops in Sierra.

15’ International experience indicates that yields o f cotton start declining if soil salinity exceeds about 7.7 dS/m, and that yields o f rice start declining if salinity exceeds about 3.0 dS/m (FAO, 1998; Kotuby-Amacher et al., 1997; Resources Science Centre, 1997).

254

Table A4.2. Crop Yields in Terraced and Non-Terraced Fields Table 9

I

Average Yields (Kgt'ha) o f M a i n C r o p s m Terraced and Non-Terraced Fields in

Icuzccl crop

Maize

IN

m fields tb I 8312

3038

w

I

i

terraced I AorSc. fields Ministry ( b ) I %her (el) 1020r 21.92 8894 3212 573 1950 ria

na

For Cajamai-ca. 1986 From Treacey (1994)

Source: V a l d i v a (2002)

Overfishing The Peru Fishery Strategy 2003 presents estimates o f total fish catch and fishing fleet in metric tons for 1970-2002. Additional data were obtained from the Ministry o f Production for 2003 and 2004. These data and catch per unit o f fishing fleet (CPUF) are presented in Table A5.1.'53 The fishing fleet declined by 60 percent f r o m 1970 t o the mid-1980s, increased through the 199Os, and i s n o w close to the peak level o f the early 1970s. Over the same period, CPUF reached a l o w in the early 1970s, then a hgh in the late 1980s. In some o f the most recent years, it has been close to the l o w in the 1970s.

153 A conventional measure is catch per unit o f fishing effort, which better reflects fishing fleet utilization and fleet composition. However, reliable data o n fishing effort is not available. Therefore, fishing fleet in metric tons (MT) is used as an indication o f fishing effort.

255

Table A5.1. Fishery Sector Baseline D a t a

* The fish catch in metric tons (MT) presented here i s a weighting o f species, based on relative prices o f “other species” and anchovy. Therefore, the figures are higher than actual tons o f catch, especially in years o f low catch o f anchovy and high catch o f “other species.” Source: Fishery Strategy Sector Note, Republic of Peru, June 2003 The Gordon-Schaefer model (Gordon, 1953; Schaefer, 1954, 1957) i s applied in this report to estimate the relationship between fishing effort (E) and fish catch (Y):

T o avoid colinearity, both sides o f equation (1) were divided by E. T o account for effects o f El Niiio, a dummy variable, X, was introduced for El Niiio years. The resulting model follows:

Fish catch (Y) i s fkom Table A5.1 ,with weighting o f fish species using relative prices o f anchovies and other species. In the absence o f reliable data o n level o f effort (E), fishing fleet in Table A5.1 was applied in equation (2). Estimated parameters are presented in Table A5.2.

256

Table A5.2. Base Case Analysis of Fish Catch per Unit of Fishing Fleet Regression Statistics

I

R’ Adiusted R2 StandardError Observations

0.59 0.56 18.01 I 34

1

Coefficients

Standard Error 9.14 0.0001 3.67

106.17 -0.0003 -12.11

a

b C

t-Stat

p-Value

11.62 -6.15 -3.30

0.00 0.0000 0.00

Lower 95%

Upper 95%

87.54 -0.0005 -19.59

124.80 -0.0002 -4.64

The analysis was repeated for various periods t o check the hypothesis o f regime change The period 1986 t o 2004 demonstrated the best fit. Table A5.3 shows o f the Peru fish the estimated parameters o f the regression. Table A5.3. Best-Fit Case Analysis of Fish Catch per Unit of Fishing Fleet Regression Statistics

Adjusted R Standard Error Observations

11.27 Coefficients

a

b C

123.94 -0.0004 -1 1.48

SE

t-Stat

7.77 0.0001 3.22

15.95 -7.1 -3.56

p-Value

0.00 0.00 0.00

Lower 95%

107.46 -0.0005 -18.31

Upper 95%

140.41 -0.0003 -4.65

The next step i s to estimate total revenue and total cost in the fishery sector. Estimates f r o m Lery et al. (1999) are used to arrive at an average fishing cost o f US$2,400 per unit of fleet. An average unit price o f weighted fish catch o f US$70 per ton was a ~ p 1 i e d . lThese ~~ figures, along with the estimated coefficients in Tables A5.2-A5.3, and equation (1) are applied t o estimate the maximum sustainable, maximum economic, and open access levels o f the fishing fleet. The maximum sustainable point i s the level o f the fishing fleet that gives the highest sustainable fish catch. The maximum economic point i s the level o f fleet that gives the lughest economic profit or economic rent, and the open access point i s the level o f fleet at which economic rent i s zero. Natural Disasters

Unit costs o f disaster impacts are presented in Table A6.1. These estimates are derived f r o m the cost estimates o f the El N i i o presented by Bambaren Alatrista (2002) and Larsen (2004b). However, it should b e recognized that there i s uncertainty as t o the accuracy o f applying these unit costs to disasters such as floods, storms, and landslides. An improvement in the estimates would require a comprehensive assessment o f the cost o f damages across Peru. lS4 Sudden and permanent shift in maximum sustainable yield (MSY), maximum economic yield (MEY) and open access yield (OAY). Is’ Price o f fish catch as raw material for fishmeal production in 2004 (personal communication with consultant Luz Pisua).

257

Table A6.1. Unit Costs Applied to Frequently Occurring Disasters Estimated Unit Cost (Thousand Soles)

Homes destroyed 40 Homes affected 20 3 Hectares destroyed Roads destroyed, affected 160 Railroads destroyed, affected 1,150 J 1,600

Valuation of Mortality Two distinct methods o f valuation o f mortality are commonly used by economists to estimate the social cost o f premature death, i.e., the human capital approach (HCA) and the value o f statistical l i f e (VSL). The first method was dominant in the past. However, the VSL approach has increasingly replaced the H C A method in the last couple o f decades. In this report, the H C A has been applied as a lower bound and VSL as a higher bound in estimating the cost o f adult mortality. For child mortality, the H C A has been applied. Human Capital Approach According to the HCA, the social cost o f mortality i s the discounted loss in future income o f an individual from the time o f death. If mortality risk i s evenly distributed across income groups, average expected future income i s applied to calculate the social cost o f death. The present value o f lost future income i s expressed as follows: i=n

PV,(I)=CI,(l+g)’/(l+r)’

(1)

i=k

where PVo (I) i s present value o f income (Iin ) year 0 (year o f death), g i s annual growth in real income, and r i s the discount rate (rate o f time preference). As can be seen from (l), the equation allows for income to start fiom year k, and end in year n. In the case o f children, i g (20, ...,65}, assuming the lifetime income on average starts at age 20 and ends at retirement at age 65. In this report, an annual growth o f real income o f two percent and a discount rate of three percent have been applied to Peru. The estimated cost o f mortality in Peru, based on HCA, i s presented in Table A7.1. Average annual income i s approximated by GDP per capita, corresponding to around 7790 S/. per year. The estimates are fiom equation (1). Table A7.1. Cost of Mortality (per Death) Using HCA

Adults Mortality from Urban Air Pollution Mortality from Indoor Air Pollution Mortality from Lead Exposure Mortality from Natural Disasters* Children Mortality from Indoor Air Pollution Mortality from Diarrheal Illness

1 Average Number o f Years Lost 1

Thousand SI.

7.5 6 10 40

58 47 78 260

65 65

24 1 24 1

258

Value of Statistical Life

While the H C A involves valuation o f the death o f an individual, VSL i s based on valuation o f mortality risk. Everyone in society i s constantly facing a certain risk o f dying. Examples o f such risks are occupational fatality risk, risk o f traffic accident fatality, and environmental mortality risks. I t has been observed that individuals adjust their behavior and decisions in relation to such risks. For instance, individuals demand a higher wage (a wage premium) for a job that involves a higher than average occupational risk o f fatal accident, individuals may purchase safety equipment to reduce the risk o f death, and/or individuals and families may be willing to pay a premium or higher rent for properties (land and buildings) in a cleaner and less polluted neighborhood or city. Through the observation o f individuals’ choices and willingness to pay for reducing mortality risk (or minimum amounts that individuals require to accept a higher mortality risk), it i s possible to measure or estimate the value to society o f reducing mortality risk, or, equivalently, measure the social cost o f a particular mortality risk. For instance, it may be observed that a certain health hazard has a mortality risk o f 1/10.000. T h i s means that one individual dies every year (on average) for every 10,000 individuals. If each individual on average i s willing to pay 10 soles per year for eliminating this mortality risk, then every 10,000 individuals are collectively willing to pay 100,000 soles per year. T h i s amount i s the VSL. Mathematically, i t can be expressed as follows:

where WTPAv, i s the average willingness-to-pay (soles per year) per individual for a mortality risk reduction o f magnitude R. In the illustration above, R=1/10,000 (or R=O.OOOl) and WTPA,, = 10 soles. Thus, if 10 individuals die each year from the health risk illustrated above, the cost to society i s 10* VSL = 10*100,000 soles = 1 million soles. Mrozek and Taylor (2002) provide a meta-analysis o f V S L estimates from labor market studies from around the world. They identify a “best-practice” sample and control for industry characteristics other than occupational mortality risk that also affect inter-industry wage differentials. The study concludes that a range for V S L o f US$1.5-2.5 million can be reasonably inferredfrom labor market studies when “best-practice” assumptions are invoked. The VSL range inferred by Mrozek and Taylor i s substantially lower than average V S L estimated in other meta-analyses. Some o f these studies identify a mean VSL o f approximately US$6 million. However, the contribution by Mrozek and Taylor to the meta-analysis literature i s their careful assessment o f a large sample o f VSL estimates and inclusion o f industry control variables to better assess wage differentials associated with mortality risk. Beneft Transfer There are no studies o f VSL conducted in Peru. T h i s implies that values have to be transferred from studies in other countries. The overwhelming majority o f VSL studies have been conducted in countries with substantially higher income levels than Peru. Therefore, V S L estimates from these countries must be adjusted to Peru. One commonly used approach in benefit transfer i s to apply income e1a~ticities.l~~ Viscusi and Aldi (2002) estimate an income elasticity o f VSL in the range o f 0.5-0.6 from a large sample o f VSL studies. However, the range in income elasticity i s influenced by three unusually high estimates o f V S L that are based on labor market data fkom one state in India. Leaving out these three studies provides an income elasticity o f about 0.80. The most appropriate income elasticity to apply to middle-income countries, such as Peru, remains uncertain. T h i s is because the income level in Peru falls far outside the range o f income in the sample o f countries from which the income elasticities o f VSL i s estimated in the The income elasticity i s the percentage change in VSL per percentage change in income.

259

empirical literature. A prudent approach might be to apply an elasticity o f 1.O in order to reduce the risk o f overstating the cost o f mortality in Peru. Table A7.2 presents the VSL for Peru from benefit transfer, based on the range o f VSL reported by Mrozek and Taylor (2002) and an income elasticity o f 1.0. These figures are substantially higher than the ones from the HCA, especially for adult mortality from urban air pollution, indoor air pollution and lead exposure. A comparison i s presented in Table A7.3.

Table A7.2. Estimated Value of Statistical Life in Peru High

Average VSL in high-income countries (million US$) Average GDPkapita in high-income countries (US$) GDP per capita in Peru (US$in 2003) Income elasticity Estimated VSL in Peru (thousand soles)**

2.5 30 000 2226 1.o 650

I

Low

1.5 30 000 2226 1.o 390

I

Source Mrozek and Taylor (2002) World Bank* httv:Nwww.inei.gob.ve Benefit transfer

Table A7.3. Comparison of HCA and VSL Estimates Applied to Peru Ratio of VSL/HCA* Adults Mortality from Urban Air Pollution Mortality from Indoor Air Pollution Mortality from Lead Exposure Mortality from Natural Disasters

8.9 11 6.7 2

Mortality from Indoor Air Pollution Mortality from Diarrheal Illness

2.15 2.15

260

ANNEX 2: TECHNICAL SUMMARY OF THE COST-BENEFIT ANALYSIS’57 W a t e r Supply, Sanitation, and Hygiene Pruss et al. (2002) provide a framework for estimating the burden o f disease f r o m water, sanitation, and hygiene (Table A2.1). Pruss et al. applied this framework t o estimate the global burden o f diarrheal disease, but it can also conveniently b e adapted to estimate the benefits and costs o f improved water supply and sanitation.

Table A2.1. Selected Exposure Scenarios

I

Ideal situation, corresponding to the absence o f transmission o f diarrheal disease through water, sanitation, and hygiene

Low

Fewtrell and Colford (2004) provide a meta-analysis o f studies o f the effectiveness o f water supply, sanitation, and hygiene interventions in reducing diarrheal illness (Table A2.2). The health benefit o f improved water supply and sanitation i s roughly in line with Esrey et al. (1991)?* The single most effective hygiene intervention i s handwashing after defecation, before preparing meals and before eating. The health benefit o f handwashing found by Fewtrell and Colford i s similar t o the finding by Curtis and Cairncross (2003). The studies o f sourcewater treatment reviewed by Fewtrell and Colford are not conclusive, suggesting a mean reduction in diarrheal illness o f 11 percent, but with n o statistical significance. In contrast, point-of-use drinking water treatment (i.e., household drinking water treatment) i s found t o be very effective in reducing diarrheal illness. The results from Fewtrell and Colford are used t o evaluate the costs and benefits o f water, sanitation, and hygiene interventions in t h i s report. Components o f costs and benefits are presented in Table A2.3. This annex i s based on the report by Larsen and Strukova (2006). Improved water supply refers to house connection, standpipes, boreholes, protected wells, or springs, and collected rainwater. Unimproved water supply includes unprotected wells or springs, open surface water and rivers, and water provided by vendor or tanker trucks. Improved sanitation refers to facilities for safe and hygienic removal o f excreta, such as flush toilets, pour-flush latrines, ventilated improved pit latrines (VIP) and simple pit latrines. Unimproved sanitation i s open pit latrines, public latrines, service or bucket latrines, and the absence of any facilities. 15’

15*

26 1

Table A2.2. Effectiveness o f Interventions to Reduce DiarrhealIllness

Source: Summarized from Fewtrell and Colford (2004)

Table A2.3. Components of Costs and Benefits Interventions

costs

Benefits

Improved water supply and improved sanitation Handwashingpromotion program (protection o f child health and adult health) Drinking water disinfection promotion program

Construction (capital cost), operation, and maintenance Promotionprogram, soap, and water

Reduced diarrheal disease and householdtimesavings Reduced diarrheal disease

Promotionprogram and energy for boiling water

Reduced diarrheal disease

Water and Sanitation Infrastructure Programs

In rural areas o f Peru, half o f the population does not have improved sanitation facilities, and 40 percent rely on open water sources (Table A2.4). Estimated diarrheal incidence in the rural population i s presented in Table A2.5 for five categories o f households, using an adaptation o f Pruss et al. (2002). This i s estimated by applying the relative risks (RR) from Fewtrell and Colford, average rural incidence o f diarrheal illness from the Peru DHS 2000, and household water supply and sanitation coverage rates from the Peru DHS 2000.159Estimated incidence i s three times higher in households without improved water supply and sanitation than in households with piped water supply and improved sanitation that practice point-of-use disinfection such as boiling o f drinking water.

Table A2.4. Water Supply and Sanitation in Peru (Percentage of Households) No sanitation Pit toilevlatrine Flush toilet Piped water supply Well water Surface water (river, open spring) Tanker truck Other

Urban

Rural

8 16 76 88 4 1 4 3

51 41 8 46 12 40 1 1

15' Annual incidence o f diarrheal illness in children under 5 years o f age i s derived from the Peru DHS 2000 household survey. Annual incidence for the population over 5 years o f age i s derived from international evidence of the ratio o f incidence in children under 5 and population over 5 years o f age. No survey i s available for Peru that provides diarrheal prevalence or incidence for the population over 5 years o f age.

262

Table A 2 5 Estimated Annual Cases o f Diarrheal Illness per Person in Rural Peru Household Water Supply and Sanitation Situation

(1) Unimproved water supply and unimproved sanitation (2) Improved water supply but unimprovedsanitation (3) Improved sanitation but unimproved water supply (4) Improved sanitation and water supply piped to household (no source treatment) (5) Improved sanitation and water supply piped to household (source treatment)

Diarrheal Incidence per Without

With

Disinfection 1.98

Disinfection**

1.48 1.34 1.21

1.05 0.78 0.71 0.64

1.08

0.64

Hygiene Programs Hygiene refers to a procedure or system o f procedures or activities used to reduce microbial contamination on environmental sites and surfaces in order to prevent the transmission o f infectious disease (IFH, 2001). The single most effective hygiene intervention i s improved handwashing, particularly for mothers or caretakers o f young chlldren, and i s found to reduce diarrheal illness on average by as much as 45 percent (Curtis and Cairncross, 2003; Fewtrell and Colford, 2004). Therefore, the evaluation o f benefits and costs o f hygiene improvement focuses on handwashing promotion. A behavioral study o f handwashing practices was carried out in Peru in 2004 in periurban and rural households with young children (Prisma, 2004). The socio-economic status of the households was generally lower than the national average. Some results o f the study are presented in Table A2.6, suggesting there i s substantial scope for improvement in handwashing behavior. Key parameters and outcomes central to a costbenefit analysis o f handwashing are presented in Table A2.7. The most uncertain and critical parameter i s the effectiveness o f the handwashing program in terms o f changing household and individual behavior, and the lasting effect o f changed behavior (sustainability). T h i s i s likely dependent on several dimensions and will vary from country to country. I t will also depend on the design, duration, and overall magnitude o f the handwashing program.

Table A2.6. Handwashing Behavior in Select Households in Peru

Source: Reproduced from Florez (2005)

263

Table A2.7. Key Parameters and Outcomes in a Benefit-Cost Analysis o f Handwashing Key Parameters

Outcomes

Program cost Program effectiveness Program sustainability Private cost

Overall cost o f handwashing program Percent o f target population that improves or starts regular handwashing The lasting effect o f the program Costs o f handwashing in the group with behavioral change (increased water and soap expenditures) Percent reduction in diarrheal illness from handwashing in group with behavioral change, and monetized benefits o f reduced diarrheal illness

Program benefits

Three handwashing programs that provide program costs and behavioral change are presented in Table A2.8. Behavioral change ranges from 10 to 18 percent o f target households. Program cost ranges from around US$0.40 to US$5 per target household, and from US$3.50 to U S $28 per household with behavior change. W h i l e the studies are too few to draw a definite conclusion, the results may suggest that program cost per person or household with behavioral change increases substantially if the objective i s behavioral change in a large percentage o f targeted households. Therefore, this issue may have a major impact on the overall cost o f hygene programs that aim to achieve substantial reductions in the overall number o f cases o f diarrheal illness in a country. Table A2.8. A Review of Costs and Effectiveness of Handwashing Programs

I

Guatemala

I

Thailand

I BurkinoFaso I

With

Source: Derived from Saade et al. (2001), Pinfold and Horan (1996), and Borghi et al. (2002)

264

With

Data and Assumptions Key data and assumptions used in the benefit-cost analysis are presented in Table A2.9. Some o f them require further explanation. Estimated benefit per avoided case o f diarrheal illness should reflect economic benefit. The economic cost o f medical treatment i s not readily available. Consequently, the cost o f private sector healthcare i s applied as a proxy for economic cost to estimate the benefit o f avoiding diarrheal illness. Timesavings from avoiding illness i s also included as a benefit for adults. Economists commonly value time benefits in the range o f 50-100 percent o f wages. A rate o f 75 percent i s used. Table A2.9. Data and Assumptions for the Benefit-Cost Analysis Rural

week) in population over 5 Diarrheal case fatality rate (children under 5)

I 1

Urban Areas 13.6%

2.3% 0.028%

0.017%

75 soles

o f diarrheal illness averted in children under 5

Average benefit per case o f diarrheal illness averted in population over 5

48 soles

65 soles

Benefit per case o f diarrheal mortality averted

240,000* soles

240,000* soles

Annualized cost o f improved sanitation per capita

28 soles

25 soles Annualized cost o f improved water supply per capita Time savings from 20 minutes improved water supply per household per day 5 Time savings from improved sanitation minutes facilities per person per day 2 soles Value o f time savings per 2.8 soles hour 36 soles Cost o f hygiene products 36 soles per person * Valuation o f mortality i s discussed in 1 :Annex to (

265

Notes

Peru D H S 2000 Peru D H S 2000 plus international evidence on ratio o f incidence between children and adults Based on rural and urban child mortality rate o f 57 and 26 per 1000, respectively; diarrheal child mortality o f 9% o f total child mortality; and diarrheal incidence derived fiom Peru DHS 2000 Treatment cost: 40 soles in rural and 100 soles in urban areas, medicines: 50 soles, treatment rate: 38% o f cases, value o f timesavings for adult caretaker: 2 hours per day for 3.5 days at 2 soles per hour in rural and 2.8 soles in urban areas (75% o f wages), and DALYs valued at GDP per Treatment cost: 40 soles in rural and 100 soles in urban areas, medicines: 50 soles, treatment rate: 27% o f cases, value o f timesavings for adults: 2 hours per day for 3.5 days at 2 soles per hour in rural and 2.8 soles in urban areas (75% o f wages), and DALYs valued at GDP per capita Cost per child death (human capital value): The present value o f lifetime earnings, discounted at an annual rate o f 3 percent Ventilated improved pit latrine (VIP) or flush latrine at US$50 per capita investment cost (20year useful life, 10% annual discount rate) plus sewage cost and maintenance cost Borehole or protected well at US$55 per capita (20- year useful life, 10% annual discount rate) plus maintenance cost Estimated from Peru DHS 2000 based on distance to water source Assumption

75% o f average rural and urban wages Two soaps per person per month at 1.5 soles per

soao

.apter 3.

Time benefits from improved water supply and sanitation (e.g., reduced water collection time) i s also valued at this rate. According to the Peru DHS 2000, about 15 percent o f rural households (one-third o f the population needing improved water supply) are more than 15 minutes from their water source. For other households that use surface water (rivers and open springs), it i s assumed they are on average five minutes from their water source. To be conservative, it i s assumed that one household member collects water twice a day, with an average household collection time o f 20 minutes per day.

Indoor Air Pollution from Solid Fuels While substituting clean fuels (e.g., LPG) would eliminate indoor air pollution from solid fuels, there are also intermediate interventions that could substantially reduce pollution and human exposure. This includes installation o f improved wood stoves with chimney, improved ventilation, separation o f lutchcn or cooking area from living and sleeping areas, and behavioral changes to reduce children's exposure to pollution during cooking. Community kitchens can also be effective in reducing overall community exposure to indoor air pollution. It i s difficult to estimate the reduction o f health effects from some o f these interventions. Consequently, benefits and costs are evaluated for improved wood stoves, substitution of clean fuels, and community kitchens.'60 The focus i s on rural households because o f their prevalent use o f solid fuels and high burden o f health effects. Components o f costs and benefits are summarized in Table A2.10.

Interventions

costs

Benefits

Improved stoves

Promotionprogram, improved stove Promotionprogram, gas stove and fuel cylinder, fuel (LPG) Promotionprogram, gas stove and fuel cylinder, fuel (LPG)

Reduced ARI and COPD, reduced fuelwood consumption Reduced ARI and COPD, reduced fuelwood consumption

Clean fuels (e.g., LPG) Community kitchens with clean fuels (e.g., LPG)

Reduced ARI and COPD, reduced fuelwood consumption, timesavings from reduced cooking time, reduced fuel (LPG) consumption from scale and

~

To estimate the health benefits o f improved stoves and clean fuels, it i s necessary to establish the relative risks o f health effects for five household fuel use situations, ranging from use o f unimproved stove or open fire, to use o f only L P G (Table A2.11). Three parameters are needed to estimate the relative risks: (i) the average relative risk for households using solid fuels, (ii) the number o f households with each fuel-use situation, and (iii) health r i s k reduction resulting from using improved instead o f unimproved stove and from using L P G instead o f improved stove. The average relative risk i s from Desai et al. (2004), i.e., 2.3 for acute respiratory illness and 3.2 for COPD. The household fuel use situations are based on the percentage o f rural households using solid fuels, i.e., somewhat more than 85 percent (Peru DHS 2000). Some o f these households may use a combination o f clean fuels (e.g., LPG) and solid fuels. T h i s could be approximately 10 percent of rural households, based on data from Guatemala (Ahmed et al., 2005). I t i s assumed that these households are split evenly between unimproved and improved

I6O

The methodologies and models used in this report are the same as in Larsen (2005a) for Colombia.

266

stoves in combination with LPG. Households using only solid fuels are also split evenly between unimproved and improved stoves. The following set o f equations was used to establish the relative risks (RRs) presented in Table A2.11: Sumu + S I ~ + I SULRRUL + SILRRIL RRI = 1 + (RRu - 1) (1 - r) mUL = 1 + (mu - 1) L’ RRL = 1 + (RR’ - 1) L’

= SSFWF

where S i s population share and RR i s the relative risk o f using unimproved stove (U), improved stove (I) a, combination o f unimproved stove and LPG (UL), and a combination o f improved stove and LPG (IL). SSF i s the total population share using solid fuels (with or without a combination with LPG), and WFi s the (weighted) average relative risk o f illness in these households. In equation (2), r i s the “excess” risk reduction from using improved stoves relative to unimproved stoves. L i s the share o f energy derived from LPG in households using LPG and unimproved stove (U), and in households using L P G and improve stove (I). Table A2.11. Estimated Relative R i s k s o f Health Effects

Risk reductions (r in equation (2)) from using improved instead o f unimproved stoves and from using LPG instead o f improved stoves are estimated from indoor air quality monitoring in Latin America and a study by Ezzati and Kammen (2002). Improved stoves produce PM2.5 or PM3.5 concentration levels that are often 60-80 percent less than the levels from an open fire or traditional stove without chimney (Table A2.12). Ezzati and Kammen (2002) report a 50 percent reduction in acute respiratory illness (AR) in children under five, and a 25 percent ARI reduction in the age group 5-49 years, from a reduction in PMlO levels from 1,000-2,000 to 500-1,000 pg/m3 (Table A2.13). T h i s suggests that, on average, improved stoves can reduce ARI by 50 percent. In turn, L P G can eliminate the remaining health risk from solid fuels. These reductions were applied to estimate the relative risks o f ARI in Table A2.11. For COPD, Albalak et al. (1999) found a 60 percent reduced risk o f chronic bronchitis from outdoor cooking with solid fuels, compared to indoor cooking with the same fuels in a study from Bolivia. Outdoor cooking i s not free from fine particulate exposure, and studies have found that those engaged in outdoor coolung activities are exposed to elevated levels of pollution. Thus, outdoor vs. indoor coolung may provide an indication o f the reduction in COPD from using improved vs. unimproved stove. In a study from Bogota, Dennis et al. (1996) found that individuals who did not use solid fuels in the household had an almost 75 percent lower prevalence rate o f (chronic) obstructive airways disease than those who had lived in households using solid fuel. Similar results were found in study from Mexico for chronic bronchitis, with an even larger difference in prevalence in individuals with longer life-exposure to solid fuel pollution (Perez-Padilla et al., 1996). In Table A2.11, a 50 percent r i s k reduction in COPD i s applied for switching from unimproved stove to an improved stove with chimney.

267

24-hour PM3.5 24-hour PMlO 24-hour PM2.5 24-hour PM2.5 PMlO

Open Fire/ Traditional Stove 1930 1210 520 868 600-1,000

Improved Stove

330 520 88 152 300

LPG

140 45

Guatemala. Albalak et al. (2001) Referenced in Albalak et al. (2001) Adapted from Naeher et al. (2000)

50

Mexico. Saatkamp et al. (2000)

Table A2.13. Odds Ratios for ARI

Source: Ezzati and Kammen (2002)

Key data and assumptions used in the benefit-cost analysis are presented in Table A2.14. Timesavings are valued at 75 percent o f wages as for water and sanitation. Two methods are used for valuation o f adult mortality, namely the human capital approach (HCA) and the value o f statistical life (VSL). The benefit-cost analysis uses a benefit transfer o f VSL fiom high income countries because no studies are available from Peru. The value applied to Peru i s likely to be conservative, reflected in the method o f benefit transfer with an income elasticity o f 1.O at market GDP per capita differential between Peru and high-income countries. Figure A2.1 provides the estimated benefit-cost ratios o f the identified interventions for indoor air pollution and water, sanitation, and hygiene. While these ratios can serve as an important tool for policymakers in establishing environmental health priorities, the success of promotion programs will also depend on household and community demand for these interventions. Therefore, health benefits and timesavings are presented separately to indicate what needs to be emphasized by promotion programs in order to stimulate demand. Health benefits dominate in the benefit-cost ratio for some o f the interventions. T h i s i s particularly the case for substitution o f improved wood stoves, handwashing for child health protection, and household disinfection o f drinking water. Consequently, health benefits need to be emphasized and properly communicated in the promotion o f these interventions. For other interventions, such as clean fuels and improved water supply and sanitation, both health benefits and timesavings are important. Therefore, a better understanding o f how households value their time could be important.

268

Table A2.14. Data and Assumptions f o r the Benefit-Cost Analysis ARI prevalence (2-week) in children under 5 ARI prevalence (2-week) in adult females

I

Rural

20.6% 3.6%

ARI case fatality rate in children under 5

0.05%

Average benefit per case o f ARI averted in children under 5

80 soles

Average benefit per case o f A M averted in adult Benefit per case o f ARI mortality averted in children under 5 COPD incidence rate in adult females

240,000* soles 33

I

Notes

Peru DHS 2000 Peru DHS 2000 plus international evidence on ratio o f incidence between children and adults Based on rural child mortality rate o f 57 per 1000, ARI child mortality o f 15% o f total child mortality, and ARI incidence derived from Peru D H S 2000 Treatment cost: 40 soles, medicines: 40 soles, treatment rate: 5 1% o f cases, value o f timesavings for adult caretaker: 2 hours per day for 7 days at 2 soles per hour (75% o f rural wages), and DALYs valued at GDP per capita Treatment cost: 40 soles, medicines: 40 soles, treatment rate: 46% o f cases, value o f timesavings for adults: 3 hours per day for 7 days at 2 soles per hour (75% o f rural wages), and D A L Y s valued at

I Cost per child death (human capital value): the present value o f lifetime earnings, discounted at an annual rate o f 3 percent

I Per 1OO,OOO females (WHO AMRO D region)

imesavings are valued at 2 soles per hour

* Valuation o f mortality is discussed in the Annex 1.

269

Figure A2.1. Benefit-Cost Ratios of Interventions Improved stoves

m

Clean fuel in community kitchens (from unimproved stoves)

I

m

Clean fuel in community ldtchens (from improved stoves) Clean fuel (from unimproved stoves) Clean fuel (from m i x o f unimproved stove and clean fuel) Clean fuel (from m i x o f improved stove and clean fuel) Clean fuel (from improved stoves)

Rural drinking water disinfection (point-of-ue) Rural handwashing (child health protection) Urban handwashing (child health protection) Improved water supply Safe sanitation facilities

Urban drinking water disinfection (point-of-use) Handwashing (adult health protection) 0.0

1.0

270

2.0

3.0

4.0

5.0

6.0

7.0

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