Report No. 40190-PE Republic of Peru Environmental Sustainability: A Key to Poverty Reduction in Peru Country Environmental Analysis June 2007 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). The core team includedYewande 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 includedAbel 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 (UnitedNations DevelopmentProgram), 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 of the study and participated actively in the production of diverse parts of the report. Particularly important were the contributions of 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 receivedfrom members o finternationaldonor 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 underpinthis report through TFESSD funds. i ACRONYMS DINSECOVI DirectionNacional de Seguimiento, Control y Vigilancia DIREPRO DireccionRegional de Produccion DIRESA DireccionRegional de SaludAmbiental DIRTUECO Direccionde Turismo y Ecologia ECA Esthdar de Calidad Ambiental ECLAC Economic Commission for LatinAmerica and the Caribbean EL4 Evaluacion de Impact0 Ambiental EPS Empresa Prestadora de Servicios de Saneamiento FA0 Food andAgriculture Organization FEN Fenbmeno de ElNiiio FONAM Fondo Nacional del Ambiente .. 11 H C Hoja de Cubicacion H C Hydrocarbon HCA Human capital approach IDB Inter-American Development Bank IIAP Instituto de Investigacionde la Amazonia Peruana IMAWE Instituto del Mar del Peni INDECI Instituto Nacional de Defensa Civil INIA Instituto Nacional de Investigacion Agraria INRENA Instituto Nacionalde Recursos Naturales IPCC Intergovernmental Panel on Climate Change IPPS Industrial PollutionProjection System IRA InfeccionRespiratoriaAguda ITDG IntermediateTechnology DeveIopment Group - Soluciones Practicas ITTA Acuerdo Intemacional de Comercio Intemacional ITTO Organizacion Intemacional de Maderas Tropicales IUCN World Conservation Union JASS Junta Administradora de Servicios de Saneamiento JICA JapanInternational CooperationAgency JNUDW Junta Nacional de Usuarios de 10s Distritos de Riego delPeni Ju Juntas de Usuarios Kg Kilogram lull2 Square kilometers l/s per km2 Liters per second per square kilometer LFFS LeyForestaly de Fauna Silvestre LGA Ley Generaldel Ambiente LMP Limite Maximo Permisible LPG Liauefied uetroleum gas m'/s Cubic meters per second MDGs MillenniumDevelopment Goals MDL Mecanismo de Desarrollo Limpio MEF Ministeno de Economia y Finanzas MEGA Marco Estructural de Gesti6n Ambiental MEM Ministerio de Energia y Minas MINAG Ministerio de Agricultura MINEDU Ministerio de Educacion MINEM Ministerio de Energia y Minas MINSA Ministerio de Salud mm Millimeters M T C Ministerio de Transportes y Comunicaciones Mvcs Ministerio de Vivienda, Construcci6ny Saneamiento ... 111 M W Megawatt NBI Necesidad BBsica Insabsfecha NGO Nongovementalorgamzahon NO2 Nitrogen dioxide NOx Nitrogen oxide O&M Operation and maintenance 0 3 Ozone OAD Obstructive amays disease ODS Ozone-depleting substances OECD Orgamsation for Economc Co-operabon and Development OGE Oficina General de Epidemologia del Mimsteno de Salud ONERN Oficina Nacional de Evaluacion de Recursos Naturales ONG OrgamzacionN o Gubemamental OPD Orgamsmo Publico Descentrallzado OPS OrganlzacionPanamencana de la Salud ORT Oral rehydration therapy OSINFOR Orgamsmo Supervisor de 10sRecursos Forestales Maderables OR Oddsratio PAHO Pan-Amencan HealthOrganlzation PAMA Program de Adecuaci6n y Manejo Ambiental PBI Product0 Bruto Intemo PCBs Polychlormated biphenyls PCF Prototype CarbonFund PCM Presidencia del Consejo de Mmistros PCS-1E Programa de Ciudades Sostembles -Primera Etapa PETT Proyecto de Titulacibn de Tierras y Catastro Rural PGMF PlanGeneral de Manejo Forestal PHRD JapanPolicy and HumanResources Development Fund PIGARS PlanIntegral de GestionAmbiental de Residuos Solidos PEA Plan Integral de Saneamento Atmosf6rico P M Particulate matter PMlO Particulate matter less than 10 mcrons insue PM2 5 Particulate matter less than 2 5 mcrons inslze PNDF PlanNacional de Desarrollo Forestal PNPAD PlanNacional de Prevenciony Atencion de Desastres PNR PlanNacional de Prevencibny Control de la Deforestacion POA PlanOperativo Anual POP Persistent organic pollutants PPM Partsper mllion PRAL Programa Regional de Are Limpio PRODUCE Mmsteno de laProducci6n PROFONANPE FondoNacional por las Areas Naturales Protegidas por el Estado PRONAMCHCS ProgramNacional de Manejo de Cuencas Hidrogrificas y Conservaci6n de Suelos PSP Private sector partxipation PTS Particulas Totales en Suspensi6n RAD Restncted actwity days RAMSAR Wetlands Convention RFF Resources for the Future RNSC Civil Society Natural Reserves RRHH Recursos Hidricos RR ss Residuos Sohdos SDPA Sociedad Peruana de Derecho Ambiental SEAS Strategic EnvlronmentalAssessments iv SistemaNacional de Informaci6nAmbiental 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 Most Vulnerable .............. 35 Chapter 4 -Reducing Disease and Death Causedby 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............................ Chapter 8 -EnhancingCompetitiveness Through ImprovedEnvironmental Protection............133 170 Chapter 9 -Opportunities and Challenges for Effective Environmental Management............... 199 Chapter 10-A Way Fonvard...................................................................................................... 228 Annex 1:Technical Summary o fthe Cost o fEnvironmental Degradation................................. 242 Annex 2: Technical Summary o f the Cost-Benefit Analysis....................................................... 261 References .................................................................................................................................... 271 vi EXECUTIVESUMMARY` 1. Peruis one of the most ecologxally diverse countries inthe world, endowed with a large and diverse territory and an enormous wealth of 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 (1850s-I870s), saltpeter (1860s- 1870~)~ rubber (I lo), and anchovies (1960s-1970s). The boom of the agro-industrial 890s-19 sector lasted for more than seven decades, until it finally collapsed when the agrarian reform of 1969 redistributed land property rights. Mining activities have remained a pillar of 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, includingill-definedproperty rights. 2. Until recently, the development of economic activities and the adoption of land-use patterns took place in the absence of adequate environmental safeguards. Although mineral resourceshave been extracted for centuries, it was only inthe early 1990sthat the Government o f Peru (GoP) took the first steps to address the environmental and social impacts o f the mining sector.2Inthis context, effluents andmaterials generatedbyminingactivities were not adequately disposed of and generated significant impacts on ecosystems and public health. The negative effects of mining are still 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 inTrujillo found that, because of water pollution from mining and industrial activities, 23.5 percent of the sampled population had cadmium blood levels that exceeded international standards (DIGESA, 2001). Unsustainable agricultural practices were associated with the most significant environmental problems duringthe 1940s-197Os, when most of Peru's population was rural. In 1940, 65 percent o f Peru's population lived inthe Sierra (Pulgar-Vidal, 2006). Highpopulation density in an area with scarce agricultural land contributed to a decrease in farm size and intensification of agncultural practices that eventually led to loss of soil fertility, decreased yields, erosion and, ultimately, migration to other areas. 3. While 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 of gross domestic product (GDP), and primarily affect the poor. Future environmental challenges could result from the expansion of transportation infrastructure aimed at increasing accessibility to the eastern parts o f the country. The construction of roads in the Amazon has often been accompanied by uncontrolled forest burning, illegal logging, slash-and- bumagnculture, destructive mining, unplanned developments andplantations that might leadto 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 to mitigate the negative social and environmental impacts o f the mining sector, including (a) creating an institutional framework to 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). v11 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 of Peru's land and natural resources, as has occurred in the past throughout the Amazon; to control unplanned settlements and unregulated extractive miningactivities; and topreventwide-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 to regulate the evaluation, enforcement and monitoring o f natural resource management, thereby constituting a first effort to 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 to the regulation of sectoral activities and the integration o f a national environmental system. However, the development o f the environmental sector has been strongly resistedby sectors that perceive environmental protection as an obstacle to economic growth. In 1991, such resistance led to the abolishment o f Chapter XI1o 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 highlightingthe 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 miningconcessions, 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 to these issues. Inthis context, Peru has approved over the last five years new laws to 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 Peruneeds to 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 to strengthen its environmental institutions to ensure that sound environmental stewardshp and the sustainable use o fnaturalresources contributeto builda more diversified and resilient economy. CEA Objectives 6. The objectives o f the Country Environmental Analysis (CEA) center on presenting an analytical framework to 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 viii emphasis on protecting the most vulnerable groups. The CEA's mainelements are analyses of (a) the institutional capacity for environmental management in Peru, (b) the cost of 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 to buildconsensus on the importance, scope, and methodologies of the Analysis. The CEA's preliminary findings were presented in the VI Ecodialogue, which took place in Iquitos, Peru in March of 2006. The findings and recommendations of the CEA were disseminated in a workshop heldin Lima, Peru, on June 6-7, 2007. These workshops involved the participation o f a broad range of stakeholders, including representatives of 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 internationalorganizations. Institutional Framework 8. Peru's environmental management framework has continuously evolved over the past decades. To gain a better understanding o f the institutional challenges, the CEA 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 of natural resources, (b) conservation o f biodiversity, (c) sectoral environmental management and pollution control, and (d) environmentalhealth. 9. Conservation and management o f natural resources i s one area in which Peru has registered some o f its most important achevements. During 1962-1992, the National Office for the Assessment o fNatural Resources (ONERN) led institutional efforts to foster the development of 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 of irrigation infrastructure (with an increasing role o f Water Board Users in its 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 addressedto ensure the sustainability of 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 of the country's total area. Biodiversity conservation is regulated by various legal instruments, inchding the Convention on Biological Diversity, ratified in1993, andthe Law for the Conservation and SustainableUseofBiologcalDiversity,approved in 1997.The Peruvian Trust Fundfor Protected Areas (FondoNacionalpor 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 of protected areas. PROFONANF'E has been successful in increasing its funds and using them to leverage additional resources, with an estimated US$90.6 million having been ix 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 of Protected Areas has been unable to spend PROFONANPE's funds efficiently. In addition, a systematic priority-setting mechanism is 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 environmentalunitscreatedwithin each sector's authority. The Energy and Mining sector spearheadedthese efforts by developing sectoral norms based on the use of Environmental Impact Assessments (EIAs), Environmental Management and AdaptatiodCompliance Plans (PAMAs), and Maximum Permitted Limits (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 of 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 of overall coordination and clarity o f environmental approvals processes affects investor confidence and weakens the country's long- term 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 of air quality standards involving various parameters, including particulate matter (PM10), and measures to reduce the generation o f solid wastes. Although important, these steps will be insufficient to reduce environmental health risks, which currently representPeru's most important environmental problem. RevisitingEnvironmental Priorities for the Most Vulnerable Groups 13. A study was conducted as part of the CEA to identify the environmentalproblems that are associatedwith the most significant economic costs (Larsen and Strukova, 2006a). The study estimated that the economic costs of 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 associatedwith environmental degradation are, in decreasing order, inadequate water supply, sanitation, and hygiene; urban air pollution; natural disasters; leadpollution; indoor air pollution; and agncultural soil degradation. The costs of 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 associatedwith data constraints. X WaB supply, sanitation, Outdoorair pollution Naturaldisasters Leadexp u r e Indoorair pdlutjon I Soils degradation D!fOff?SUOll Municipalwastes collecijon 0.0% 0.1% 0.2% 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 inLatin 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 Perui s 2.8 percent o f GDP (Figure 2). I Figure 2. Costsof Environmental Degradation (Health and Quality of Life) 3 5% 3 0% I 25% 2ci II 2.0% s0 1.5% 1 0% 0 5% I 0 0% Egypt Peru Colombia Lebanon Altrena Swia Mmocco Tunisia 1 Source: Tunisia andLebanon: Sarraf, LarsenandOwaygen(2004); Algeria: Ministere de 1'Amknagementdu 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 inPeruincludeshealtheffects andnaturaldisasters. 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 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 better health in general. Environmental impacts and natural disasters can also result ina loss o f income or assets that i s more detrimental for the livelihoods o f the poor than for the non-poor. It is estimated that the impact of environmental degradation for the poor relative to the non-poor is 20 percent higher per 1,000 people, and 4.5 times higher per unit of income, highlightingthe importance ofenvironmentaldegradation as a barrier to reducinginequality. 16. The impacts o f urban air pollution relative to income are more severe for the poor than for the non-poor. Health impact relative to income i s a usehl indicator, because illness and x1 premature mortality result in medical treatment costs and lost income, in addition to pain, suffering and restriction of activity. Based on this indicator, health impacts are between 75 and 300percent higher among the poor. 17. The impactsofwaterborne 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 of 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 of children inthe 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 higher in terms o f effects relative to income, with impacts in the poor populationestimatedto be 10times higher than for the non-poor. 18. The impacts of 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 of poor and non-poor populationthat use solid fuels, it i s reasonable to assume, based on urban and rural poverty rates of 40 and 65 percent, respectively, that almost the entire 10 percent o f the urban population and around 65 percent o f the ruralpopulation 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 healthconditions. 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 of 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). Ina different survey conducted in 2004 in the Lima-Callao region, 80 percent o f respondents identified air pollution as the principal environmental problem inthe 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 is inadequate to reduce vulnerability to natural disasters, since there i s no national entity in charge of articulating and leading the implementation of a long-term strategy for incorporating disaster prevention and risk assessment into national and regional development planning. With respect to environmental health, DIGESA's limitedresources and relatively low hierarchy would constitute severe obstacles to solving Peru's severe environmental health problems. Therefore, the CEA recommends the following agencies inthe short run: a. An autonomous Environmental Health Agency within the Ministry of Health, with responsibilities for regulating environmental quality parameters that affect health, including(i) emissions of PM2.5, lead and toxic pollutants; (ii) quality to tackle fuel air quality; and (iii)water-quality parameters such as bacteriological quality, Persistent Organic Pollutants (POPS), Volatile Organic Compounds (VOCs) and heavy metals. xii b. An autonomous agencywith responsibilitiesfor designing, and ensuringthe adoption of, nonstructural measuresto prevent natural disasters. Environmental Health 21. Negative health impacts represent more than 70 percent of the costs of 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 of 5.85 billion soles (Figure 3). Figure3. CostsofEnvironmentaIHealthDamage inPeru Urbanair pollution Water supply, Indoor air pollution and lead exposure sanitation, and hygiene 22. Urban air pollution i s one of the most widespread and serious problems in Peru's cities and is responsible for an estimated 3,900 premature deaths per year. 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 those of less than 2.5 micros (PM2.5), which have a strong documented relationship with negative health effects. The problem o f air pollution i s most critical inthe country's industrial corridors, such as Lima-Callao, which bears almost 75 percent o f the estimated cost of 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 Figure4. PMlOAverage Annual Concentrationsin SelectedCities(pglm3) pglm3=microgramsper cubic meter Source: WorldBank (2005~) 23. 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 low-sulfur diesel; the use o f compressed natural gas inbuses and taxis; changes inthe 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 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 healthrisks 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 to less than 500 parts per million, including increasing clean imports o f diesel with low-sulfur content; and (iv) control emissions from stationary, mobile andnon-point sources. b. Establish national ambient standards for PMlO and PM2.5 in priority urban areas, and strengthen technology-specific emission standards for PM and its precursors, particularly sulfur and nitrogen oxides. c. Implement a program to monitor air quality to keep track o f PM2.5, PMlO and ozone inpriority urbanareas. 24. In spite of 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 low income and education interact with lack o f access to basic services to generate a very highrisk o f diarrheal illness. An analysis conducted as part o f the CEA estimated the costs andbenefits 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 3Each intervention is considered independently of other possible interventions, with the aim o f providing benefit-cost ratios for each intervention that the GoP might consider implementing. xiv 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 of five, as well as safe water programs that include the disinfection of drinking water at point-of-use. Implementing these actions inthe short run could help the GoP reduce the health risks associated with inadequate water supply, sanitation andhygiene. Figure 5. Water Supply, Sanitation and Hygiene Interventions 5 4 , Urban 3 Safe rural 4 sanitation facilities i 2 - Urbandrinking water disinfection I J 1 Handwashing (adult health) 0 , LB/C =Benefit-cost ratio CED=Cost of environmental damage (Le., cost ofhealth 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 of 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, evaluatinginterventions that involve changes inhousehold 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. To account for such uncertainties, the analysis on which Figure4 is based assumes a response rate o f 15% among targeted households and behavioral change being sustainedfor two years, bothof which are very conservative estimates. 26. The urgency of controlling water pollution to protect andimprovepublichealth 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 on a reduced number o f parameters, most of which have aesthetic or ecological significance, but minimal importance for human health. The dearth of relevant regulations in this area is 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., 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. xv Peru. Inthis 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 of an autonomous EnvironmentalHealthAgency 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 of pollutants associatedwith the use of solid fuels. The analysis conducted as part of the CEA evaluated various interventions to eliminate indoor air pollution from solid fuels, including the installation of improved wood stoves with chimneys and usingcleaner fuels inboth 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 LPG for a combination o f unimproved stoves and LPG 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 LPG at current market prices. Substitutingimproved stoves for unimproved ones in households, and substituting clean fuel alone for a mix of unimproved stoves and clean fuel, and the use of clean fuel in community lutchens could reduce the cost of 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 of LPG 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. xvi Figure 6. Indoor Air PollutionInterventions' I stoves I 7.0 f 6.0 5.0 Community Kitchens (clean ~ fuel from unimproved householdstove) fuel from improved 3.0 I I householdstove) Cleanfuel (frommix I I I of clean fuel 8. I 2.0 unimproved stove) Clean fuel (from Cleanfuel mtx of clean fuel 8 (from improved 1.o improved stove) stove) I * f 0.0 j I 0 50 100 i50 200 250 300 350 400 CED reduction (million Soles per year) BIC =benefit-cost ratio CED = cost o f environmental damage(that is, cost of healtheffects) NaturalDisasters 28. Peru's incidence o f natural disasters i s nearly twice that o f Latin America as a whole, while its rate o f fatalities i s the highest on 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 is recurrently affected by the atmospheric and oceanic conditions caused by El Niiio. The most prevalent types of 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 boththe 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 low- lying 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-costratios included in Figure 5 reflect both health benefits and the value of time-savings.Benefit-cost ratios are based on upgradingto improvedstoves in 33 percentof rural households,use of LPG incommunityIutchens for 15 percentofrural households, and switchingto LPG alone from amix ofunimprovedstoves and LPG in5 percent of rural households An upgradefrom unimprovedstovesto LPG is not includedinFigure5, since this would represent a double countingof reductionsinhealth effects from indoor air pollubon because switching from unimprovedstoves is alreadyreflectedinthe upgradeto improvedstoves xvii 29. Reducing vulnerability to 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. It is estimated that more than 2 million people were affected by natural disasters during 2000- 2004, at an annual cost o f approximately one billion soles or US$325 million (Larsen and Strukova, 2006a). The poorest and most susceptible havepaid the highest costs for these disasters indamages, deaths and lost assets. These groups tend to be more vulnerable to natural disasters for a variety o f reasons. These include the construction o fhousingwhere land i s cheap, frequently near river bottoms and on steep hillsides; the lack o f land-use control inthese areas; poor quality construction; lack o fbasic mitigation measures; and the marginal livelihoods and limited capacity for economic resilience o fthese groups. 30. To address this problem, it is necessary to develop an integrated response to natural disasters that emphasizes prevention, vulnerability analysis and risk assessment. As discussed earlier, the GoP should consider establishing an autonomous agency6 in charge o f nonstructural measures to prevent natural disasters. This new agency could function independently o f existing entities focusing on emergency relief. A crucial element o f the strategy wouldbe the creation o f a fund to provide incentives for local governments to advance in the preparation and implementation of prevention plans. To reduce vulnerability to natural disasters, the CEA recommends the adoption inthe short runo f structural and nonstructural measures, including the adoption o f adequate construction technologies, practices and standards inpoor urban sectors and among the ruralpopulation. Natural ResourceManagement Fisheries 31. Peru's fishing grounds are the richest inthe world. Over 274 millionmetric tons (MTs) o f fishwere harvestedfromPeruvianwaters during 1950-2001, with anchovies constitutingover 75 percent o f total harvest duringthat period, and currently representing approximately 10percent o f the global annual marine catch. The importance o f the anchovies lies not only in its 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 it the second-largest earner of 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 inextreme 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 its 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 of legal loopholes and the granting of "exceptions" that have allowed the sector's capacity to grow despite existing regulations limiting such growth; (c) weak accountability and The Federal Emergency Management Agency (FEMA) inthe United States i s an agency of this type xviii lack o f transparency resultingfrom the influence o f a powerful lobby and the conflicts o f interest that stem from the dual role of the Ministry of 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 consumptionof species that represent apotential protein source for the poor, and the dissipation and drain o f resource rents that the government mightcollect fromthe sector to support other socially desirable goals, suchas povertyreduction. 45. Continuation of the existing situation will most likely result in severe overexploitation of fisheries and the waste of scarce economic resourcesthat could be usedas aplatform to develop a more diversified andresilient economy. Inthis context, the GoP should consider institutionalizing a system o f tradable quotas for the fishing fleet, as a short-term action that would helpto reduce overcapacity inthe fishery sector. SoilDegradation 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 inthe Sierra, a significant challenge. Lack o f updated statistics precludes a robust assessment of the severity of the problem, but data from the 1970sindicate that moderate-to-severe erosion affected 19 million hectares inPeru, and light-to- moderate erosion affected another 110 million hectares. Different estimates (of which the most recent date from 1986) consistently conclude a soil loss arising from erosion of over 300,000 hectaresper year. Soil salinity is also knownto affect a significant share o fPeru's cultivated land. Again, lack o f monitoring makes it impossible to confirm the magnitude o f the current problem, but studies conducted inthe 1970s found that salinity affected 69 percent of the soils evaluated, and qualitative evidence suggests that the situation has worsened over time. Larsenand Strukova (2006a) estimate that farmers' lost revenue caused by soil erosion and salinization i s 544 million to 918 million soles per year. While problems associatedwith land degradation, particularly soil erosion, have worsened with time, they are still low 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% 0.80% 2 0.60% 0 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: METAP (2000); Peru: Larsen and Strukova, 2006a. xix 34. Natural factors, including topographic variations and seasonal rains exacerbated by the periodic occurrences o f EZ Nirib, make the country's soils vulnerable to 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 to address the problem. Recommended short-term actions that would help redress this situation include (i) conductinghpdating a new national inventory of 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 preferentialtreatment for rice inwater allocation incoastal irrigation projects. Water ResourcesManagement 35. Peru is endowed with abundant water resources. It has a national average freshwater supply o f almost 60,000 cubic meters per capita, a figure that is several orders o f magnitude larger than for other Latin American countries such as Mexico and Argentina. However, water resources are unevenly distributedthroughout 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 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 of the country's irrigation infrastructure is located. The use o f gravity and flooding-irrigation methods, and the setting of very low 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 inthe Coastal valleys. Historically, water-resources management has focused mainly on sectoral users, particularly irrigation,' and water-supply infrastructure. Recommendations to address the water sector's challenges include continued implementation and strengthening of a comprehensive water-rights system, continued modernization o f irrigation practices and river- basin 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 its territory, Peru's forest cover i s the eighth largest inthe world and second only to 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 its forest cover o f mangroves and dry and sub-humidforests in the Andean highlands, and some 300,000 hectares of 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 to grow coca and to build illegal runways, cattle ranching, and the development o f roads and infrastructure inthe 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 fthe ultimate causesof deforestation. 7An Irrigation Strategy stressing the importance o f the subsector was discussed and approved among the authorities. This strategy was used as a basis for the Water Resources Strategy discussions. xx 37. The 1975 Forest and Wildlife Law that governed the forest sector until2000 had serious flaws including the lack o f recognition of the needs of indigenous populations, the granting o f excessively small (1,000 hectares) annual forestry contracts, and the encouragement of 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 of 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 biddingprocess; poor mapping o f the concessions, in turncreating access difficulties to concessionsand 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 of 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 existingproblems. Biodiversity 38. Perui s recognized as one o f the world's 12mega-diverse counties, hosting 70 percent of 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 of 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 of its total territory, a relatively highfigure 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 ProtectedArea (% of land) Source: WorldBank(2005a) xxi 39. While progress has been achieved in the use and conservation of biodiversity, Peru faces the challenge o f integrating a consistent biodiversity management framework that i s supported at the highestpolitical level. Specifically, there i s a need to guarantee the sustainability of existing conservation efforts, particularly because current legislation does not assign clear responsibilities to different entities with mandates on biological conservation, nor does it foster interagency coordination. Further, the application o f the existing body of regulations and policies i s chronically deficient, there is 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. To that end, the CEA recommends strengthening the institutional capacity o fkey actors, clearly defining CONAM's roles and functions, supporting national efforts to value biological diversity and environmental services, building on Peru's comparative advantageinbiological diversity, andrefining coordination mechanisms among donor agencies. 40. 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. First, a national water authority has been included in a Water Resources Management bill. This agency would have a mandate for overseeing the allocation of 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 of 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 of the conservation and use of 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 of 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 of biodiversity. Ifthese reforms come to fruition, INRENAwould be redefined as a specialized agency responsible for managmg forests and soils. Under this scheme, INRENA would carry out its 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 inPeru. However, conflicting conceptions o f the EIA have turned the instrument into a bureaucratic obstacle for projects with minimal environmental impacts, while constraining its use as a decision-malung tool for managingandresolving complex environmental and social issues. Limitations in the use o f EIAs include (a) lack of standardization and uniformity in the content and scope o f EIAs across and within sectoral ministries, (b) the conception of public participation as events for sharing information rather than for receiving critical inputand (c) weak enforcement of EL4commitments. 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 life cycle. Because EIA i s the main instrument for sectoral environmentalmanagement inPeru, issuing specific EIA regulations constitutes one of the recommended short-term actions that the GoP mightconsider implementing to strengthen the country's environmentalinstitutional framework. xxii 43. Existing inconsistencies in the approach, content, timing and requirements of the EM legal and regulatory processinPerucreate a lack o f standardization and uniformity inthe 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. This will ensure consistency with the proposed SEIA regulations and avoid the proliferation o f different E M standards between sectors. To enhance EIA's effectiveness, it i s suggested that the need be minimized for carrying out EIAs for projects that pose no 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 meaningfulpublic consultation and communityparticipation. 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 responseto the country's current and future environmentalchallenges. 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 of the costs o f environmental degradation and a review o f surveys on public perceptions indicate that environmental health problems and the reduction of vulnerability to natural disasters are the problems that require attention most urgently. However, a review of environmental expenditures and an institutional analysis, both conducted as part of the CEA, conclude that environmental health and the reduction of vulnerability to natural disasters have receivedminimal attention. This misalignment between environmental priorities, institutional efforts and resource allocation i s largely due to (a) the absence o f an integrated system of reliable data to provide analytical support to the decision- malung 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 linkedto poverty alleviation and social priorities. 46. The lack of 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 of humanresources 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 of 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 xxiii 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 low by international standards, particularly when compared to 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 to other social concerns. Ensuringadequate funding for the environmental sector from the national budget, as well as from additional sources, i s essential to 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 from 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 on the state o f the environment and natural resources, the nonexistence o f a system o f results-focused indicators of 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 still need to be defined inmany areas. 49. Major reforms are needed to address Peru's institutional weaknesses and respond to the country's most pressing environmental challenges. There i s a definite need to assign clearer duties and functions to all the sector's agencies to avoid overlaps and conflicts o f interest, build organizational capacities to deliver and be responsive to 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). Basedon 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 to natural disasters, a national water agency and a centralized environmental regulatory body. Inter-agency coordinationwill 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 inadequatewater supply, sanitation and hygiene. xxiv Table 1.ProposedInstitutional Arrangements -2 3 P 3!? Ec Coordinaion,designand J implementationof environmentalpolicy Enforcementof environmentalpolicies s, J I I I I I I I Enforcenicntofpotlution controlmeasures s, s , s , Enforcementofnatural resourcesmanagement regulations l s , l s , I I I I I Environmentalpermitting J + s , 1 s , + EIA Reductionof vulnerability to natural J s , s , + s , dissters Conservationand protectedareas I I I I Water andforestryrights + + allocation J J 51. Strengthening CONAM's capacity to coordinate and foster consensus building among key sectors should constitute one of 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 environmentalpriorities instead of 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 andrisks that environmentaldegradation xxv imposes on the overall society; and (iv) and analysis of the effectiveness and efficiency o f environmental policies and o f alternative interventions to reduce the cost o f environmental degradation. b. Establishaplanningprocessto align environmentalexpenditures withpriorities. 53. Formal evaluation and learning mechanisms should be incorporated in the short run into the management routines of all the institutions in Peru's environmental system. The systematic establishment of baselines and the evaluation of 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 with this tool is crucial for building performance-based indicators, which allow organizations to set measurable goals, evaluate their achievements, and engage in a process of 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 of investingpublic resources inenvironmentalprotection. Conclusion 54. The highest costs of environmental degradation in Peru are, in decreasing order of magnitude, inadequatewater 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 problemscost 8.2 billion soles, or 3.9 percent of Peru's GDP. The poor and vulnerable populations bear a disproportionately high amount of this cost. To address these problems, this report identifies a number of cost-effective policy interventions that could be adopted in the short and medium term to support sustainable development goals. 55. In recent decades, there has been considerable progress in addressing a 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 of information on environmental outcomes, assignation of accountabilities for environmental actions and outcomes, and involvement of a broad range o f stakeholders are three important mechanisms to allow these signals to be picked up. 56. Table 2 summarizes the mainrecommended short-term actions. xxvi Table 2. RecommendedShort-Term Actions Objective RecommendedShort-Term Actions [nstitutional reform Develop a priority-setting mechanismbased on (a) the impacts o f environmental degradation on the poor and other vulnerable groups, (b) the most urgent needs as perceivedbythe population, and (c) the major public andprivate 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 EnvironmentalHealthAgency withmthe Ministryo f Healthto regulate environmental quality parameters that affect health, including (i) emission o fPM2.5, 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) andheavy metals. Implement reforms being proposedbythe 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 measuresto Drevent natural disasters. (Cost: modest) Reduce health risks Establishnational ambient standards for PM2.5 and PMlO inpriority associatedwith ambient air urban areas and strengthen technology-specific emission standards for pollution P M and its precursors (particularly sulfur and nitrogen oxides). (Cost: low) Implement a programto 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) promotingthe retrofitting o f diesel-powered vehicles, (b) implementing a programto test vehicle exhausts, (c) reducing sulfur content indiesel to less than 500 parts per million, including increasing clean imports o f diesel withlow-sulfur content; and (d) controlling emissions from stationary, mobile and non-point sources. (Cost: modest to high) Reducehealth risks Promote handwashing programs that target children under the age o f associated with inadequate five. (Cost: low) water supply, sanitation and hygiene Promote safe water programsthat include disinfection o f drinking water at point-of-use. (Cost: low) Reducecost of Promote the use o f LPG and other cleaner fuels inareas that environmental degradation predominantly use fuelwood, and implement actions to improve safe associated with indoor air and cost-effective availability and access to fuelwood for users. pollution (Cost: modest) xxvii Objective Recommended Short-Term Actions Implementaprogramto promote improvedstoves. (Cost: modest) Reduce vulnerability to Adopt structural andnonstructural measuresto reduce vulnerability to natural disasters natural disasters, including the adoption o f adequateconstruction technologies, practices and standards inpoor urban sectors and among the ruralpopulation. (Cost: modest) Reduce soil degradation Conducthpdate newnational inventories o f (1) soil erosion and (2) soil salinity. (Cost: low) 0Revise the 1969, 1989and 1990Water Laws to authorize higher, broad-based fees for water use. (Cost: low) Endpreferentialtreatment for rice inwater allocation incoastal irrigationprojects. (Cost: low) Reduce deforestation 0Suspendconcessioning process untilfurther reforms are made. (Cost: low) Reduce overcapacity in Institutionalize a system o ftradable quotas for fishing fleet. (Cost: fishery sector modest) xxviii CHAPTER 1 COUNTRY ENVIRONMENTALANALYSIS: 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 of the most consolidated systems o f Natural Protected Areas in the region. The establishment of agencies, including the Office of 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 Law of 1969 and the Law of Forestry and Wildlife (with its first version dating from 1975 and a newer version promulgated in 2000), have been instrumental. However, the country faces significant challenges incontrolling pollution and advancing sectoral environmental management and, most importantly, in addressing environmental health impacts, disaster prevention, and risk mitigation. More recently, Peruhas taken a number o f initiatives to further integrate the different elements o f its environmental management framework, including the establishment o f the Structural Framework for Environmental Management o f 1993, the National Environmental Management SystemLaw o f 2004, and the General Environmental Law 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 of 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 of 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 burdenon vulnerable groups, such as children and women inpoor rural households. These individuals must rely on solid fuels for coolung and heating, and spend prolonged periods of time in closed areas with high concentrations o f pollutants resulting from the use of 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 ina way that furtherreduces 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 hgh levels o f atmospheric pollutants and to a larger number o f people beingexposed to their negative impacts, which represent 0.9 percent o f GDP. Urban populations have also been exposed to leadpollution, and exposure to pollutants i s aggravated by inadequate solid wastes collection, amountingto 0.5 and 0.05 percent o f GPD, respectively. Urbanizationhas also meant that a greater number o f people are affected, and the economy i s most severely struck when a city is devastated by a natural disaster. This phenomenon occurs more frequently, and lulls 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 of fisheries, forestry, and other activities, but as an indispensable element in controlling the anthropogenic factors that result ingreatervulnerability to naturaldisasters. * This chapter was preparedby Emesto Sanchez-Triana. 1 1.4 Ifmanaged sustainably, Peru's profuse endowment ofnatural 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 its 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 andreversingenvironmentaldegradation. Objectivesofthe CountryEnvironmentalAnalysis 1.6 The objective o f the Country Environmental Analysis (CEA) is to present an analytical framework to 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 its 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 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 emphasis on protecting the most vulnerable groups. The main elements o f the CEA are analyzes of (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 to address priority environmentalconcerns. CEA Process andLinkageswith other BankProducts 1.9 The CEA was initiated in October 2005 through a workshop in Paracas, Peru, involving national stakeholders and development partners. Participants included representatives of agencies from various sectors, including environment, health, and energy and mines; regional environmental authorities; and the private sector; nongovernmental organizations, and 2 international organizations. Workshop participants provided valuable input for the overall diagnosis o f the state of the environment inPeru, helpedto 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 consensusregardingthe importance, scope, and methodologes used to carry out the analysis. 1.10 The preliminary results o f the CEA were presented during the VI Ecodialogue, which 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 civil society. The representatives engaged in an open dialogue about Peru's most pressingenvironmental challenges. 1.11 The findings and recommendations of the CEA were disseminated in a workshop that took place inLima, 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 is 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 CEA analyzes, and recommends responses to, the mainweaknesses inenvironmental management that have a direct, negative impact on the quality of the country's business climate and the competitiveness o f its businesses. Furthermore, the CEA provides the analytical underpinnings to arrest environmental degradation, which is 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 on the impacts of 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 of multiple stakeholders, and align resources and institutional efforts to address those priorities. Finally, the CEA i s part of 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 first 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 associatedwith Peru's miningsector (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 of environmental degradation on vulnerable groups, and propose cost-effective policy interventions. 1.14 The CEA provides new insightsregarding areas where the Bank has longbeen involved. Active Bank projects support Peru's efforts ina number of areas, including (i) expansion of water supply and sanitation inurbanand rural communitiesthrough the Lima Water Rehabilitation and 3 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 ExtensionProgram (currently inPhase 2) and the PeruIrrigation Subsector Project Supplemental Loan; (iii)establishing cleaner and safer mass rapid transit systems. through the Lima Transport Project; and (iv) strengthening the management of protected areas with the participation of local communities through the Indigenous Management o f Protected Areas in the Peruvian Amazon Project, the Participatory Management of Protected Areas Project, and the Vilcanota Valley Rehabilitation and Management Project. The CEA analyzes the institutional frameworks inwhich 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 inwhich further projects can take place. 1.15 Further research will be necessary to refine the analysis provided by the CEA on a number oftopics. Basic data are missingon most of the critical environmentalissues facedby the country. Inmany 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 CEA 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 of 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 of Peru's environmental management framework over the last five decades. The analysis presented inChapter 2 finds that the country has developed a considerable institutional capacity associated with important achievements inthe areas of naturalresource 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 inthe structuring o f a National Environmental Management System as well as related aspects being debatedat the endo 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; leadpollution; indoor air pollution; soil degradation; inadequate municipal waste collection; and deforestation. The effects of environmental degradation associatedwith these principal causes are estimated to cost approximately 3.9 percent o f GDP, mainly due to increased mortality and morbidity and decreasedproductivity. The burden of these costs falls most heavily on vulnerable segments o f the population, especially the poor andtheir childrenunderthe age offive, who are oftenexposed 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 of environmental degradation on bothurban 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 of various interventions that could address waterborne diseases concludes that the most cost-effective approach would be the design and implementation 4 o f a safe water programthat promotes hygienic behavior through handwashing and improvements in water quality at the point of 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 low sulfur diesel would unambiguously result in net economic benefits stemming from associatedreductions in health impacts. However, further assessment i s needed to estimate the efficiency o f additional interventions that could help address the problem inthe short run and achieve additional cutbacks inparticulate matter emissions. Indoor air pollution is a particularly severe problem in poor rural households that must rely on solid fuels for coolung and heating. Cost-effective interventions that can reduce the impact o f indoor air pollution include the adoption of improved cooking stoves and/or the use of cleaner fuels. 1.19 Chapter 5 discusses problems associated with natural disasters, particularly floods and landslides. More than 2 millionPeruvians were affected by natural disasters during2000-2004, at an annual cost o f approximately US$325 million. The analysis recognizes that while some of 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. The poorest and most vulnerable have paid the highest costs for these disasters in damages, deaths, and lost assets. A number of actions are recommended to address this 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 institutionalmechanisms for disaster prevention andresponse. 1.20 Chapter 6 analyzes the issues associated with the management o f fisheries resources. Peru's fisheries resources support one of the c0untry7smost important economic activities and provide fundamental environmental services. The occurrence o fEl Ni60 Southern Oscillation and the steady expansion of fishing and processing capacity have been associated with an extreme resource volatility that could lead to resource depletion if urgent measures are not adopted inthe short run. The sector also faces critical challenges with respect to reducing prevalent economic inefficiencies, internalizing its 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) rehabilitatethe 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 inreducing deforestation, protecting biodiversity, and improving water resource management, it also identifies a series o f threats and institutional weaknessesthat could undermine the sustainability o f Peru's efforts. The chapter includes various recommendations to enhance stakeholder participation innatural resource management, increase the effectiveness and efficiency of the agencies with a mandate for natural resource protection and management, and utilize the country's comparative advantage innatural resources to develop commercially valuable products. 1.22 Chapter 8 discusses sectoral environmental management in Peru, which has been fundamentally based on the environmental impact assessment (EM) system. The analysis finds that the effectiveness of EIA in Peru is, however, undermined by the lack o f a uniform perspective regarding its objectives and usefulness. Specifically, there exists an ambiguity among 5 government authorities as to whether the purpose o f EL4i s to achieve environmentalplanning or environmental management. The chapter highlights the need for the government to clarify the purpose of EL4 and identifies the need to develop, in addition, appropriate instruments to deal specifically with environmental problemsthat are linkedto market and policy failures. 1.23 Chapter 9 reviews the environmental management framework in Peru and assesses the complex institutional system of checks and balances. The chapter finds that Peru's environmental management framework has adequate financial resources, but that it is unable to effectively support government efforts to promote environmentally sustainable development. This results from lack of attention to, and insufficient allocation of, human and financial resources to tackle key environmentalpriorities linkedto economic development. The chapter highlightsthe need for policy and institutionalchanges 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 life of 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. The 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 healthissues. However, the environmentalmanagement agenda has yet to catch up with this shift inpriorities 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 of accountabilities for environmental actions and outcomes, and involvement o f a broad range of stakeholders are three important mechanisms to allow these signals to be picked UP. 6 CHAPTER 2 AN EVOLVING ENVIRONMENTALMANAGEMENT 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 hasfocused onfive 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 investmentprojects. 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 naturalresources (minerals, agriculturalproducts, hydrocarbons, rubber, fisheries andwood) have been central in the history o f Peru's economic development and have influenced its 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 is 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 miningsector has proven to be an exception, as ithasremainedapillarofthenational economy since colonialtimes. Nevertheless, that sectorhas not been exempt from problems, including a decline in mineral production during the late eighteenthcentury that hadeconomy-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 of regulation and enforcement. The management anduse o f renewable naturalresources 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). Highpopulation density in an area with scarce agricultural land contributed to a decrease in farm size and intensification o f agricultural practices that eventually ledto loss o f soil fertility, decreasedyields, erosion andultimately 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 (WUBs - 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 Law 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) is significantly lower than in neighboring countries (Brazil,Bolivia and Ecuador). This chapter was preparedby Renan Poveda, Emesto Shchez-Triana and Carolina Urmtia. This chapter draws from background documents preparedby Pulgar-Vida1(2006), D.Lee (2006), D.Olson(2006) and G. Castro (2005) 7 2.4 The conservation o f biodiversity and Natural Protected Areas (NPAs) has had considerable achievements including these actions: (i) enactment of the Natural Protected Areas Law of 1997, which definesthe role o fthe country's protected areas to conservebiological diversity and their associated cultural, landscapeand 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 fthe Peruvian Trust Fundfor National Parks andProtected Areas (PROFONANPE); and (iii) the increasing number o f specialized non-governmental organizations that support efforts to conservebiodiversity andprotected 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 land- use 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 miningsector". 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 miningand energy". 2.6 A fourth core areais environmental health. Efforts to manageenvironmental healthbegan inthe 1940sthrough the General Directorate for EnvironmentalHealth(DIGESA) oftheMinistry of Health (MINSA). DIGESA has faced numerous institutional challenges that have affected its 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 fleaded fuel in2005. 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 of 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 fvulnerability. 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 CONAM (Table 2.1). Such efforts include the incorporationof environmental considerations inthe 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 GestidnAmbiental -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 deAmbiente -LGA).I3 loEnvironmental impact studies became integral 'assessments' after the EL4Law o f 2001. l1 1993, Peruhastakenconcretestepsto mitigatethenegativesocialandenvironmental impactsofthemining Since sector, including: (i)creating an institutional ffamework to harmonize institutional responsibilities and environmental legislation; (ii) developing environmental sectoral norms; (iii)defining environmental standards for water, air, and soil quality; and (iv) elaborating an inventory of mining environmental liabilities, among others (World Bank,2005e). 12The Ministry o f Mining and Energy, for instance, has developed at least 13 laws and rulings that directly address environmental issues pertaining to the miningsector. l3Table 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 on 8 Table 2.1. Landmarksinthe Evolution of EnvironmentalManagement inPeru I Year I Landmark 1962 Establishment o fthe ONERN 1969 Enactment o fthe Sanitary Code (now abolished) 1969 Enactment o fthe Water Law 1975 Enactment o f the Forestry and Wildlife Law (now abolished) 1977 Conservation UnitsRegulation enacted 1979 New Peruvian Constitution Creation o f the PeruvianAmazon Research Institute (established bylaw 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 la Salud- CONAPMAS) 1989 MultisectoralCommission Report for the Solution ofthe Problems at 110 and Ite Bays 1990 Enactment o f the National Code for Environment and Natural Resources - CMARN (Legislative Decree No. 613) 1991 Legal and political framework to foster incentives for private investment - the Framework Law for Private Investment Growth, Legislative Decree No. 757, which established sectoral-based environmental management 1992 Peruvianreport for the UNConferenceon Sustainable Development National Conservation Strategy PROFONANPE established 1992-1993 IIONERN phased out INRENA-established 1993 New Constitution passed 1994 CONAM established 1996-1997 Design and enactment ofthe legal framework on natural resources Organic Law for the Use o fNatural Resources Law for the Conservation and Sustainable Use o f Biological Diversity Law for Natural ProtectedAreas 1996-1997 Ecodialoguesbegin and National Environmental Agenda is discussed MEGA established 1998 Approval o f the Environmental Quality Standards (ECA) and Regulations on Maximum Permissible Levels (LMP) 2000 Designand approval o fthe political and fiscal policy for forestry Regional Ecodialogue 2000 Solid Waste Law approved 2001 Environmental ImpactAssessment System Law approved 2002 Forestry Development Law established 2004 I I Regional SNGA Law enacted and Local Systems for Environmental Management General Environment Law Billpresented 2005 National Environmental Agenda 2005-2007 approved 2005 General Law o fthe Environment 2.9 This chapter examines the evolution o f Peru's environmental management framework, which has been closely tiedto the country's economic development. The findings o f this chapter are based on secondary information and interviews conducted in Peru during 2005. This 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 of the environmental management framework in the following areas: renewable natural resource management, ecosystemconservation, pollutioncontrol and environmental health. The seventh section presents the advances achleved in the structuring o f the National Environmental Management System. the review o frelevant legislation. 9 Finally, the eighth section focuses on the debate regarding the framework for environmental management at the end o f 2005. 10 3 3 I l l A HistoricalPerspective 2.10 Peru's economy i s highly dependent on its rich natural resource base. Extraction o f natural resources has taken place since before the arrival o f the Spaniards. While there i s no scientific evidence to conclude that natural resource degradation was more intense during the colonial period, selective extraction of key resourcesintensified after conquest inorder for Peru to meet its 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 resourcespassedthrough Lima (the seat o f the viceroyalty andthe 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 of soils, erosion and sedimentation o f watersheds, and to an accumulative pollution o f soil lakes and rivers (i.e., mercury has beenusedsince colonial times for silver extraction)". 2.11 For instance, by 1841 the Inca fertilizer guano and saltpeter began to be widely exploited. Guano becamethe most important resource inPeru duringthe 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, productioncollapsed due to lack o f investments inthe industry, poor policies andunfavorable prices (Castro, 2005). 2.12 Likewise, the rubber business inthe 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, includedweak 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 beenthe most important economic activity since colonial times, also suffered a gradual decline inproduction. 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 of these activities ledto specific environmental impacts mainly inthe highlands, and to a lesser extent in the coastal andrainforest regions. For instance, a growth o fthe miningsector inthe 20" century ledto the creation of smelters at 110 and at La Oroya. These smelters have contributed, through time, to severe air and water pollution. Inaddition, a large number of mines have close during the 20' century without the adequate measures, leaving behind environmental legacies. A preliminary inventory carried out by the Ministryof EnergyandMines in2003 identifiedabout 610 miningenvironmental 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) inPuno; andPascointhe 1700's. ''By the end ofthe XVIcentury, different regions had specializedon certaincrops: (i) northerncoast (Piura and the Tumbes) focused on cotton and goats; (ii) the central coast (Lambayequeto Lima) insugar; (iii) southern coast (from 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 focusedprimarilyon tubercular roots, camelids, and cattle. 12 2.14 After mining, industrial growth began around Lima, and fishmeal factories were established along the coastal areas. Oil and gas have been also key economic activities developed through the early 1900's. However, oil production inPeru has declined steadily over the past two decades, as the country`s fields have matured and no major new dmoveries have provided additional reserves. In contrast to production, Peru's oil 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 inPeru, andone ofgreat importance to the environmental sector. This projectmakes use ofone o f the most important non-associated natural gas reserves inLatin 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 inLima andCallao. 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 expandedinto forested areas. Limitedproductivity o f soils for agriculture in the hrghlands combined with relatively highpopulation density led to a growing migration to urbancentersinthe coast. Migrationalso increasedduringthe 1980's due to a growing wave o f ruralviolence andterrorismby the ShiningPath. Thus, urbancenters (particularly inandaround Lima) grew disproportionately since the 1950's. Urban environmental problems such as air pollution, poor water quality, solid wastes issues, intensified.Duringthis period, the fishmeal plants began to be developed along the coast, contributing to a foul smell and pollution near urbancenters. ConservationandAdministrationof NaturalResources 2.16 In 1962, Congress established the National Office for the Assessment of 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 of naturalresourcesandto develop basic documents to inform the economic and social development plan and its 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 inthe portfolio o f state investment projects as a way to stimulate the economy inrural 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 of 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 underpinningfor the National Strategy for Conservation. 2.17 In1992, the ONERN was transformed into the National Institute for Natural Resources (INRENA), reducingmany functions, particularly the collection andanalysis of information for decision makingabout the state o f natural resources and their potential. The enactment o f the 1993 Constitution and the incorporation of 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, enactedin 1997, defined the State's scope and the ways inwhich it would facilitate individuals' accessto resources for their use. l6The initiative to incorporate natural resource considerations in the Constitution was ledby two environmental NGOs, Sociedad Peruana de Derecho Ambiental (SPDA) and Pro-Naturaleza, between 1992 and 1993. The participatory process included the conformation of a Working Group with representatives of the private and public sector that received input throughworkshops inthe different regions. 13 2.18 Consequently, in 1993, INRENA became the principal agency responsible for natural resources management in Peru. Its mandate includes: (i) the management o f public forests, (ii) overseeing the 61 natural protected areas, (iii) overseeing wildlife exports and for-profit captive breedingenterprises, (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 of sectoral economic activities in rural areas. INRENA, the environmental agency with the largest share of resources, has made substantial progress in a number o f areas. INRENA internal organization evolved into three key departments: (i) intendancy for the Natural Protected Areas; (ii)the intendancy for Forestry and Wild Fauna; and (iii)the intendancy for Water Resources. Inaddition, INRENA's office o f trans-sectoral environmental management has the responsibility for validating EIAs, PAMAs and promoting inter- institutional coordination". Water Resource Management 2.19 Since the 1970s, the ONERN identified the importance o f using water for agncultural purposes. This came about not only because of 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. It 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. This 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 averageper-capita water availability in the Pacific basin is only one-third o f the world average (INRENA, 1995). For the preceding reasons, the General Water Law o f 1969 establishesthe Ministryo fAgriculture as the National Water Authority. 2.20 In1992, INRENA, as adecentralized organismofthe MinistryofAgriculture, assumed the management of water resources. Within INRENA, the Water Resources Intendancy (Intendencia de Recursos Hidricos) assumedthe management o f water resources, including the supervision and control o f policies, plans, programs, projects and n o m on its sustainable use. The General Water Law o f 1969 and the CMARNhave provided Peru with anadequatestock 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 contributedto the development o f the agricultural sector, CONAM has concerns regarding inefficiencies in water use and the concentration o f benefits ina limitedextension o fproductiveland(Bernales, 2006). 2.21 Inaddition, agricultural exports havebecome 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 PAMAs associated with agriculture projects and activities affecting protected areas. In addition, INRENA can issue a technical opinion on EIAsfor miningandtransportrelatedprojects. 14 (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. This water right system along with the landtitling has resulted in reduced conflicts and frustrations among the farmers, andprovided legal certainty that encourages investment inon-farm improvements. The water rights allocation systemi s a regional model for water rights registry acrossthe region. 2.22 A national strategy for water resources management was developed in2004. Based on this strategy, between2004 and2005 amajor effort was made to updatethe GeneralWater Law. Currently a bill establishing a National Water Resources authority and River Basin Agencies, and modernizing water resources management is 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. This 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). It is expected that the issuance and implementationo f the proposed reforms embeddedinthe Bill would provide an opporhmity to make additional major advancements in the agricultural sector through sustainable, integrated landandwater resourcesmanagement (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 implementedand operational along with water availability and landuse information will 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. To 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 ResourceManagement 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 of initiatives followed, including preparation of a National Forestry Strategy (1985- 1996) 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) in2000. In1993, INRENA's (through the Forestry Intendancy) assumed responsibility for managing forestry related programs. The new Forestry Law is designed to promote the reform and modernization o f the country's forest sector. The regulatory framework supporting the law was passeda year later in 2001. Following the enactment o f the law and regulatory framework, a national debate sparked inCongress andinpublic forums between timber industryrepresentativesandthosewith astake inthe old system, as well as local andinternationalorganizations, community leadersand other authorities. The new Forestry and Wildlife Law aims, among other things, to transform the sector into an integral part o f sustainable development. The key element o f the new Forestry Law i s the introduction o f timber concessions under the supervision of INRENA19.INRENA l8 thelawwas amilestoneforthesector, ithadanumberofdrawbacks, includinglackofrecognition ofthe While needs o f indigenous populations, the granting o f excessively small (1,000-ha) annual forestry contracts, and the encouragement o fan exploitative relationship between small loggers and the timber industry and intermediaries. l9 ForestryandWildlifeLawof2000 The and its 2001 Regulationpermit other forms o f access to timber resources: (1) permits from native communities; (2) permits fromprivate 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 ftrees and shrubs stranded on river banks. Other forms o f access to non- 15 launched the forest concessions process in March 2002, after establishing the techcal 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 fthe Multisectoral Commission on IllegalLogging. 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 Law 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 is 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. InAugust2005, INRENAformed atask force to planPESimplementation. 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 Fundfor the Promotion o f Forestry Development (Fondo de Promocidn del Desarrollo Forestal - FONDEBOSQUE)21, among others. This law also promoted the establishment of !Local Forests' (500-ha forest plots for use by local communities). Based on thenewlegalframework, andthepromotion ofthe 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 of Loreto, Ucayali and Madre de Dios have established ad hoc Commissions for this purpose. 2.27 As part of the implementation of 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 andthe "Committee" against illegal logging took effect under the mandate o f the PCM, which has responsibility for implementingthe national strategy. Among the achievements o fthe 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 of which are in Loreto. By end of2004, over 7.5 million hectares of forest had beenawarded inthe form o f forest concessions to 576 concessionaires for timber production inMadre de Dios, Ucayali, Huanuco, SanMartinand Loreto. *' The Forest Development Promotion Fund (FONDEBOSQUE) is a public-private organization (presided by the head of INRENA) and funded primarily by the donor community. Its objective is to promote investments in sustainable and competitive forest enterprises and in environmentally responsible projects generating economic opportunities and conservation of biodiversity. As o f July 2005, its portfolio amounted to US$20.4 million (82.3%, from international donors) on implementationo f forest concessions (15.2% o fportfolio), 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%). 16 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 of 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 inforest control and supervision; (v) settingup control posts inMadredeDiosto control illegallogging; and(vi) designating anadhoc Prosecutor for illegal logging in Ucayali. As part o f the strategy, MRENA i s inthe process o f establishing a digital databaseto effectively review, evaluate andmanageconcessionsnationwide. 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 is 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 insome regions of the Amazonbasin. The government ofthe San MartinRegon, 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 inthe state o f SanMartin,more than 1,300,000 have been already beencut 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 agriculturalloans seemto be associatedwith 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 andreliable forestry data; (ii) excessivebureaucracy, and (iii) beenunable to faces has address simple butkey issues (i.e., not working onweekends while illegalloggers 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 AmazonReforestation Royalty inthe 1980's allowed for the reforestation o f 100,000 ha. Since 1988, the National Watershed Management and Soil Conservation Program (ProgramaNacional deManejo de CuencasHidrogrhjkasy Consewaci6n de Suelos- PRONAMACHCS) has promoted numerous reforestation campaigns. The result o f these efforts is the growth o f forestry plantations from about 262,997 hectares in 1990 to 754,244 ha in2003 (FA0 and INRENA, 2005). Most of this reforestation was done inlanddesigned for watershed protection, but not for timber production. In addition, the Fujimori administration launched the Sierra VerdeProject (1995-1 996) which aimedat developing a reforestation strategy, including the reforestation of one million trees in different regions of the country, including the dry coastalareas. 2.31 Since its creation in 2003, one o f FONDEBOSQUE's key components has been the promotion o f forestry plantations. FONDEBOSQUE is 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 debateinthe current presidential 17 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 timberpotential. Conservation and Sustainable Use of BiologicalDiversity and Natural Protected Areas 2.32 The Peruvian government's protected areas policy started in 1961 when it created the country's first national park (Cutervo NP). Since ONERN's publication in 1974 o f the Policy Guidelines for the Conservation o fNatural ResourcesinPeru, a strategy was established for the "conservation o f soils, water, vegetation and animal life" (ONERN, 1974). Thereafter, the Forestry Law o f 1974 and its 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 (SistemaNacional de Areas Naturales Protegidas por el Estado - SINANPE) in 1990 (constituted by conservation units, national forests, boundary posts, and other categories ofpublic interest establishedby the agrarian sector with conservation ends). Since that breakthrough, the system has grown to 61 protected areas comprising 17:66 million hectares, whichi s 13.74% of 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 of regulations on access to genetic resources and the importance of protecting traditional knowledge. Since the enactment o f the Natural Protected Areas Law, the systemassignedfor conservation purposeshasmore than doubledinsize22. 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). Ratifyingthe Conventionon Biological Diversityin 1993 triggered several initiatives to meet its commitments to the international treaty including these outcomes: (i) passage of the Conservation and Sustainable Use o f Biodiversity Law (1997); the (ii) ProtectedAreasLaw(1997); (iii) NationalSystemPlanofProtectedAreas(1999); the The (iv) the National Biodiversity Strategy (2001); and (v) the Law 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) 22 ManuelPulgar-Vidal (2006). 23 Based on data providedby PROFONANPE (2005), and exchanges with Albert0 Paniagua, Executive Director o f PROFONANPE, ManuelPulgar-Vidal(SPDA) February2006. 18 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 swapsprimarilyfrom 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 managedby 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) Cerros de Amotape, E o Abiseo, Huascarh, Yanachaga ChemillCn, Manu the and Bahuaja Sonene Natural Parks; (ii)the Machu Picchu and Manglares de Tumbes sanctuaries; (iii) Pacaya Samiria, Lachay, Paracas, Salinas, Aguada Blanca and Titicaca the 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 techcal and adrmnistrative support to the Intendancy o f Protected Areas (IANP) at INRENA (established in 1993), which has the responsibility for the management of 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 responseto a specific demandor 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 is 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 first regional reserve, the Cordillera Escalera in San Martin, demonstratedthe potential o f decentralization o f responsibilities for natural resourcesmanagement. 2.38 Discussions have recently arisen among key stakeholders stemming from the proposal bythe National Association ofMining,Oil andEnergy(SNMPE) to modify the ProtectedAreas Law so that National Parks and Sanctuaries, currently off limits to exploration and extraction, can be cleared for exploitation o f miningandhydrocarbons. SNMPE proposesthat inexchange, companies pay a fee to the ProtectedAreas Fund(PROFONANPE). 2.39 GivenIANP's limitedtechnical and administrative capacity for efficiently managing the Natural Protected Areas System and its low capacity to spend resources fiom donors, proposals are being discussed to reform the IANP 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 of Agriculture). It is believedthat this autonomy would give the new institution the flexibility to hire qualifiedstaff (currently INRENA has limitations on its humanresources) and reduce the bureaucratic processes; these changes may turn it into a more efficient agency. 2.40 In1995, a legislator proposedThe National EnvironmentalFund(FONAM) as ameans to raise funds to finance the programs beingdeveloped under the environmental agenda withthe recent creation o f CONAM (Pulgar-Vidal, 2006). Consequently, FONAM 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. FONAMremained for years without any resources until 2000 when, through a World Bank-GEF operation on 24 All of the resourceswhich PROFONANPE has either: (i) fortheendowmentfind;(ii) raised administeredas 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. 19 sustainabletransport, received the necessarybudget to beginoperating. Since then, FONAMhas defined its areas of action, which cover: (i) (ii) energy; transport; (iii) forestry, water andwaste; 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 FONAM the mandate for fundraising and financing for the remediation and rehabilitation o f legacies. FONAM has very limited technical capacity on mining-relatedissues; thus, its main agendahas centered on issues relatedto climate change. PollutionControland SectoralEnvironmentalManagement 2.41 Before 1990, activitiesto control water, air, noise andvisual pollutionwere traditionally managed in a fragmented manner by different organisms includingthe Ministry o f Agriculture and the Ministry o f Health. To integrate these actions, Chapter XXII of the CMARN 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 CMARN 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 Banktechcal assistanceloanto the miningand energy sectorspositionedthe Ministry o f Energy and Mines to lead the development o f sectoral environmental legslation by establishing both environmental norms for the miningsector andthe 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 Adecuacidny 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 miningand energy sector's initiative extended to the fisheries andtransport 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 Miningand Energy, in the Ministry o f Energy and Mines. T h ~ swas followed by the National Environmental Directions for Fisheries and Industry inthe Ministryof Production, the Direction for Social andEnvironmental Issues inthe Ministry for Transport and Communications; and the Environment Office in the Ministry of 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 is responsible for overseeing compliance with technical and legal norms relating to environmental protection and conservation inthe electricity andhydrocarbon subsectors. 20 Box 2.1. The Rootsof Sector-Based EnvironmentalManagement There are multiple roots to the current scheme o f sector-based environmental management. Evenbefore the 1991 modification of the CMARN, which was credited with legalizing the sectoral-based approach to environmental management, there were sector-based processes and incentives already in place. The Legal Decree 757 (after the modification o f the CMARN) simply ratified a sector-based environmental management approachthat was already inexistence. One o f the roots for this approach is the decentralization and regionalization led during 1985-1990 by Alan Garcia's national government. Duringthis 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 it 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 (Pulgar- Vidal, 20065). Another source for this is 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 to 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 inthe private sector's strong rejection o fthis 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, to avoid this type o f situations. Finally, inthe early 1990s, the Peruvian Government was determined to promote investment and address key sector crises faced at that time, particularly with regards to miningand energy. These crises included the paralysis o f mining activities in rural areas due to terrorism, the collapse o f state-owned mining operations and the decline o f investment inpublic enterprises due to 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 its efforts to: (a) establish enabling conditions to 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 is credited with 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 miningprojects. It is 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), no 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 approachhas 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 usedby 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 45- day period for the approval o f the Regulations. CONAM summoned the participation o f key 25For instance, in 199&1991 the Ministryo f Energy and Mines and the Regional Mining DirectorateinPiurahad a disagreementregarding environmental problems associatedwiththe Turmalina Mine. 21 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 parallelprocessbegan whereby memberso f congress submittedproposals to modify the SEIA Lad6. 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 beenapproved. This new law calls for additional modifications to the proposed regulations, includingnew roles for CONAM and the establishment of Strategic Environmental Assessment. Therefore, the EIA law is yet to be appropriately regulated andi s currentlybeingreviewedbythe PCM, which is proposingthat the law be endorsed by consensus among different constituencies, including the Afro-Peruvian, Andean andEnvironmental Commissions inCongress. 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 andmanufacturing. 2.47 Regarding LMPs, in 1996, the Ministry o f Energy and Miningdetermined a series o f values for wastewater discharges in the hydrocarbon, mining, metallurgic and electricity sub- sectors. In2002, the Ministryo f Production established LMPs for effluents in four sub-sectors: tanneries, paper, cement andbeer. These limits refer to effluents in superficial water bodies and the public sewage system. With the exception of some regulated parameters inthe mining and tannery sectors, the regulatedparameters refer to substanceswith 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, industrialor recreational ends. Miningand tanneries are the only sectors to regulate substances with negative effects on humanhealth, such as chromium for tanneries, lead in hydrocarbons, andlead, copper, arsenic and cyanide inthe miningsector. 2.48 Traditionally, air pollution problems have received little attention from environmental authorities. However, inrecent years, CONAMhas 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. In2005, the smelter emitted an average o f 1400 TM o f SO2 by day. It also emitted particulate matter containing arsenic andheavy 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 incompliance with mitigationmeasuresby 2007. 2.49 The attention o f national authorities (particularly the Ministries o f Energy and Mines, IndustryandTransport), NGOs andthe media focused on the approval of EIAs and PAMAs of large investment projects, especially the hydrocarbon and mining sectors. Projects such as the development o f the Camiseagas pipeline and the construction o fthe Interoceanic Highwayhave receivedconsiderable attention. 26 The proposed changes included calling for a different institutional arrangement in the final approval of EIAs, establishing different categories o fEIAs, and changes to the standard terms o freference. 22 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 andenforcement within line ministries is efficient, neutral and unbiased. Likewise, there was a notion that there is an imbedded conflict of interest when the line ministryincharge 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 of government: (i) creation o f a the 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 fthe already functioning OSINERG (as proposedby the Minister o fEnergy and Mines). The Ministryo fJusticehasyet to assess these proposals (Castro, 2005). 2.51 Other discussions underway by December 2005 included proposals to update and improve environmental regulations for the miningsector 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 Mmistry 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,WasteManagement and Reductionof Vulnerabilityto NaturalDisasters 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 of silicosis and other occupational diseases that had been affecting Peruvian mining workers for some time. A growing public awareness of these problems influenced the government's decision to participate in this program and establish INSO. With time, the Ministry of Health widened its environmental health responsibilities to include pollution control, food quality control andbasic sanitation. 2.53 In 1985, the Health Ministry changed the name of the National Council for Environmental Health Protection (Consejo Nacional de Proteccidn del Medio Ambiente para la Salud - CONAPMAS). This was done to widen the scope o f the Council's actions. Its 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 HealthInstitute in2003. 2.54 Currently, the General Directorate for Environmental Health (DIGESA) at MINSA is 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 inpublic recreational areas. Inspite o f its importance inthe national environmental agenda, DIGESA has faced numerous institutional and resource challengesthat have limited its overall technical and administrative capacity. 23 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 inthe mainurbancenters of Peru (RedPanaire). 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 includedthe LMPs for air quality parameters (including lead, arsenic and PM) inAnnex 3. 2.56 In2001, 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). To establish these standards, Technical Committees (Gruposde Estudio TkcnicoAmbiental 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, La 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) establishesthat specific government agencies would adopt concrete measures (such as prevention, monitoring, and environmental and epidemiologic control) to ensureimprovements inair 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 of Callao, the Ministryo f Transport and the private company that was awarded the concession. Parallel discussions on alternatives to harmonize standards between Lima's metropolitanregion and other regions are also underway. 2.58 Inaddition, there are ongoing discussions (and campaigns sponsoredby CONAM and NGOs) to lower the content o f sulfur indiesel fuel before the proposed timetable establishedby MEMinthe hydrocarbons law (No. 26221). InMarch 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 ppmby2010. 2.59 This 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 pollutionfrom construction materials such as asbestos. Solid WasteManagement 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. This law mandates *'The legal framework for air quality is perhaps one of the most evolved inenvironmental legislation inPeru. Other benchmarks include the approval of an air quality monitoring protocol by DIGESA (2005) and the promotion o f the Law for bio-fuels (Pulgar-Vidal, 2006). 24 specific institutional responsibilities andprovides a framework for managingand handlingsolid wastes in an environmentally sound manner, minimizing waste volume, preventing potential environmental risks, andguarantyingthe protectiono f society's health andwellbeing. 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). It 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) areas, (iv) public 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 Ministryof Health (and DIGESA); (c) the Ministryof Transport and Communications; and (d) provincial and district municipalities (in charge of waste o f domestic and commercial origin). 2.62 A year after the approval o f the Law, CONAM beganits 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 guidingtool 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-rangeprograms (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 linkedto 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. 004-2005- CONAM-CD), the PNGIRS was developed in 2005 by CONAM in conformity to Law No. 27314 (General Law for Solid Waste). Since 2003, the Pan-American Health Organization (OPS) actively participatedinreviewing and modifylng the original draft o fthe PNGIRS. 2.64 The key objective of the National Plan i s to reduce the generation o f solid waste inthe country and control its associated sanitary and environmental risks. Specifically, the PNGIRS has the following goals: (i) control andreduce the per-capita generation o f wastes; (ii) increase the quality and coverage of 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. It also has specifications for handlingwastes fiom different sources, and for transporting and disposing o f toxic and dangerouswastes. 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 is 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) 25 RotterdamConvention (1998); (iv) Basel Convention (1992); and(v) Stockholm Conventionon 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 MinistryofTrade and Tourism). Peruapproved the Rotterdam Convention in 1998.One ofthe first steps soon after signingthis convention was to impose a prohibition on the use o fpesticides developed with the active ingredient ethylic parathion, and imposing the restriction o f other pesticides. The Rotterdam Convention only came into effect in2004, andPeruratifiedit in2005 (through the decree D.S. 058-2005-RE). By the time Peru signed the Stockholm Convention in 2004, it had already prohibitedthe import, local production, distribution andtrade o fmost o fthe 12 chemicals substances underthe POPs convention. 2.67 A number ofkey institutions andgovernment agenciesare responsible for regulatingthe use, transport, trade and production o f pesticides: (i) SENASA (created as a decentralized government agency o fthe Ministryo fApculture); (ii) The National Commissionfor Pesticides (CONAP), created in 1993 under SENASA, is the main advising agency regardingthe registry and control o f agricultural pesticides; (iii) INRENA is 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 is responsible for producing toxicology reports, enforcement and regulating activities and products (for domestic and industrial use) that may be harmfulto humanhealth. The health sector, however, lacks specific norms to regulate in this area. By 1999, Peru carried out a preliminaryinventory o f POP pesticides considered `stale', and by 2001, another survey revealed that there hadbeena decrease inthe stock o f certain POPs ( h c a et al.,2005). Climate Changeand Natural Disasters 2.68 Compared to Argentina, Brazil, Mexico and Venezuela, Peru's overall contribution of green house gas (GHG) emissions to the atmosphere is low. Peru contributes less than 0.3 percent o f overall GHG emissions (CONAM, 2003). Nonetheless, climate change has gradually taken aprominent place within the national environmental agenda. Inspite o fthe severe impacts o f el Niiio (especially in 1983 and 1998) Peru's efforts inclimate 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 of CONAM's climate change agenda has been supported by external sources (i.e,, GEF, Holland and Denmark). 2.69 In 1993, ResolutionR.S. 359-RE established the creation of 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 UnitedNations 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 producedits FirstNational Communication on March2, 2001. The NCCC proposed theNational Strategy on Climate Change, which was approvedby SupremeDecree in2003. "PeruhasalsoadheredtoDecisionno.436oftheAndeanCommunity,andtheInternationalCodeofConductfor the Distributionanduse of Pesticidesby FAO. 29 Among the institutions that conform the NCCC are: (i)association of municipalities in Peru; (ii) private sector confederation (CONFIEP); (iii) National Council of Science and Technology; (iv) Ministry of Agriculture; (v) Ministry ofEconomy andFinance; (vi) MinistryofEnergy and Mines; (vii) Ministry of Production; (viii) Ministry of Foreign Affairs; (ix) Ministry of Transport, Communications, and Housing; (x) representative of NGOs; and (xi) representationfiom Academia. 26 2.70 In2002, a decree (No. 095-2002-PCM) gave CONAM the responsibility to implement activities linked to the clean development mechanism under the framework of the Kyoto Protocol, but delegated this responsibility to the National Environmental Fund (FONAM), which becamethe focal point for the prototype carbonfund inPeru. 2.71 A series of technical studies have been developed that have contributed to Peru's compliance with the requirements of the IntergovernmentalPanel of Climate Change (IPCC), and to elaboration of its National Communication. These compliance activities are: (i)an emissions inventory of GHGs (through Danishfinancing); (ii) mitigation of GHGs inPeru's the energy, transportand forest sectors; (iii) activities bearingon vulnerability to, and adaptationto, 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 its impacts in mountainous regions3'. 2.72 Inadditionto theproposalsbeingsubmittedfor CleanDevelopmentMechanism(CDM) approval, Peru is working on several climate change issues within the framework of the National Agreement. For instance, CONAM directs the PROCLIM project (Peruvian Climate Change and Air Quality Program) supported with financing from Holland, which is responsible for implementing part of the mandate of the NCCC. The PROCLIM Project follows an integrated approach to climate change: (i)mitigation of GHGs; (ii) adaptation; and (iii) information dissemination, and is responsible for implementing the National Strategy on Climate Change, and the National Program. PROCLIM's primary objective is therefore to strengthenthe country's overall national capacityviapublic andprivate sector institutions, along with over 70 partneringinstitutions throughout Peru's cities and regions. This program aims to enhance existingnationalclimate change capacity. 2.73 Inadditionto PROCLIM, the NationalInstitute for CivilDefense (InstitutoNacional de Defensa Civil- INDECI) has traditionally focused its attention on responseto natural disasters (notjust to those with causes relatedto climate change such as El Niti'o), gving low priority to preventiveactions for vulnerability reduction. Since 2003, attempts have been made to correct this bias though the preparation of a National Plan for Prevention and Attention to Disasters (Plan Nacional de Prevencidn y Atencibn de Desastres - PNPAD) approved in2004. This 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 naturalor manmadephenomena. At the national level, 103 urban centers have participatedinthe Program. Of those 103, 54 urban centers have Land Use Plans and measures to mitigate disaster, and 42 municipalitieshave approved studies for municipal ordainingandbeguntheir implementation. Towards a National Systemfor Environmental Management 2.74 Gradually, over the past twenty years, Peru has established the National System for EnvironmentalManagement (SNGA). In 1985, ONERN publishedthe analytical work that set the bases for the system: 'The Natural Resources of Peru." This work defmedthe situation and 30Peru contains roughly 71% of the globe's tropical glaciers. Since the early 1980s (PCC, 2004) Peruvianglaciers have lost about 22% ofglacier surface, (500 Km2) equivalent to 7,000 millioncubic metersofwater (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 of global warming, ENS0 (El Nilio SouthernOscillation), and extreme weather events on mountain hydrology are diminishing the water flow usedby 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 couldbe affected, since 80% ofits energy generationcomes from hydropower. 27 potential of natural resources in topics that included climate, soils, water, forestry resources, grasses, wildlife, water andbiological 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 consensusbuildingamong stakeholders, the CMARN was approved in 1990. The Code incorporated in its 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 implementationo f anational environmentalpolicy 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 CMARN 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 CONAM was created in 1994. As the national environmental authority, CONAM is a coordinating agency with a directive council integrated by representatives o f the national, regional and local governments, primary, secondaryand 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, CONAM has established nine regional environmental commissions (Comisiones Ambientales Regionales - CARS) that it manages through their respective Regional Environmental Executive Secretariats. In general, CAR participants include local governments, NGOs, and university and economic sector representatives. 2.77 Inaddition, through MEGA, CONAMhas ledthe design of 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 of CONAM's responsibilities to focus on monitoring key environmental priorities andactivelyparticipate inbudget allocationbasedon environmental results. 2.78 CONAM has achieved steady progress in the implementation o f an ambitious and comprehensive agenda to address environmental issues. CONAM 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 is 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. CONAM i s created within a framework already favoring the sectoral approach to environmental management, and thus, i s weak in its initial design and mandate. The initialdrafts tried to adopt some o f the features o f the Chilean model (CONAMA), which is characterized for a strong regional approach. It was assumed that the president o f CONAM 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 28 its inception, CONAM 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 its initial design, limited resources, a strong sectoral based environmental approach, and ongoing pressures from the private sector have, through time, characterized CONAM as a frail agency that has a low profile and lacks citizenparticipation (Pulgar-Vidal, 2006). I Box 2.2. TheNationalCodefor Environmentand NaturalResources-CMARN I The CMARN has been one o f the key landmarks inthe history o f environmental policy inPeru. CMARN 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 to first establish an environmental code. As a result, the CMARN 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 of 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 CMARN was the introduction o f environmental impact assessments (EIA) and its application, which previously did not exist in Peru. Likewise, the CMARN became the first norm to recognize and legitimize the rights o f citizens to have access to justice on environmental grounds, without having to proof direct environmental impact (many years later the code for civil procedures and the Law o f the General Administrative Procedures recognized this right) (Pulgar-Vidal, 2006). The modification to the CMARN 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 of 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 to be known for passing a "significant" environmental norm in Peru. Consequently, it proposed the creation of a review committee to which would modify the Code as a meansto 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 by congress. Once approved, technical groups joined the review process among other things, to prevent that key concepts and principles be taken out. 2.79 In2004, Congress approved the Framework Law for the SNGA, whch establishesthe integration o f all sectoral entities to the System, under CONAM's leadership. This Law reinforces inter-institutional coordination. Nonetheless, one o f CONAM's biggest challenges is 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 coordinationamong agencies sends mixed messages to sectors andhindersthe adoption o f improvements inefficiency'. Role of theMinistry of Economy and Finance 2.80 The Ministry of 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 systemifpublic investment(SNIP) to FONDEBOSQUE's reforestation programs; and (ii) endorsedthe debt for nature swaps for which PROFONANPE has served as the implementing agency. Furthermore, the Directorate for Environmental and Macro- productive Studies has been established within MEF (under the General Directorate o f 31 For example, in 1998 a decree by initiative of the Navy required all fishmeal plants discharging into the sea to install sub-marine outfall pipes by the end of the year. This measure was contrary to MIPE policy, which was attempting to discourage the use o f submarineoutfall pipes, as they are expensive, result inlost revenue (inthe form o fraw material), and most importantly does not prevent waste (US AID, 2000). 29 Economic and Social affairs). This Directorate's mandate i s to (i) andprovide follow-up analyze to the productive sectors in line with the country's national development strategies; (ii) assess andmonitor environmental issues inthe country, inaccordancewith the nation's environmental policy and productive potential; (iii) participate in formulating, implementingand evaluating o f the national economic program; (iv) identify and assess a series o fkey indicatorso 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$170million in 1999 to US$147 million in 2003, which i s 0.14 percent of GDP (Abugattas, 2005). This amount reflects that environmental issues have low priority in the allocation o f resources in the country. Furthermore, Peru is 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 requiredto 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 needingto be dealt with are most likely not being addressed Box 2.3. Peru's NationalEnvironmentalSystem (SNGA) The 2004 Law o f SNGA empowered CONAMA to coordinate environmental management among a range of public and private stakeholders. The Law defines a set of orientations, norms, activities, resources, programs and institutions that allow the implementation of general environmentalprinciples around a model o f sustainable development. Territorial Levels (Art. 16) National Regional Local n I ] CouncilofMinistersIPCM I 2 --3 I1 1 CONAM Regional Local v1 e, > I11 National and Strategic Environmen- Environmen- Technical Groups tal Manage- tal Manage- d ment ment * 6 Ministries, OPDs, Regional Systems Systems Governments, Local CL Governments, Private Sector, Civil Society Source: CONAM (2005) 2.82 In October 2005, the General Law of the Environment (Ley General del Ambiente - LGA), was issued by Congress. The Law consolidates CONAM as the leading entity of the SNGA (Box 2.3). The SNGA Law assignsenvironmental control functions andthe administration of 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 of environmental management in Peru 32 MEF'swebsite: 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, andwater sanitation. This gap has beenhighlighted inevaluations ofplanning inthe SNGA(Pulgar-Vidal, 2006). 31 Box 2.4. National EnvironmentalAgenda 2004-2007 Structural Green Golden Objectives Front Brown Front Blue Front Front Environmental Implement Policy: the FTA:defend approved National Annual ECA Education: national national Bio- and L M P national biodiversity environmental diversity programs priority interest policy Strategy Normative Strengthen Trans- Framework public Integrated Promotion o f Integration sectoral a new CMARN, manage- management o f environmen- o f laws and trans- mentinthe dangerous and tal citizen Commerce sectoral managing chemical stewardship and regulations O f R R N N substances Environment Environmental Capacity Institutional Environmental building for Environmen- Development: decontamina- investiga- tal services implementation tion tions and strengthening o f the National National System for Level Environmental Application Management and National Regulation o f of Promotion of o f the Reforesta- solid waste mechanisms Sustainable environmental tion Plan management for the access Tourism unitsat national, of regional and information local government and Sectoral levels environmen- Promote tal Decentralization aquaculture Promotion o f participation Promotion of of and the P M L and bio- Environmental adequate support for the commerce Management: fishing PYME pushfor the practices decentralization Use and process in protection Improve the Develop- environmental o fnative conditions for ment o f matters knowledge housing and concessions and urban living for tourism technology Instruments for Regional Regional Environmental biodiversity climate change Regional and Management: strategies strategies Regional local Regional complete and assimilation promotion of and strengthenthe of environmen- Local instruments for tal products, Articulation Municipal educational Levels environmental eco- of OTA and managementof environmen- management at conservation solid waste tal projects commerce all levels o f and government ecotourism 2.83 Since 2004, the national program for decentralization o f responsibilities contemplates in its plan the transference o f functions related to natural resources and environmental protection. Actions to be decentralized include sectors such as agriculture, tourism, and energy and mining. The Ministry of Agriculture began the transference to the regions o f processes o f monitoring and control to guarantee the 32 sustainable use o f natural resources and to emit permits, authorizations and forestry concessions, as well as the control o f the compliance to national forestry policy. The MinistryofCommerce andTourism contemplates the transferoffunctions regardingthe verification o f compliance to environmental norms and regulations and natural resource preservation in tourism. The Ministry of Energy and Mines has begun to transfer to regional governments the PAMAs' approval and supervision functions, along with the environmental assessment for small-scale miningactivities. Box 2.5. The GeneralLaw of the Environment-LGA The General Law of the Environment (Law No. 28611) 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. It incorporates a series o f new characteristics and challenges and, to a large extent, will depend on CONAM's capacity for its final regulation and adequate implementation. The LGA had a number o f controversial issues for the private sector which were extensively debated, including the precautionary principle (article VI); reparation of damage and the burden of civil responsibility (Article 147); and environmental quality standards and maximumpermissible levels (articles 31-33). Among the new features the LGA includes a fiscal framework to promote sound and responsible environmental practices and behavior @reviously unknown in Peru); Likewise it establishes CONAM 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 incritical environmental areas. This would allow CONAM to have presence and a mandate in addressing specific environmental problems, which previously did not get involved (i.e., air pollution inL 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 of pending issues and challenges concerning the General Law 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 of incentives and sanctions (fines); (c) defining the methodologies and scope for environmental zoning (ordenamiento territorial); (d) defining environmental spending, from the agreement that CONAM and MEF would carry out the yearly accountability); and, (e) empowering CONAM with enforcement capabilities, an issue that has been linked to 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 reachedduring 1950-1990 were the establishment o f OERN and DIGESA, and the issuance of the Code for Environment and Natural Resources in 1990, which remains Peru's most important regulation for environmental management. While Peru has greatly improved its 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 inpromotingthe conservation agenda, as evidenced by advances such as the titling of lands belonging to indigenous peoples and the establishment of 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 trainedstaff, and adequatedata (i.e., on forestry and the status of biodiversity); (ii) faced excessive bureaucracy, and (iii) been unable to has has 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 naturalresources (Bernales, 2006). 33 2.86 Water resource management is 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 its implementation. Decentralization efforts have been highly effective, and current discussions focus on the possible creation of anationalwater 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 is 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 of the concessions grantedinthe country. 2.88 The evolution of the National Protected Areas Systemhas been successful inthat 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) creation of an the independent regulatory body; and (ii)the establishment o f independent environmental regulatorybodies within line ministries, following the model o f the OSINERG. 2.90 There is 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 beenpreparedand are under discussion, and there is a significant need for their issuance. Regulatory gaps relating to EM have led to highly publicized controversies about large investment projects. These include the extension o f the PAMA for the Doe Run, adequate enforcement and compliance for the Camisea gas pipeline, and the upcoming constructiono f the Interoceanic Highway. 2.91 A numbero fissues concerning the General Law of the Environment and its 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 agreementthat CONAM and MEFwould carry out the yearly accountability process); and (v) empowering CONAM with enforcement capabilities, an issue that hasbeenlinkedto 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 of large investment projects.' Inlight o f the 2006 presidential elections, many o f these topics are gaining relevance inthe politicaldebate. 34 CHAPTER 3 ALIGNING ENVIRONMENTALPRIORITIESWITH THE NEEDS OF THE MOSTVULNERABLE I n Peru, the costs of environmental damages are estimated at 8.2 billion solesper 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 75percent higherfor thepoor thanfor 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 higherfor thepoor. 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 thepoor because their use of solidjkels is far greater than by the non-poor. The impacts on all environmental health categories- i.e., urban air pollution, water, sanitation and hygiene, and indoor air pollution per 1000people-are nearly 20percent higherfor thepoor thanfor the non-poor. Relative to income, the impacts on thepoor 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 illhealth, 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 in2003 (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 andhygiene. 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 is minor compared to the former costs. The cost o f lead pollution is declining with the phase-out o fleaded 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 is for cities with more than 100 thousand inhabitant^.^^ The cost per person in these cities is estimated at 33 Bjom Larsen and Ernest0 Sanchez-Triana prepared this chapter. This chapter draws heavily fiom background documents preparedbyBjomLarsen 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 is unlikely that the costs of 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 or agricultural soil degradation. However, the cost of rangeland degradation could be significant. Rangelands occupy 18 million hectares in Peru, which is more than 4 times the area o f cultivated land. For fisheries, only an estimate o f the excess fishing fleet is plovided due to uncertaintiesabout fish stock dynamics. The cost of lead exposure is from all sources including leaded gasoline, industry, water soil, paint and food. 35 230 soles per year. Indoor air pollutionfrom solid fuels is predominantly a burdenon the rural population, with an estimated cost o f nearly 100 soles per person per year. Incontrast, hygene practices, andto some extent inadequatepotable water supply and sanitation, affect most o f the population, causing unnecessary diarrheal illness and child mortality, with an annual cost of nearly 85 soles per person. Figure3.1. AnnualCostsof EnvironmentalDamage (BillionSoles) 1 3.0, I 2.5 2.0 1.5 1.o 0.5 0.0 Outdoor air Water supply, Naturaldisasters Indoor air pollution Soil degradation Deforestation MunicipalWaste pollution(PM) and Sanitation and collection lead (m) hygiene exposure Source: Larsen and Strukova (2006a) 3.3 Natural disasters affect large areas of Peru, while agricultural soil degradation is 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 is estimated at 1200-1300 soles per hectare affected, representing a substantial income loss for the agricultural population. Figure3.2. EstimatedAnnualCosts of EnvironmentalDamageper Capita (Soles) 250 1 200 150 100 50 0 Outdoor air pollution (PM) Indoor air pollution Water supply, sanitation and and lead (Po) exposure hygiene Source: Larsen and Strukova (2006a) 3.4 Table 3.1 presents low, high and mean estimates o f annual costs. This reflects uncertainties in estimated health effects, valuation o f health effects, yield losses from soil degradation, cost of damages from natural disasters, and how households value solid waste 36 collection services. The range inthe costs associatedwith deforestation reflects estimates o f lost future forest benefits at a 3-10 percent annual discount rate. Table 3.1. Annual Costs ofEnvironmentalDamage(BillionSoles) I I BillionSoles perYear I Low Mean High Estimate Estimate Estimate EnvironmentalCategories Outdoor air pollution (PM) andlead(Pb) exposure 1.71 2.81 3.91 Water SUDD~V. sanitation andhvniene 1.79 2.26 2.73 I Naturaldisasters I 1.05 1 1.07 I 1.10 I Indoor air pollution 0.55 0.78 1.02 Soil degradation 0.54 0.73 0.92 Deforestation 0.28 0.44 0.59 II MunicipalANNUAL waste collection I 0.09 I 0.10 I 0.11 I TOTAL COST I 6.01 1 8.19 I 10.38 I *Erosion and salinity of cultivated land(not including pasturehangeland) Source: Larsenand Strukova(2006a) Outdoor Air Pollution and LeadExposure 3.5 Particulate matter (PM) i s the urbanair pollutant most often found to have the strongest association with health effects. Thls 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 of P M pollution in Peru is estimated at 1.8 billion soles or nearly 0.9 percent of 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 of people living in cities with a population of more than 100 thousand, ambient P M concentration levels in these cities, and dose-response coefficients from worldwide studies linkingP Mconcentrations to health effect^.^' 3.6 Nearly 75 percent of the Peruvian population lives in urban areas, with more than 12 million people incities with apopulationover 100 thousand. P Mmonitoring is 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 Bankmodelingo fPMlO concentrati~ns.~~ 36 DALYscombinebothmortalityandmorbidityandis calculated fromyears lost to premature mortality, durationof illness, and severity of illness (usingseventy weights). 37 Peruvian studies of the relationshipbetween ambient PMconcentrations andhealth effects are not available. 38 www.worldbank.orghipr/Atrium/mapping.html.url. 37 Figure3.3. Annual CostsofUrbanAir Pollution(Billion Soles) 1.0- 0.8- 0.6- 0.4 - 0.2 - 0.0 + I Cardiopulmonary and lung cancer mrtaiity Respiratory morbidity I ~~ Source: Larsenand Strukova (2006a) Table3.2. PopulationandPMConcentrationsinLima-Calla0 Key parameters Este Sur Norte Centro Callao Population(millions) 2002 0.97 1.60 2.64 1.57 0.79 Adult population >= 15 yrs (000) 0.69 1.14 1.90 1.17 0.57 Child population <=I4 yrs (000) 0.28 0.46 0.74 0.40 0.22 Annual average PM2.5 (ug/m3) 2001-2004 45 39 57 84 31 Estimatedannual average PMlO (ug/m3) * 91 82 112 133 53 Table3.3. PopulationandEstimatedDatafor Citieswithout PMMonitoringData Key parameters Arequipa Trujillo Other cities Total population (millions) 2002 0.68 0.62 3.24 Adult population >= 15 yrs (000) 0.45 0.41 2.13 Child population <=14 yrs (000) 0.23 0.21 1.11 Estimatedannual averagePMlO (ug/m3) 96 55 63 Estimatedannualaverage PM2.5 (uglm3) 38 22 25 3.7 Dose-responsecoefficients are presented inTable 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 of 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 fenvironmental risk factors. 3.8 Morbidity effects assessed in most worldwide studies are based on PM10. Dose- response coefficients from Ostro (1994) and Abbey et al. (1995) have been applied for morbidity effects. Ostro (1994) reflects a review of worldwide studies, and Abbey et al, (1995) provide estimates o f chronic bronchitis associatedwithparticulates (PM10). 38 Table 3.4. UrbanAir PollutionDose-ResponseCoefficients Per 1ug/m3. Annual HealthEffect Dose-Response Annual Average Coefficient Ambient Concentrationof: Mortality (% change incardiopulmonary and lung cancer 0.8% PM2.5 mortality inpopulation over 30 years of age) Chronic bronchitis (% change inannualincidence) 0.9% PMlO Respiratoryhospital admissions(per 100,000 population) 1.2 PMlO Emergencyroom visits (per 100,000 population) 24 PMlO Restrictedactivity days (per 100,000 adults) 5,750 PMlO Lower-respiratory illness in children (per 100,000 children) I 169 PMlO Respiratorysymptoms (per 100,000 adults) 18,300 PMlO 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 Lima- Callao. 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 is 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. Intotal, more than65 thousand DALYsare lost eachyear. 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 is the present value o f future income lost to premature death. This valuation method was commonly used in the past, but has increasingly been replaced by the value o f statistical life (VSL). VSL is a measureo fpeople'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 inthe UnitedStates and Europe provides a highcost estimate o f mortality o f 2 billion soles per year.39The cost of 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. 39This is based on a VSL inUnited States and Europe of US $ 2 million (Mrozek and Taylor 2002), translating to 520 thousandsoles inPeruby adjustingfor the incomedifferentialbetweenthese countries and Peruusingan income elasticityof 1.0 at market GDP per capita. It shouldbe noted that even this approach is consideredconservative by manyeconomists,who prefersto usePPPbasedGDPor a lower incomeelasticity. 39 Health Endpoints Total Cases(000) Total DALYs Premature mortality 3.9 29,253 Chronicbronchitis 3.8 8,386 Hospitaladmissions 12.8 205 Emergencyroomvisits/Outpatienthospitalvisits 252.0 1,133 Restrictedactivity days 43,350.0 13,004 Lower-respiratoryillnessinchildren 533.0 3,467 Respiratorysymptoms 137,957.0 10,347 65.796 I TOTAL , I J Source: Larsen and Strukova(2006a) Table 3.6. EstimatedAnnual Costs ofHealthImpacts(Billion Soles) Health Categories Total Annual Cost* Percent of Total Mean Cost Mortality 0.23-2.02 62% Morbidity Chronic bronchitis 0.08 4% I Hospitaladmissions I 0.03 I 2Yo I Emergencyroomvisitdoutpatient hospitalvisits 0.06 3% Restrictedactivity days (adults) 0.35 19% Lower-respiratorvillness inchildren 0.09 5% Respiratory symptoms (adults) ~ 0.08 4% Total Cost of Morbidity 0.70 38% TOTAL COST (Mortality and Morbidity) 0.93-2.72 100% 3.11 The annual cost of lead(Pb) exposure is estimated at 0.8-1.2 billionsoles per year, with a meanestimate of 1.0billion soles, or 0.48 percent of GDP in2003 (Figure 3.4). This estimate i s basedonleadexposure from all sources (leaded gasoline, industry, andpossibleother 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 of the Peruvianpopu~ation.~~ 3.12 IQ (reducedintelligence)represent65percentofthetotalcost,andmildmental losses retardation(MMR)34 percent. Cardiovascular mortality and elevatedblood pressure morbidity inadults constitute only 1percent of the total cost. Inaddition, lead exposure is estimated to cause 1,400-23,000 annual new cases of gastrointestinal effects in children, and 800-18,000 new cases of childhoodanemia. 40 This corresponds to thepopulationfor which the cost o fPMpollutionwas estimated. 40 Figure3.4. Annual Costs of LeadExposure(MillionSoles) III 700 I I 600 500 400 300 200 100 0 IQ loss in children Mild mental Cardiovascular Elevated blood retardation mortality pressure morbidity Source: Larsenand Strukova (2006a) 3.13 The estimated cost of lead exposure is based on adjustments to blood-lead level (BLL) measurements in children and adults from 1998. As little is known about current blood-lead levels inthe urbanpopulation, the cost estimates are highlyuncertain. 3.14 A program initiated inthe late 1990s to eliminate lead in gasoline has already brought significant benefits. Lead concentrations inthe air inLima-Callao are now quite low, averaging 0.13430 ugh3 infive monitoring sections o f the urbanarea during 2000-2004. However, the health effects of lead exposure can still 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" inPeru, andTable 3.7 presentsa summary o fhealth effects from leadaccumulation inblood. Box 3.1. LeadContamination"Hot Spots" inPeru Gasoline i s not the only source of lead exposure inPeru. A 2005 analysis conducted in La Oroya by a research team from St. Louis University's School of Public Health confirmed earlier findings by DIGESA. La Oroya, a town of 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 of children from six months to six years of age have lead concentrationsinthe blood(BLL) above 10 ug/dl.About 72 percent ofthe children have BLL o f 20-44 ug/dl and 9 percent inthe range of 45-69 ug/dl. Children with BLL inthe latter range required urgent medical attention. There are also other cases of elevated BLL. In 1998, Peru's Ministry of Health confirmed that 5,000 children living near the mining areas in the port city of Callao had a BLL of 2 0 4 0 ug/dl, and nearly 100 percent of the 350 students at the Maria Reich public school had a BLL of more than 40 ug/dl (Osava, 2002). These incidences are not characteristic o f the whole urban population. BLL in most ofthe Lima- Callao metropolitan area and other cities is much lower. Nevertheless, lead contamination "hot spots" should be analyzed and mitigation measuresurgently implemented. Sources: Salazar M. (2005). Grave Contaminacih en La Oroya, 15/12/05 - La Rep6blica, 20; http://www.pcusa.org/pcnews/2005/05677.htm;DIGESA, Osava M. (2002). Lead Poisoning Is Not a Child's Play, http://www.tierramerica.net/2002/0929/iarticulo.shtml 41 Table 3.7. Health Effects of Lead O u t m Blood lead Relationship thresholdl @!m) Children Adults IQ reductionb 5 ND Linear relationship between5- 20 p@dl BPbc (loss of 1.3 IQ paintsper 5 Wdl BPb); lossof 3.5 IQ pointsabove20 pgidl. Increasedsystolic blood ND 5 Linear relationship assumed pressured between S 2 0 pg/dl (increase of 1.25 mmHg per increase of 5 p@dl BPbfor mates, and 0.8 mrnHg for females}; above 20 pgldl, an increase of 3.75 mmHg for males, and 2.4 mmHgforfemales. Gastrointestinaleffects 60 ND 20% of children are affected abovethese rates'. Anaemia 70 80 20% of m o t e are affected above&e ;atese. a Thresholds for gastrointestrnal effects and anaemia are levels `at risk". as defined byATSDR (1999). The d w s e burden is always estimated for one particularyear 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 effectsof leadon previouscohorts were consideredin previousyears. BPb: bloodleadlevel(in pg/dl). Adults aged 20-79 years only. Basedon Schwartzetal.(1990); see sectmn 4.1. NDNodocumentedeffectsor insufficientevidence. Source: Fewtrell et al. (2003) 3.15 Fewtrell et al. (2003) provide a practical methodology to estimate health effects of lead pollutionusinga Microsoft Excel model developed and distributed by the WHO Department of 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 applyingthe relationships betweenBLLandhealtheffects inTable 3.7. 3.16 Blood-lead level information from Espinoza et al. (2003) was applied inthe Fewtrell et al. model with two major adjustments. Although this study is 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 ingasoline. While there is 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 BLLo f 4.3 ug/dlinchildren and2.0 ug/dlin adults. These average levels are below the lowest threshold (i.e., 5 ug/dl) for health effects reported inTable 3.7. Nevertheless, part of the population may have a BLLwell above this threshold. This is reflectedinthe standarddeviation reported by Espinoza et al. (2003). With a lower BLLtoday thanin 1998, the standarddeviation may also be lower now than in 1998. Therefore, a rangewas used, with a "low" equal to 60-100 percent o fthe standarddeviation reported by Espinoza et al. (2003). 42 Table 3.8. EstimatedHealthEffectsper 1000People Notes: I Q indexes intelligence; BP =bloodpressure; MMR= mildmental 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 andno adults have BLL > 20 ug/dl. Estimated health effects per 1000 children and per 1000 adults are presented inTable 3.8. It i s assumed that I Q losses take place during the first 5 years of a child's life, while gastrointestinal effects and anemia can occur in children under 15 years o f age. Inadults, the healtheffects are increasedbloodpressure(BP) andanemia. 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 of 5 ug/dl BLL, below which no I Q loss occurs, and an upper threshold o f 20 ug/dlBLL, above which no further IQ 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 will cause mild mentalretardation (MMR), occurring at an IQ o f 50-70 points. Thus, chldren with an I Q of 70- 73.5 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 is estimated by applying the results in Table 3.8 to the estimated number o f children with IQs o f 70-73.5 points. Estimatedannual loss of intelligence from lead exposure is presented inTable 3.9, totaling about 160-235 thousand I Qpoints and 1750-2670 cases o f MMR. Table 3.9. EstimatedAnnualIQ LossesandCasesofMMRfromLeadExposure Low High IO Point Losses (thousands) I Q (1) - loss of 0.65 pointsper child 42 30 I Q (2) -loss of 1.95 points per child 45 43 IO_(3)_-,loss of 3.25 Doints Der child 32 41 I Q (4) - loss of 3.50 points per child 40 120 TOTAL LOSSES(THOUSANDS) 159 234 I Number of children with MMR 1750 2670 41Fewtrell et al. (2003) apply a linear relationship through the mid-point of each 5 ug/dl BLL interval, with a maximumloss of 3.5 IQ points. 43 3.19 Other health impacts o f lead exposure are gastrointestinal effects inchildren, anemia in children and adults, and elevated blood pressure in adults, resulting in a higher risk of 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 of gastrointestinal effects, anemia and cardiovascular mortality from increased bloodpressureare presentedinTable 3.10. Table 3.10. EstimatedAnnualCases of "Other HealthEffects" LOW HIGH GASTROINTESTINAL EFFECTS 1,400 23,000 INCHILDREN ANEMIA INCHILDREN 800 18,000 I ANEMIA INADULTS I 0 1 0 1 CARDIOVASCULAR MORALITY 0 40 Costs of Health Eflects 3.20 Estimated annual costs o fhealtheffects from lead exposure are presented inTable 3.1 1, totaling 0.8-1.2 billion soles per year. The main costs are associated with IQ and mild losses 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 inincome for every one-point loss inIQ.43 Studies o f income losses from MMR are not readily available. Consequently, income losses are estimated as proportional to MMR disability, usinga disability weight of 0.36 provided by WHO. Inaddition, 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 is an average of the humancapital value and the value of statistical life (VSL). In the absence o f data on frequency o f healthcare visits and medication, the cost o f elevated blood pressuremorbidity is 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 HealthImpactsfrom LeadExposure(MillionSoles) I Percent of Total cost I mean cost IQ inchildren loss 530-775 65% Mildmental retardation (MMR) 270-415 34% Cardiovascular mortality in adults I 0-10 0.7% Elevated bloodpressure morbidity in adults 0-5 0.3% TOTAL ANNUAL COST I 800-1205 100% 42 There could be additional cases o f BLL >60 uddl inleadcontamination "hot spots" (see Box 1). 43 This reflects a mean estimate o f income losses. An annual discount rate o f 3 percent and a real increaseinannual income of 2 percent is applied. A 0.5 percentage-point income loss attributed to a reduced likelihood o f labor force participation from a decline inIQ i s not includedbecause o f inadequatecomparable data on factors influencing labor force participationinPeruvs. the UnitedStates. 44 3.21 It should be noted again that the costs presentedinTable 3.11are only for the urban population incities with more than 100thousand inhabitants, andthat the estimatesare basedon adjusted BLL measurementsfi-om 1998. As there i s great uncertainty about current BLL inthe urbanpopulation as a whole (and inthe rural population), new studies o f BLL inchildren and adults are neededto provide abetter estimate o fhealtheffects andtheir costs. Water Supply Sanitation andHygiene 3.22 The annual cost o f inadequate water supply, sanitation and hygiene is estimated at 1.8- 2.7 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 fthe 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 andhouseholdboilingo fdrinkingwater. Figure3.5. AnnualCostsbyCategory(Million Soles) 1400 1200 1000 800 600 400 200 0 Diarrheal Morbidity Diarrheal Mortality Boiling of drinking Bottled water Hep A, Typhoid, water consumption Paratyphoid Source: Larsen and Strukova(2006a) 3.23 Diarrheal morbidity and mortality are the major health effects of inadequate water quality and quantity, sanitation facilities and practices, and hygiene." WHO estimates that 90 percent o f diarrheal illness is attributable to these factors (WHO 2002). The Peru Demographic and Health Survey (DHS) 2000 provides data on diarrheal prevalence inchldren under the age o f five years. Itreports a two-week diarrheal prevalence rate of 15.4 percent. This rate is usedto 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 Ministryo fHealth indicates that 4.6 percent o f child mortalitywas due to intestinaldiseases in2000. This serves as the lower boundary for estimatingdiarrheal mortality. The Global Burdeno f Disease2002 (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 under- reporting o f mortality. This i s the average o f AMRO B and AMRO D WHO sub-regions, reflecting that the child mortality rate inPeru approximates the average o f the two sub-regions. 44Hygiene refers to personal hygiene (such as handwashing), domestic hygiene and food hygiene. 45 A diarrheal mortality rate of 13 percent of 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 numberof intestinal disease hospitalizations was used, corresponding to 0.075 percent o f diarrheal cases inchildren under five and0.05 percent o f cases inthe populationover 5. 3.26 Table 3.12 presents the estimated health impacts from inadequate water supply, sanitation andhygiene, andTable 3.13 presents disability adjusted life years (DALYs). Table3.12. EstimatedHealthImpactsfrom InadequateWater, SanitationandHygiene EstimatedAnnualCases Low Estimate HighEstimate Cases of Diarrhealillness Children (under the age of 5 vears) - increasedmortalitv 845 2.390 Children (under the age of 5 years) - increasedmorbidity 8,360,000 8,360,000 Population over 5 years of age- increasedmorbidity 9,900,000 13,680,000 CasesofDiarrhealHosDitalization Children (under 5 years of age) 6,300 6,300 Population over 5 years of age 5,900 5,900 Table3.13. EstimatedDALYsfromDiarrheal Mortality andMorbidity EstimatedAnnualDALYs Low Estimate High Estimate Children (under the age of 5 years) - increasedmortality 28,760 81,285 Children (under the age of 5 years) - increasedmorbidity 2,790 3,715 Population over 5 years of age - increasedmorbidity 11,000 19,750 TOTAL 42,550 104,750 3.27 The annual cost of diarrheal illness fiom inadequate water, sanitation and hygiene is estimated at 1.5-2.1 billion soles (Table 3.14). The estimated cost o f diarrheal childmortality is 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 freduced well-beingassociatedwith illness. Table3.14. EstimatedAnnualCost of DiarrhealIllness(Million Soles) I I EstimatedAnnualCost I Low Estimate High Estimate Mortality Children under 5 years 205 575 Morbidity Children under 5 years 585 650 Population over 5 years 665 880 TOTAL ANNUAL COST 1,455 2,105 46 3.28 Cost o f illness i spresentedinTable 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 ftreatment andmedicines. The estimated cost o f time losses i s based on 75 percent o fwage rates. Table3.15. EstimatedAnnual Cost of Illness (Morbidity) EstimatedAnnual Cost (BillionSoles) Low Estimate I HighEstimate Cost ofmedicaltreatments(doctors, hospitals, clinics) 0.53 0.55 Cost ofmedicines 0.31 0.33 Cost oftime lostto illness 0.30 0.47 3.29 Inadequate water, sanitation and hygiene also cause other diseases. There were 39 thousand cases of 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 is estimated at 70 million soles (Table 3.16). Table 3.16. EstimatedAnnualCostof TyphoidParatyphoidandHepatitisA EstimatedTotalAnnual Cost (Million Soles) Cost ofhospitalization 50 Cost ofmedication 2 Cost oftime losses 18 TOTAL ANNUAL COST 70 3.30 Avertingexpendituresrepresent anadditionalcost of inadequatewater supply. Ifpeople perceive a risk o f illness fiom the municipal water supply or fiom other sources of water supply that they rely on, some o f them are likely to purchase bottled water for hnlungpurposes, boil their water or install water purification filters. Economists usually consider these averting expenditures a cost o f healthrisks. 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 drinkingwater innearly 70 percent of households (US AIDHandWashing Survey, 2004). Table 3.17. EstimatedAnnualHouseholdCost of AvertingExpenditures Total Annual Cost (Million Soles) Low Estimate I HighEstimate Cost ofbottledwater consumption 75 165 Cost ofhouseholdboiling drinking water 190 380 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) is 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, andadult female COPDmortality, eachrepresent 17percent ofthis cost (Figure 3.6). Figure3.6. Annual Costs of IndoorAir Pollution(Million Soles) 300 250 200 150 100 50 0 Child Child Adult Adult COPD Respiratory Respiratory Respiratory and Mortality Mortality Morbidity COPD Morbidity Source: Larsen and Strukova (2006a) 3.33 According to the Peru Demographic andHealth Survey 2000, around 87 percent o frural households and 11percent o f urban households usedfuel wood, charcoalkoal products or dung in2000, constituting amajor source ofindoor air pollutionandrespiratory healthrisk.Winrock Internationalis currently implementinga USAIDproject inthe highAndeandistrict of Inkawasi inLambayeque to reduce exposureto indoor air pollution fiom fuel wood usedfor 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 medianlevel o f PM4 was alarmingly highduringthe cooking period, and they exceeded outdoor air quality standards duringthe nighttime.PM4 concentrations exceeded 500 ug/m3in40 percent of the households, exceeded 1000 ug/m3inmore than 20 percent o f the households, andexceededPeru's 24-hour national air quality standard for PM2.5 o f 65 ug/m3in nearly90 percent ofthe households.& Table 3.18. Concentration of PM4 (pg/m3)in a Sample of 48 Kitchens COOKING NON-COOKING 24-HOUR PERIOD* PERIOD** AVERAGE AVERAGE f 907 f 1287 162 f 343 635 f 849 SD MEDIAN 408 58 280 RANGE 5-6312 ND-2093 3-3880 46Smoke from fuel wood consists of very fine particulates. The difference in the share PM4 and PM2.5 in total PM can therefore be expected to be small. 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 inPeru's rural communities. PM pollution can be expected to be particularlyhigh from the use o f fuel wood with open fire or unimproved stove, with seriousrespiratory healtheffects. 3.35 Desai et al. (2004) provide a review o f researchstudies 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 highratios reflects Desai et al.'s (2004) review and has been applied inthis chapter to young children under the age o f five years (for ARI) and adult females (for ARI and COPD) to estimatethe increaseinmortality andmorbidity associatedwith indoor air pollution.47It i s these population groups who suffer the most from indoor air pollutionbecausethey spendmuch more o ftheir time at home andor more time cooking than older children andadult males. Table 3.19. HealthRisks of Indoor Air Pollution Low High Acute Respiratory Illness (AM) 1.9 2.7 Chronic obstructive pulmonary disease (COPD) 2.3 4.8 Source: Desai et al. (2004) 3.36 To estimate the health effects o f indoor air pollution from the odds ratios inTable 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 f2 percent o f female crude m~rtality.~' 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 of ARI in children under-5. No information on ARI in adults i s available inthe DHS household survey or any other household survey in Peru. An analysis of 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 childrenunder five (Larsen, 2004b). This incidence differential is usedto 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 is 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, andthe hghboundreflectedchildmortality statistics inPeru. 3.38 Estimated health effects o f indoor air pollution are presented in Table 3.20. They are estimated from the baseline health data discussedabove, the odds ratios in Table 3.19, and the urbanandruralpopulation shares usingsolid fuels. Estimated cases ofARI childmortality from indoor air pollutionrepresent 25-40 percent o f total ARI childmortality inPeru. EstimatedART morbidity inchldren under five is 20-30 percent of total ARI morbidity inthis age group inthe country, and estimated ARI in adult females is 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 ftotal estimated female COPD from all causes. Table 3.21 presentsthe estimated health effects 47 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 oflungcancer amongrural women is generally very low. 48 Perubelongs to the AMRO DregionofWHO, which is one ofthree WHOregions inthe Americas. 49 indisability adjusted life years (DALYs).An estimated 42-62 thousand DALYs are lost each year due to indoor air pollution. Table 3.20. EstimatedAnnual HealthImpactsof IndoorAir Pollution I I EstimatedAnnual Cases I Low High Acute RespiratoryIllness(AM): Children(underthe age of 5 vears) -increasedmortalitv I 911 I 1.291 I Children(under the age of 5 years) -increasedmorbidity 2,121,400 3,102,200 Females(30 years andolder) -increasedmorbidity 546,200 825,600 I Adult females -increasedmortality 334 I 605 Adult females-increasedmorbidity 924 I 1,665 I EstimatedAnnual DALYs (000) Low High Acute RespiratoryIllness(AM): Children(under the age of 5 years) -increasedmortality 31 44 Children(under the age of5 years) -increasedmorbidity 3.5 5 Females(30 years andolder) -increasedmorbidity 3.8 5.8 Chronic obstructivepulmonary disease (COPD): Adult females -increasedmortality 2 3.6 Adult females -increasedmorbidity 2.1 3.7 3.39 Total annual cost o f indoor air pollution is estimated at 0.55-1.0 billion soles, with a mean estimate o f0.78 billion (Table 3.22). The cost o f mortalityfor adults is basedon 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 of 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 is 75 percent of urban and rural average hourly wages, which are 3.8 SI. and 2.5 SI. respectively. 3.40 There is very little information about the frequency o f doctor visits, emergency visits andhospitalization for COPD patients inany country inthe world. Schulman et al. (2001) and Niedermanet al. (1999) provide some information on this from the United States and Europe. Figures derived from these studies are applied to Peru inthis chapter. Estimated lost work days per year isbasedon frequency of estimatedmedicaltreatment plusan additional 7 days for each hospitalizationandone extra day for each doctor and emergency visit. These days were addedto reflect time neededfor recovery from illness. 3.41 To 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 andreal wages. The costs were discounted at 3 percent per year, a rate commonly applied by WHO for health effects. 50 Low High Acute Respiratory Illness(AM): Children(under the age of 5 years) -increasedmortality 220 311 Children(under the age of 5 years) - increasedmorbidity 200 302 Adult females -increasedmorbidity 84 130 Chronic obstructivepulmonary disease ICOPD): II Adult females -increasedmortality 22 244 Adult females-increasedmorbiditv II 19 II 33 II TOTAL 545 1,020 LandDegradation 3.42 The mean estimated annual cost o f agricultural landdegradation 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 freservoir sedimentation from soil erosion is likelyto be significant, it is not estimated inthis 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 of which about 1.7 million hectares are irrigated. Permanent pasture constitutes nearly 18 million hectares (Peru Statistical Yearbook 2003). There is a general perceptionthat 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 andIca. 51 3.44 Inthe absence of precise data, it is assumedinthis chapter that 1/3 of 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, it is assumed that crop yields are reduced by 10-25 percent for cotton andby 15-30 percent for rice due to ~alinity.4~O f landaffected by salinity, an estimated 70 percent is used for cultivation o f rice and 30 percent is used for cotton cultivation. Estimated apcultural lossesdue to soil salinity are presented inTable 3.23, with a mean annual loss o f 0.26 billionsoles. Table 3.23. AnnualCost of Soil Salinity Source: Larsen and Strukova (2006a) 3.45 As major studies indicate, the Sierra region is 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 is degradation and abandonment o f agricultural terraces. In the absence o f data on the share o f landarea that i s eroded due to agricultural activity, it is assumed that 60 percent of agricultural cropland i s eroded in Sierra (CONAM, 2001). It is also assumed that only 45 percent of cultivated land i s usedannually, 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 540% 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 is estimated at 392-553 million S/. per year, representing the cost o f soil erosion (Table 3.24). Total estimated annual cost o f landdegradation is presentedinTable 3.25, rangingfrom 0.54 to 0.92 billion soles per year, with a mean estimate o f 0.73 billion soles (0.35% o f GDP in2003). 3.46 Clearly, these estimates o f agricultural land degradation suffer from the limitations o f available data. Soil salinity surveys are neededto provide better estimates o f the effects on crop yield and the scale of degradation. Similarly, soil erosion surveys and studies on magnitude of crop losses are neededto better understand the costs o f erosion inthe Sierra and elsewhere. The poor are likely to be most affected by soil erosion, and implications for income and vulnerability needto be better understood. Table3.24. EstimatedAnnualCost of Soil ErosioninPeru(Million Soles) REGION NORTHERN CENTRAL SOUTHERN TOTAL 392 472 553 Source: Larsen and Strukova (2006a) 49 International experience indicates that yields of cotton start decliningifsoil 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). 52 Low High 1Isoil erosion 392 553 soil salinity II 152 II 365 II TOTAL ANNUAL COST 544 918 NaturalDisasters 3.47 Peruis annually afflicted bynatural disasters such as floods, landslides, avalanches, and storms and severe earthquakes occur periodically. The total mean annual cost of natural disasters is 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 hghest fiom landslides. Floods are among the leadingcausesofdamagesto housesandagriculturallosses. Figure3.8. ImpactsofNaturalDisastersinPeru(Thousands, 1995-2003) I 500 7 1 450 - 1 400 -. I 350 - / 300 - I 250 200 150 100 50 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 IPeopleaffected Houses affected Source: INDECI (2005) Table 3.26. NaturalDisastersandImpactsinPeru, 1995-2003 1995 1996 1997 1998 1999 2000 2001 2002 2003 TOTAL Total natural 393 311 480 687 522 1116 1110 1376 3316 9311 disasters Deaths 218 832 254 305 229 210 474 198 213 2933 Affected people 54507 180074 255813 261712 232614 239903 448813 266904 62347 2002687 Affected houses 7354 20537 36191 76157 53753 42489 82534 38938 34679 392632 Destroyed houses 2961 7070 6676 62693 4332 2643 27030 2801 8525 124731 Destroyed hectares 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 is 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 presentedby Bambaren Alatrista (2002) are adopted inthis chapter and applied to provide an order of magnitude of the annual cost o fnatural disasters.The cost of annually occurring disasters is based on annual averages for the 15-20 year period 1985/90- 2003. This period was selected because o f more detailed and comprehensive data were available. Total estimated annual cost o f natural disastersi s presented inTable 3.27. The largest cost is associated with damages to housing, infrastructure and public buildings. In total, the annual cost is 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 HCA 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 of natural disasters and their resultant effects over this period (Bernales, 2006). Table 3.27. EstimatedAnnual Cost of NaturalDisasters II MillionSoles IDeaths* 45 II Injured 30 Missingpersons 10 Houses destroyed 325 kouses affected I 535 I Hectaresdestroyed 70 Roads destroyed, affected 35 Railroadsdestroyed, affected 5 IBridgesdestroyed, affected I 20 I TOTAL COST 1,075 Deforestation 3.50 The estimated annual cost o f deforestation is 0.3-0.6 billion soles, with a meanestimate o f 0.44 billion (0.2 percent o f GDP in 2003). These costs represent the net present value o f direct andindirect use forest values lost to annual deforestation inPeru. 3.51 Origmal forest cover in Peru is estimated to have been 59 percent o f total land area. Today's forest cover is about 50 percent. While this i s still above the world average o f 30 percent, forest cover in Peru is 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 departmentsrepresent 43 percent o f Peru's total landarea and have less than 5 percent of the country's total population. Forest cover in these departments averages almost 96 percent. The six departments at the foot of the 'OLoreto, Ucayali andMadrede Dios. 54 mountain chains, extendingfrom 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 of Peru's forest area. Forest cover inthese departments was reducedby about 25 percent inthe last 10 years. Some of these departmentshave the highest annual rate o f deforestation (Figure 3.9). Hectares o f annual deforestation are presented inFigure 3.10." Annual average deforestation in thesenine departmentstotals about 123 thousand hectares. Figure3.9. Annual Rate ofDeforestation1990-2000 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) Figure3.10: Hectares of Annual DeforestationinPeru 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 is very difficult to estimate. Some costs are already included inthe cost ofnaturaldisastersandsoil degradationto the extent that deforestation contributes to increased frequency and severity of 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, andthey are not includedinthe estimated cost inthis chapter. 3.53 There is a large literature that reflects different approaches to tropical forest valuation. This chapter uses background studies by Pearce et al. (1999) and Lampiettiand Dixon (1994) '*Forestin 51 Amazonas, Cusco, Huanuco,Junin, Pasco, ad San Martin. the departments notpresentedin Figure7.2 constitutes about 2.2 percent oftotal forest area inPeru. 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 of 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) presentsnon-timber values for the Peruvian tropical forest. They are inthe range of US$9 to US$17 per hectare. These values are consistent with the magnitude of 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 andnon-timber products. This value i s consistent with the sum o f the two lower direct use values (US$9 andUS$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 of US$5 to US$lO per hectare o f tropical forest and stress their local specific character. Margulis(2004) estimatesthese values as approximately US$9per hectare ofBrazilianAmazon forest. 3.54 Indirectuse values of 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-to- pay (WTP) o f US$4 per hectare in Peru as an indicator o f the tropical service ecosystemvalue. Pearce et al. (1999) present a higher end estimation o f US$30 per hectare o f tropical forest generalized from the literature review. Pearce et al. also give a wide range for the option value o f forest bio-prospecting (ie., the prospects for future development o f new drugs using rich tropical forest biodiversity) inthe range o f US$O.Ol to US$0.21 per hectare. Existence value o f forest associated with tropical forest preservation is estimated for the Brazilian Amazon in Margulis (2004). Margulis utilized the results of the recent Horton et al. (2002) study WTP. Afier adjusting for the indirect usevalues, the resultingvalue is equal to US$31.2per hectareof 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 inthe range o fUS$24 to US$56 per hectareper 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 inTable 3.28 differ by a factor o f three, reflecting the nature o f value techniques. The non-use forest values are therefore not includedinthe estimate o fthe cost of deforestation for Peruinthis chapter. 56 Table3.28. AnnualValues ofRainforestBenefits(US%PerHectare) FORESTSERVICE ANNUAL VALUE LOW HIGH MEAN I ESTIMATE ESTIMATE ESTIMATE DIRECTUSEVALUES 24 56 40 SUSTAINABLE FOREST MANAGEMENT 10 29 19 NONTIMBER PRODUCTS 9 17 13 TOURISMAND RECREATION 5 10 8 INDIRECT USEVALUES 4 30 17 NON-USEVALUES 13 52 33 OPTIONVALUE (BIO- PROSPECTING) 0 21 11 EXISTENCEVALUE 13 31 22 DIRECT +INDIRECT USEVALUE 28 86 57 TOTALVALUE 41 138 89 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 is currently not eligible for any compensation. However, the situation could change inthe near future. Forest values should thenbeupdatedusingcarbon market prices andthe eligible share o fthe carbon sequestration. MunicipalWaste 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 100million. This representsan estimate o f the numbero f urban households without adequate municipal waste collection multiplied by an estimate o f their willingness to pay for wastecollection service. 3.59 Information fiom CONAh4 indicates that about 70 percent o f municipal waste is collected in urbanareas.54This figure is usedinthis chapter as an approximation o f the percent o f households with municipal waste collection. The average household size in Lima is 4.4 and 4.5 inother urbanareas (Peru DHS 2000). The number o f households inLima without adequate collection is then about 530 thousand. An adjusted rate o f inadequate waste collection for the other urbanareas o f Peru was applied. Inother major cities, with a total population o f nearly 6 million, there are an estimated 375 thousandhouseholds without adequatewaste collection. 3.60 A common technique for estimating the cost of not having waste collection services is to apply a household's willingness-to-pay (WTP) for such services. However, there i s noreadily available information about households' WTP for municipal waste collection in Peru. 53 This reflects anannualdiscountrate o f3-10 percentover aperiodo f 30 years oflostbenefits. 54 EvaluacibnRegional de 10s Servicios de manejo de Residuos Sblidos Municipales. Informe Analitico de Peni- EVAL2002-CONAM/OPS. 57 Consequently, a benefit transfer approach was applied to Malaysian WTP to estimate WTP for waste collection services inPeru (Table 3.29). By adjusting for GDP per capita differentials and solid waste generation per household, the transfer approach results in a WTP 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. Multiplyingthese figures by the number o f households without adequate solid waste collection gives a cost estimate or welfare loss o f 90-110 million soles per year from inadequate solid waste collection. T o provide a more reliable estimate o f the cost o f inadequate waste management, a study of households' WTP i s needed inPeru's urbanareas. Table 3.29. WTP for ImprovedMunicipalWaste CollectioninMalaysia LOW HIGH ESTIMATE ESTIMATE WTP FORIMPROVED SOLID WASTE MYR/HH/MON COLLECTION TH 37 45 WTP FORIMPROVED SOLID WASTE COLLECTION US$/HWEAR 117 142 MALAYSIA GDPKAPITA US$ 3,640 3,640 HHSIZE PERSONS 4.9 4.9 AVERAGE GENERATIONOF SOLID KG/PERSON/D WASTEPERSON AY 1 1 AVERAGE GENERATIONOF SOLID WASTE PER HH KG/HWDAY 4.9 4.9 me1998/poptab05.htm; http://web.idrc.ca/es/ev-29989-201-1-DO-TOPIC.htm1 Overfishing 3.61 Peru's fish stock is highlyuncertain; it seems to be inthe process o f regme change and bears significant adaptation cost to climate change (El Nifio). Therefore, it is very difficult to estimate any impact o f fishing levels on Peru's fish stock. However, excess fishmg fleet capacity does seem to aggravate the negative impact o f El Nifio, further deteriorating the fishing sector's financial prospects. 3.62 By using data on the fish catch for the last 34 years and on the fishing fleet's size, it is possible to estimate the maximumsustainable, maximum economic and open access points for a "normal" year not affected by El Nifio. The Gordon-Schaefer model is used for this purpose (Gordon 1953; Schaefer 1954, 1957). The maximum sustainable point is 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 is the level o f fleet at which economic profit is zero, i.e., profits for fishery are at levels comparable to other competitive sectors inthe 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 in2003-2004 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, is likely to result infurther hardship inthe fishery sector. The current fleet is very close to the estimated open access point o f 225-240 thousand MT. Therefore, the average annual predicted fishery sector profit is now quite low. 58 BASECASE BESTFIT CASE PREDICTED PREDICTED VOLUME VOLUME OFCATCH FISHING OF CATCH FISHING (MILLION FLEET (MILLION FLEET TONS) MT TONS) MT MAXIMUMSUSTAINABLE POINT 9.4 180,000 9.6 150,000 MAXIMUMECONOMIC I I I I POINT 8.4 120,000 8.9 110,000 OPENACCESS POINT 8.2 240,000 7.7 225,000 FISHING FLEET (2003-2004) 8.8 220,000 7.9 220,000 PovertyandEnvironmentalDegradationinPeru 3.65 Poverty incidence inPeru was 55 percent in2002, 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 of poverty. Consequently, it is important to gain a better understandingo f how, and to what extent, the poor are affected by the environment with respect to healtheffects, natural resources degradation and natural disasters. The cost o f environmental damage inPeru i s estimated at 8.2 billion soles per year, or 3.9 percent of GDP in 2003. O f this estimate, nearly 6 billion soles are from environmental healthimpacts. Therefore, the focus o fthis section is environmental health." 3.66 The poor, or low-income households, have fewer resourcesto cope with environmental health effects, and a loss in income from environmental impacts i s often more detrimental to their livelihood than to the livelihoodofhgher income groups. Often, the poor are also exposed to higher levels of environmental healthriskthanthe non-poor population. This is especially the case for risk o f respiratory illness and mortality o f indoor air pollution from solid fuels, and for riskof diarrheal illness andmortality from inadequatewater supply, sanitation andhygiene. The severity o f illness and fatality rate can also be higher among the poor ifproper 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 is 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. ~ 55Lead exposure is not includedinthis sectionbecauseoflack ofdata onhealth effects by socio-economic group. 59 3.67 The annual cost of health impacts of Peru's urban air particulate pollution (PM) is estimated at 1.8 billion soles. Lima-Callao bears nearly 75 percent o f the estimated cost. Therefore, the analysis presented here of the health impacts among the poor and non-poor population focuses on Lima-Callao. Ambient concentrations are highest inCentro and lowest in Callao (Figure 3.11). Nortehas the secondhighest PM2.5 concentration and i s the zone with the largestpopulation, Ambient concentrations of PMlO follow a similar pattern. Figure3.11. Ambient Concentrationsof 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 inCentro and Callao, which are the zones with the highest and lowest PM2.5 ambient concentrations (Figure 3.13). Incontrast, many o f the non-poor live in Centro and Norte, which are the zones with the hghest PM2.5 ambient concentrations. The weighted concentration exposure among the non-poor i s about 10 percent higher than among the poor population, suggestingthat the healtheffects of air pollutionmight be higher among the non-poor population (Figure 3.14). However, age distribution and age- specific health impacts o f pollution needto be taken into account to estimate the overall health effects ineachpopulationgroup. Figure3.12. PovertyIncidence 1997-2000 by Air Quality MonitoringZone 45% , I 40% 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,presentedin Perez andYamasato (2002) 60 Figure3.13. DistributionofPoor and Non-Poor (MiIlionsin2003) 2.5I 2.0 1.5 I 1.o 0.5 0.0 4 E 3 te Sur Norte Centro Calla0 IO Poor populatmn INon-poor population Source: Based on estimates of district populationfrom PeruStatistical Yearbook (2003) and ofpoverty incidence from the National Institute of Statistics, presentedin Perez and Yamasato (2002) Figure3.14: Population-WeightedPM2.5Concentrations 50 40 30 20 10 0 Poor Non-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 of cardiopulmonary mortality occurs among the elderly population. The age distribution among the poor and non-poor population is therefore an important factor inestimating mortality from air pollution. The age distribution o f the poor and non-poor population in Lima is presented inFigure 3.15. As much as 37 percent of the poor population is children under the age o f 15 years. More importantly for the mortality effect o f urban air pollution, more than 12 percent o fthe non-poor are inthe age group 60 years andup. Only 5.5 percent o fthe poor are in this age group. Figure3.15. Age DistributionofLima-Callao'sPoor andNon-Poor Population i 1 70% 60% 50% 40% 30% 20% 10% 0% Age e 15 years Age 15-59 years Age 60+ years I 61 3.70 Figure 3.16 presentsthe estimatedhealthimpacts per 1000peoplefor the poor andnon- poor 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 mainly results from the larger share o f non-poor s people in the age group 601- years o f age and from the fact that the cardiopulmonary mortality rate is substantially higherinthis age group than inother 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 deathrate, the respiratory incidence rate, or both are higher among the poor. Consequently, a mid-case and high-case scenario is presented in Figure 3.16. The mid-case scenario is basedon 50percent 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 1000people higher amongthe poor thanthe non-poor. 3.72 The incidence of health impacts among the poor and non-poor is not the only relevant indicator o f the burden o f environmental disease. Health impact in relation to income is 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 fthe burdenon the living standard o f ahousehold. Figure3.16. HealthImpactsper 1000People 160 140 120 100 BO 60 40 20 0 Base-case scenario "Mid-case" scenario '"High-case"scenario 2Poor 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. Inthe base-case scenario, the health impacts relative to income are nearly 75 percent higher among the poor than among the non-poor. Inthe high-case scenario, the impacts relative to income are more than 3 times higher among the poor than among the non-poor. 62 Figure3.17. HealthImpactsper Unit ofIncomeinLima-Callao I 300 7 1 250 200 150 100 50 0 Base-case scenario "Mid-case'' scenario "High-case" scenario [=J Poor INon-Poor Note: The health impacts are indexedto 100for the non-poor inthe base-case scenario. Thehealth impact per personis divided by income per person, normalized to 100. Source: Larsen and Strukova (2006a) 3.74 The annual cost ofhealthimpacts of inadequatewater supply, sanitation andhygiene is estimated at 2.25 billion soles. About 80 percent o f this cost is diarrheal illness and mortality. The remainingcost is associatedwiththe boiling of drinlungwater and the purchase of bottled water to reduce or avoid risk o f illness. %s section's analysis focuses on the distribution o f healthimpacts. 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 is even stronger. For every one percent increase inpoverty 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 of 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 20percent ofthe population was about 5 times hgher than among the richest 20 percent in 1996 and in2000. 56The relationships are estimated by log-linear OLS regressionusing data from 24 departments, and are statistically significant at 99percent. 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 IPeruDHS1996I3PeruDHS2000 Source: Peru Demographic and Health Surveys 1996 and 2000. Child mortality rates are for a 10-year periodprior to the survey. 3.77 Figure 3.19 presents the diarrheal prevalence rate in children in 1996. The rate i s more than two times higher among the poorest population compared to the richest pop~lation.~' Figure3.19: Child Diarrheal PrevalenceRate by Living-Standard Quintile 25% 1---- ^_-____I____- _i________il_i_ _I I 20% 15% 10% 5% I 0% Fvorest Second Middle Fourth Richest /I DHS1996 Peru ! Note: The diarrheal prevalence rate refers to the percentage o f children with diarrheal illness at any time duringatwo-week periodprior to the survey. 3.78 For 2003, it is estimated that the child mortality rate among the poor is around 42 per 1000 live births, compared to 17 among the non-poor. This estimate is basedon 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 of 15 percent in 2000 (Peru DHS 2000), the rate among the poor is estimated at 18 percent, and at 12 percent among the non-poor (Figure 3.20). 57 Diarrhealprevalencerate by livingstandard quintile was not obtained for PeruDHS 2000. 64 Figure 3.20. ChifdMortalityandDiarrheal Prevalence Child rnortalrry rate Diarrheal prevalence rate In children US w mor Non-Poor I Source: Larsen and Strukova(2006a) 3.79 The health impacts per 1000people are presentedinFigure 3.21. The impacts are nearly three times higher in the poor population than in the non-poor population." This estimate is 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.jgThere are manyreasonswhy the diarrheal disease burdenis 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). This is because the income of the non-poor is nearly four times higher than the income o f the poor.6' Figure3.21. Health Impactsper 1000People and per Unitof Income 1100 1000 900 800 700 600 500 400 300 200 100 I 0 HealthImpacts per 1000 people HealthImpacts per unit of income Note: Health impacts per 1000people and per unit of income are indexedto 100for the non-poor population. Source: Larsen and Strukova (2006a) 58This i s a larger difference than the difference inchild mortality and diarrheal prevalence. The main reasons for this are that the share o f children in the poor population is much higher than in the non-poor population, that diarrheal mortality is largely among chddren, and diarrheal incidence rate is much higher inchildren thaninadults. 59It is assumedthat the relative difference in diarrheal prevalence between the poor and non-poor population is the same for the age group 5+ years as for childrenunder-5. Source: Larsenand Strukova (2006a). 60This is from the same income data usedin the urban air pollutionanalysis. 65 3.8 1 The annual cost ofthe health effects o findoor air pollutionfrom solid fuels is estimated at 0.8 billion soles. Around 10percent o f the urbanpopulation andmore than 85 percent of the rural population use solid fuels indoors (Peru Demographic and Health Survey, 2000). However, no data are readily available on the percentageso f the poor and non-poor populations that use fuel wood. With an urbanpoverty rate o f about 40 percent, it i s likely that almost all the 10 percent of 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. Inthls case, based on the estimated health effects from solid fuel use inurban andrural areas separately, 80-85 percent o f the total healtheffects are among the poor population. 3.82 However, the share of 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 is plausible that poor households are more likely to use more polluting stoves than non-poor households. Health effects of 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 healtheffects from indoor air pollution. 3.83 The impacts for all the environmental health categories (i.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 higherthan on the non-poor (Figure 3.22) Figure3.22. TotalHealthImpactsper 1000Peopleand per Unit ofIncome 500 450 400 350 300 250 200 150 100 50 0 Impact per 1000 people Impact per unit of income 1II3Poor Non-Poor Source: Larsenand 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 inthls chapter indicate which areas o f the environment are associatedwith the most negative impacts on society; however, an evaluation o fthe benefits and costs o f interventions i s neededto 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, now that lead is 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 evaluatedfor water supply and sanitation, indoor air pollution and urban air pollution. The analysis shows that water supply and sanitation improvements in rural areas can bejustlfied on environmental-economic grounds, especially when time saving is taken into account. Handwashing programs to improve hygiene have benefts substantially greater than costs, as doprograms to increase drinking water disinfection. For indoor air pollution, the benefts of movingflom unimproved stoves to improved stoves or LPGaregenerally 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. In addition, attention should be given to modernizing the busfleet to larger, cleaner buses andpossible phase-out of two-stroke engines in "baby taxis ". For stationary sources, introducing abatement technology may bejustrJiedfor 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 of 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 billionFis 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 Giventhe costs o f environmental degradation, theprimafacie 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 freduced 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 undertakingthese actions.62It concludes with some recommendations for government policy reforms in this area in the short, medium andlonger terms.63 61 This chapter was prepared by Ani1 Markandia, Ernest0 Sinchez-Tnana, and Yewande Awe. The chapter draws heavily on background documents prepared by Bjom Larsen and Elena Strukova (2006a) and ECON Analysis (2005). As 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 fmitigating measures. 63 It is also important to take into account who bears the costs and who benefits from the actions.Ifthe statebearsthe costs of providing health care, which is the case to a significant extent, then the actions recommended here will also provide financial benefits to the government. To the extent that individuals themselves bear the costs o f the policy reforms recommended here. there will be direct financial benefit to them. 68 Figure4.1. Cost ofEnvironmentalHealthDamageinPeru(Billion Soles perYear) I 2.5 , I 2.0 -. 1.5 - 1.0 -- 0.5 - I 0.0 I _I Water supply, sanitation Outdoor air pollution Lead exposure hdoor air pollution and hygiene Source: Larsen and Strukova (2006a) UrbanAir Pollution 4.4 Because o f its adverse impacts on health in the form o f premature deaths and illnesses, air quality is 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 is particulate matter (PM) and associatedsmall 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 localhealth threats insites with fixed pollutionsources, such as smelters inthe cities of LaOroya and 110, or the fishmeal plants inthe city of Chimbote (Bemales, 2006) Health Effects of Lead 4.5 The case for eliminating lead infuels and other sources is overwhelming on health and other social grounds. It was established as far back as the 1980s for the US 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 ingasoline inPeru effective January 2005 (following a long periodo f phase-out since the early 1990s) should be applauded. As a result, lead in the air i s down substantiallyoverall 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 of lead have accumulated in the soil and water, and the impact o f these deposits is 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. Inmost cases, it would pass the benefit-cost test. However, this analysis has not been done inPeru. The reason for takingthis view i s that similar actions in OECD countries have very high benefit-cost ratios. Even allowing for Peru's lower living standards, it is highly unlikely that the costs would exceed the benefits. However, researchto establisht h s i s warranted, to make the case inpublic. 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 is responsible for 3,900 premature deaths 69 annually in Peru. In addition, such pollution accounts for the loss o f approximately 65,000 disability adjusted life years (DALYs)annually (Table 4.1). Table 4.1. EstimatedHealthImpactsof UrbanAir PolIution fromParticulateMatter I HealthEnd-Points Total CasesNear 1TotalDALYsNear I ~ Premature mortality I 3,900 29,253 Chronic bronches 3,812 8,386 Hospital admissions 12,834 205 Emergency room visitsioutpatient hospital visits 251,765 1,133 ~ Restncted actinty days 43,347,360 13,004 Lower respiratory illness inchildren 533,45 7 3,467 Respiratory symptoms 137,957,686 10,347 GRANDTOTALOF DALYsNEAR I 65,796 4.8 The problemo f urbanair pollutionis most critical inthe country's industrial corridors, such as Lima-Callao, which accounts for almost 75 percent o f the estimated cost of health impacts o f urbanair pollutioninPeru. Furthermore, the pollution levels inall zones exceed the concentration threshold o f 7.5 ugim' (annual average) set by the World Health Organization (WHO, 2002a). Incomparisonto other countries inthe region, the levels of air pollutioninparts 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). Figure4.2. PMlO Average AnnualConcentrationsin Selected Cities (ug/m3) WHO Standardis 7.5 ug/m3 Source: The World Bank, 2005c Valuation of Mortality Impacts of Environmental Health 4.9 A key variable in the valuation of environmental health impacts is the valuation of premature mortality. Hence, valuation issues merit some discussion. The values associatedwith mortality are derived from either a human capital approach or a `willingness to pay to reduce 70 risks approach.' Inthe `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 interms o f the willingness to pay to reduce the risk o f death. For example, if a group o f 100,000 persons is each willing to pay US$10 to reduce their individual riskof death by 1:100,000, thenthe group will collectively pay US$l million andthe measure, ifenacted, will save one life. Consequently, the value of a life savedis putat one million US dollars. Such a value is also referred to as the value o f a statistical life (VSL), emphasizing the fact that no specific life hasbeen saved. 4.10 For Peru, the HCA 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 VSL 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 US would also be 50 percent lower). The range o f VSL values inthe US and other industrialized countries is US$1.5-2.5 million (Mrozek and Taylor, 2002). Based on these values, the estimated VSL for Peru lies in the range o f 390,000 to 650,000 soles.64In general, the HCA approach is considered as a lower bound for the value o f apremature death. Interventions to Reduce UrbanAir Pollution 4.11 As part ofthe preparatory work for the Peru CEA, a study was commissioned onurban 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 agentsto the range o fpossible measuresare hardto gauge. Therefore, judgments on the optimal selection o f instruments will rely on a combination o f cost-benefit analysis and experience in the application ofthese instruments inother countries. The following options were considered 1. Introducelow-sulfur diesel. 2. Encourage use of gasoline cars at the expenseof diesel through various tax incentives. 3. Convert some gasoline/diesel carsto natural gas. 4. Convert somevehicles to ethanol or biofkel. 5. Develop a new public transport system inLima. 6. Providetax incentives to scrap older high-use cars (e.g., taxis). 7. Strengthen inspection andmaintenanceprograms. 8. Retrofit catalytic converters on cars andparticle control technology on diesel vehicles. 9. Banimports o fusedcars for taxi use. 10. Banuse of diesel cars andor two-stroke engines as taxis. 11. Implement various city planning interventions such as "green traffic light waves" and bike lanes. 12. Introducemeasuresto reduce emissions from industrysources. 4.12 Most o f these options are either inthe process o f being implemented or considered by the authorities. It is also important to note that some of them may not primarilybe 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 inthe price of cars or a limitationon their use). For such options, a full cost-benefit analysis that takes into account all benefits and costs should be carried out. This has not been done; hence, the analysis presentedhere is only a partial input to the final decision regarding which instruments to deploy. 64 The lower value o f mortality can misleadingly be seen as implying that a life in Peru is worth less than one in the EUor US. This is incorrect inthat (a) we are not referring to a specific life and (b) it is really a willingness to pay to reduce a risk o fdeath, which is genuinely lower inpoor countries. 71 4.13 As a general guide inevaluating each ofthe options, the damage costs associatedwith a ton of 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 hghest costs arisingfrom mobile sources (23,00&85,000 soles per ton, or US$7,00&25,000 per ton)65.Costs from stationary sources are aroundhalf(40%) o f those from waste burning. It shouldbe notedthat the estimated damage cost per ton o f secondary particulates isjust 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. EstimatedDamagesAssociatedwith PMlOEmissionsfor Various Sourcesin Lima-Callao Source: ECONAnalysis (2005) Low sulfur diesel 4.14 The Ministryof Energy(MINEM)has determined that the sulfur content of diesel fuel inPerushould be reduced fromtoday's 5,000-10,000 partsper million (ppmequivalent to 0.5- 1 percent) to 50 ppm (equivalent to 0.005 percent) by the beginning of 2010. For imported diesel, the sulfur limit is 2,500 ppmtoday. To reduce the sulfur content to 50 ppmwill require substantialinvestments inPeru's refineries: MINEMhas indicatedthat the two largest refineries will 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 low andhighdamagecosts; ths is on average 54,000 soles, between 24,000 soles inthe low case and 85,000 soles inthe highcase (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 of economic and population growth. Third, the damages reported are based on emissions from Lima-Callao. The measures introduced will generate benefits in other cities, raising the estimated figure for benefits by 60 percent. This would make the case much stronger. As a measure, it is relatively easy to introduce and has relatively low impacts on the poor. 65 One reason for the wide range is 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 inTable 4.2 are the averages f?om the two sources. The other reason for the differences is the valuation o f mortality: the H C A versus VSL approaches discussed later. This is reflected in the difference betweenthe low andhighcases inthe table. 72 Encourageuse o f gasoline cars at the expense o f diesel cars throughvarious 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 inindustrialized countries toward reducing the previous advantage that favored diesel. Furthermore, the justification that applied in the UK and other EU countries to make this shift would apply to some extent inPeru. A more detailed study would be neededto assess the likely benefits interms of air quality.Against these, account would have to be taken of the fact that increases in diesel prices lead to higher expenditure increases for poor households (Kojima, 2001). This would lead to the need to introduce measures to mitigate these negative distributional effects (e.g., compensating use o fdiesel inmass transport andagriculture). 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). NOx emissions would be reduced by 85-90 percent, andSO2 emissions wouldbe almost eliminated. 4.18 Notwithstanding these factors, the conversion o f gasoline vehicles to CNG is 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$800- 1,500, there would be almost no direct benefitsthrough P M emission reductions, since gasoline cars have almost no P M emissions. In addition, the indirect P Mreductions through reduced SO2 andNOx emission reductions would be very low. Thus, converting gasoline cars to runon CNG i s not an appealing P Memission 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 is not economically attractive, although it can be a viable option for high-usage vehicles such as taxis and light duty vehicles. Still, conversion is relatively costly for diesel engines and the remaining lifetime o f the vehicles must be carefully considered. Since the age of the car fleet in Lima is 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 of many o f the buses. 4.20 CNG appears more favorable for new vehicles like taxis, lightduty vehicles, largebuses and other heavy-duty vehicles. CNG buses are being considered for the new public transport system inLima. 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 low- sulfur diesel (<50 ppm) is introduced in 2010, emissions reductions associated with CNG use would be muchless than this 60 to 97 percent figure-see below. 4.21 A cursory assessmentofthe costs andbenefits ofintroducingnewdedicated CNGbuses inLima showsthe calculations tobefinelybalancedanddependentonwhichcost 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. This gves annual costs o f US$940- 2,345 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. 73 4.22 Emission data from 2000 for Lima (Infras, 2002) show that urbanbuses emitted a total o f 2,985 tons o f P M in 2000. Assuming 20 percent o f this is 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. It i s being assumed here that 80 percent o f these emissions are removed ifa bus i s replaced by a CNGbus. This yields annual benefits o f around US$1,690 per vehicle. 4.23 Benefits from reductions o f nitrates should also be accounted for. It is being assumed here that 90 percent o f NOx emissions are removedfrom each bus that runs on CNG compared to low-sulfur diesel, and that they have the same share o f the nitrates formed by the NOx emissions. This results inan annual benefit o f around US$l,OlO/bus. Thus, total annualbenefits from usingCNG instead o flow-sulfur diesel are US$2,700/bus. 4.24 This is lower than the estimated total annual costs of 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 internationallytraded. 4.25 If low-sulfur diesel is 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 of 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 of introducing CNG would be slightly larger than the lower bound o fthe 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 is also substantial uncertainty regardingthe costs o fintroducingand providing CNG inPeru. These issues have to be cleared up before a firmdecisioncan be made. Conversion to ethanol or biofuel 4.27 Ethanol andbiodiesel are biofuels usedas vehicle fuels in many countries, and they are expected to be used in Peru. A new law requires 7.8 percent of ethanol to be blended in the gasoline, andup to 5 percent o fbiodiesel to be blended inthe diesel (CONAM, 2005). There are some investments under way for the production of ethanol, and the production o f biodiesel i s beingconsidered. 4.28 For ethanol usedinstead o f diesel, data from Sweden show some reduction inemissions o f NOx and P M (Akzo Nobel). However, a detailed quantitative case on these grounds for ethanol is hard to make; consequently, ethanol is 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 inLima are around US$1.80/gallon, which compares with some estimated production costs of 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 is probably the least important, although considerable effort has gone into estimating such benefits. USEPA has surveyed more than 80 prominent biodiesel emissions 74 studies (see www.eva.gov/otaa/models/biodsl.htm), and the level o f such emissions compared to conventional diesel hasbeen estimated (Table 4.3). 4.30 According to these calculations, P M emissions could be almost halved if the vehicle runs entirely on biodiesel. However, the reductions are considerably smaller if biodiesel i s blended 20 percent with ordinary diesel. NOx emissions tend to increase, but sulfates will be reduced at the same rate as biodiesel i s blended with ordinary diesel. This shows that biodiesel has less impressive environmental performance than CNG. P M emissions are not reduced as much as for CNG (70-100 percent of 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, thenbiodiesel could be a cost-efficient option for reducingP Memissions. Table 4.3. AverageBiodieselEmissions Comparedto ConventionalDiesel. PercentageChangeComparedto 100PercentPetroleumDiesel 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 NOx and nitrates emissions should be subtracted. The latter are US$0.17 and US$0.08 for the two cases. This yields total benefits o f US$0.26 and US$0.03, respectively, for a 100 and 20 percent blend o f biodieselinordinary diesel. As shown below, this may be relevant, but it is likely to be dwarfed by the differenceinprivate costs ofproduction. 4.32 The costs ofproducingbiodieselvary substantially among countries andregons. While 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 US in the same period. The net diesel price inLima in June 2005 was US$1.84/gallon. Ifthese 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 is only marginally affected by urban pollution considerations, and that private costs will dominate the decision. Only cost figures for biodieselproduction from Peru can give the final answer to this. NewDublic transport system inLima 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 medium- sized 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, havingpassengerstransfer to larger buses to go to Lima. 75 4.35 Fully developed, this systemcould leadto the scrapping o f 15,000-20,000 small buses. The newbusescouldberunonnatural gas. 4.36 The background for this plan is to improve the quality of the public transport system and ofthe environment. The fares are not supposedto be increased, butremain 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 runon diesel, the P M emissions would be substantially reduced, because o f the very high emissions of the old, existing buses. Ifthe new buses run on natural gas, P M emissions would bepractically 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 andlorries that are frequently used within Lima-Callao) consists of old, relatively high-emitting vehicles. Scrapping these and replacingthem with new, more energy efficient and less polluting vehicles could contribute substantiallyto improvingthe 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 supplementthis approachwith incentives for owners of suchvehicles to voluntarily scrap them. 4.40 A permanent scrapping program could be designed as a deposit-refund system, where buyers of new or usedimported vehicles pay a deposit that is 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 inthe prices of 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 inLima is over 12 years. Moreover, the costs o f enforcement for sucha scheme could be quite highina country like Peru. Still, t h s scheme is worth considering further for its positive long-run environmental effects. InsDection and maintenanceprograms 4.41 Periodic inspections of the existing vehicle fleet would contribute to reducedemissions 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 small 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, andthere have beenno fines. 4.42 The need for a more rigorous enforcement regime is 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, 2005). 76 4.43 The Clean Air Committee (2004) has estimated that the new program will result in emission reductions from buses andheavy-duty vehicles o f almost 2,900 tons o f PMlO inLima in2010. These reductions will increaseto almost 4,600 tons in2020 and5,900 tons in2025 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 is highbecausemanyvehicles havenotbeentunedor repairedfor years. Itis likelythat 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 is having some difficulty in its startup phase, so its effectiveness remains to be seen. However, it i s obvious that this programhas 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 is significantly lower than the costs o f similar programs inEurope. This estimate i s lower than the estimatedrange o fthe benefits o f emissions reductions at US$6,000-28,000 per ton o f PM10, indicating that this intervention is 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 is a costly alternative. Instead o f removing these vehicles from the fleet through various means, retrofitting old trucks andbuses with particulate-control technology could be an option. 4.46 The technology for retrofittingis really only effective with low-sulfur fuel. Hence, this measurewill have to wait untillow-sulfur diesel is introducedinPeru in2010. 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, it is difficult to predict how the vehicle fleet will develop by 2010. As a rough guide, it is 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 will 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. Ifdevice cost has dropped to US$3,000, the annual costs are around US$350, which is far below estimated benefits. The investment cost would have to be more than US$17,000 for this optionto have anegative benefit-cost ratio, whichishighlyunlikely. 4.48 These benefit-cost calculations are based on average emissions per vehicle. Ifthe most polluting vehicles are removed from the fleet through other measures (for instance an I&M program), benefits from retrofit technology maybe 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. Banon importsofusedcars 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. This has been encouraged by the authorities, who have reduced import duties for used cars compared to the duties for new ones. This was donefor social reasons, enabling average-income families to have their own car. 4.50 The imported cars have often been old, withhighmileage andhighpollution emissions. Today, the import o f diesel passengercars that are more than two years old is not allowed, while 77 gasoline cars can be up to five years old. Still, the imported cars have highmileage; thus, their catalytic converters are not functioning properly, resultinginrelatively highemissions o f PMlO and other harmful substances. Therefore, the municipality of Lima-Callao is considering a ban on the use o f importedusedcars as taxis. This couldresult inlower PMlO emissions, since most o fthese 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 is 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 approaches- stringent emissions requirements ban on imports; or heavy taxation on imported, used vehicles-can be successful ifdesignedproperly. 4.52 InPeru, 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&Mprogram currently being introducedcould pay special attention to imported used vehicles to ensure compliance with the new emission standards. Ifthe I&Mprogram is not effective, a ban on imports o f usedvehicles for taxi use could be an effective solution. Taxis are high-usage vehicles, so measures targeted towards themcould be efficient. Ithas not beenpossible here to estimate the emission reduction that couldbe acheved through this measure. Banon use ofdiesel cars and/or two-stroke engines as taxis 4.53 Most passenger cars employed as taxis are diesel fueled. In poorer areas o f Lima- Callao, the use o f three-wheeled, two-and-four-stroke gasoline motorbikes as taxis is 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 of two-stroke motorbike taxis with gas-fueled ones has been very effective. T h s type o f vehicle (so-called "baby-taxis") is 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 commercialtwo-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 regularlycome into contact with drivers o fthese 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, is a real option and should be considered seriously, along with an education program likethe one introducedinBangladesh. Various city planninginterventions 4.56 Various steps to promotethe use ofbicycles insteadofcars could contribute to reducing emissions and, indeed, there are several plans for promoting bicycle use in Lima. Several positive experiences with suchmeasures 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 bybicycle, and41 percent consider the bicycle their primarymode o ftransportation. 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-dutyvehicle 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 highinpollutant 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 commutingrates than cities with lesser ratios (CaVEPA, 2005). 4.59 Thus, various measures to promote bicycle use in Lima, notably construction of 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 studyingcommuting patterns of various population segments, lengths o f average trips, areas or routes where bike lanes could be efficient to promote bicycling, the kindo f transport mode that increasedbikingwould replace, the costs o f establishing bike lanes andrelated measures. Measuresaddressingemissions from industry sources 4.60 Several industryandnon-industry sources emit PM. Data are not available on emissions and abatement costs for the industryplants inLima. International studies show that the costs of 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 pipemeasures, maybe cost efficient (Table 4.4). 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 this analysis. PM and SO2 controls sometimes yield mercury (Hg) control as a co-benefit (Sobin, 2004) (Table 4.4). 4.62 One industrynot representedinthe international estimates o f abatement costs is cement, which is by far the largest stationary source o f P M emissions in Lima-Callao. Ths generates emissions o f PM, NOx 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 of P M reduced; this is based on experiences with various retrofits in Belgium and France. The large cost interval is 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$3,000 per ton o f P M reduced, which is based only on a limited number of existing Dutch industrial operations and thus may not be representative. 4.63 These estimates show that actions to curb P M emissions from cement production may be cost efficient. However, a more detailed investigation is needed to find out where the measures shouldbe introducedandat what level o f abatement. 79 Table 4.4. AverageAbatement Costs for PMin Some Industries. US$/TonPMReduction I Powerproduction I 13,005 I E e l g l a s s I 2,747 I Petroleumrefining 6,745 Paperproduction 7,725 II Metals Chemicals II 1,627 1,202 II Mining 2,747 Ranking of Urban Air Pollution Control Options 4.64 Rankingoptions 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 neededto 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 low-sulk 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) reductiono f emissions from industrysources. 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 anda best estimate o f the cost per ton for that reductionare reportedbelow (Table 4.3). The resultingcost-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 of the low 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&Mprogram and reductions in industry sources are well below their respective damage cost estimates. The adoption o f low- sulfur diesel is not below the average damage costs. However, as argued earlier, it is probably justified because (a) the higher estimate o f damages is US$25,000 and is more likely to be the correct figure; and (b) increases indamage costs between now and 2010 will, inany case, bring the damages up to the estimated costs. The further shift to CNG is notjustified on PMreduction 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 is shown is a rough picture o f somewhere in the fkture. Nevertheless, this analysis is usefkl becauseit eliminates some o f the more seriously wrong options, andbecauseit shows the scope o freductions that each alternative can make. Recommendationsfor Actions on UrbanAir 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 is concerned, action 80 should be taken to examine the outstanding sources o f such pollution, including lead in paint andleadinwater and food. Based on that examination, a planshouldbe prepared for the phase- out 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 is most associated with health effects. Peruurgently needs to establish ambient standards for P M in priority urban areas and, basedon those, establish technology-specific standards for PMand its precursors. Ground-level ozone is monitored ina significant number o f urbanareas inthe world becauseit i s the primary constituent of smog and, inhighconcentrations, it hasbeenlinkedwith different healthimpacts, includingpremature death (Bernales, 2006). For these reasons, Peruneeds to implement a PM and ozone monitoring program inpriority urban areas. Inaddition, present knowledgejustifies 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. This is an area where cost- effectivereductions inemissions canbe made. b) The retrofitting o f buses to control particles is a low-cost option. A program to implementretrofitting shouldbe designedfor introduction inthe near future. c) The low-sulfur diesel program, to whch the government i s committed, should be kept on track for introduction in 2010. While such a program is only marginally justifiable incurrent circumstances, it will bejustifiable by 2010. 4.69 Other options regardingurbanair pollutionthat needfurther evaluation are a) The use o f CNG for busesandtaxis. b) Changesinthe busfleet to largercleaner buses. c) A phase-out o f two-stroke engines in "baby taxis" or replacement by four- stroke engines. d) The introduction of abatement technology may be justified for a range of industries andplants, which may include smelters andfishmealplants. Table 4.5. Amounts ofPMReductionFeasibleand Cost PerTon for SelectedOptions Option ReductionFeasible Cost US$/Ton (in Tons) Retrofitparticle-controltechnology 360 3888 Inspectionandmaintenance programs 2900 4096 Reductionsinindustrysources 1750 5114 Adoptionoflow-sulfur diesel 3400 18000 Shift from low-sulfur dieselto CNG 500 80000 Notes: 1. Costs ofretrofitting are based on annual costs per car of US$350 andemissionsreductionsof 0.09 tons. 2. The I&M program cost estimates are taken from the Clean Air Committee study. They give a central estimate of US$4,096/ton. 3. Reductionsinindustrysources are taken from Table 4.4, as a simple averageofthe costs. 4. The `adoption o flow-sulfur diesel' estimates are from MINEMdata on costs and ECON estimates of reductionsinemissions. 5. The shift to low-sulfur diesel estimates are basedon average costs of conversion of US$6,200 per vehicle andareductioninPMper busof0.0768 tons per year. 81 EnvironmentalDamagesRelatedto Water and Sanitation Water and SanitationInfrastructure 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 of 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 of providing improvements in the areas described above. Each intervention is considered independently o f other possible interventions, with the aim o f providingbenefit-cost ratios for eachinterventionthat the Government of Peru might consider implementing. 4.71 The aim o f the infrastructure interventions is 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) and25 soles for improvedwater 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 of individuals inrural 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 of treatment andvalue of lost time, are 50 soles per case of 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 HCA approach underestimates the value o f a lost life; hence, the figures reported here shouldbe taken as lower bounds. Finally, the programs generate savings in time, which i s an important ingredient in the calculations. It is 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 fthe averageruralwage (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). 66 This i s the population in rural areas that lack improvedsanitation and water supply according to the Peru DHS 2000. 67 Per capita investmentcosts represent average costs in south America (WHO - UNICEF, 2000). O&M is operations andmaintenancebasedonlocal data. Preliminarydata suggestthat the majorityofbenefitsare to bederivedfrom improvedruralprovision. 82 Table 4.6. Benefitsof ReductionsinDiarrhealMorbidityandMortality inRuralPeru * 51 percent o fthe rural population.** 42percent o fthe 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 becausethe benefits are averages for all o f rural Peru. There will be circumstances where the benefits will 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 life has already been mentioned. From the perspective o f social choices, it is important to note that the benefits o f such programs would be preponderantly for the poor. Improving the living standards o f the poor is 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 inrural Peru would be amplyjustified. 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 promisingalthough the impacts o fthis are not yet available. I Box 4.1. The HandwashingPrograminPeru I 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 of field personnel and measurement o f a baseline against which the program's impacts would bejudged. Inthe first phase, 3,500 health professionals will be trained and they, inturn, will reach a target audience o f 117,000 mothers and 57,000 children in the first phase (2005-2006). So far, this component is being implemented in five regions ofthe country. Fundingis 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. Inaddition, a door-to-door sales force representinga private company is 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. 83 4.76 Estimates o fpossible benefits are reported based on studies inother 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 of handwashing programs is based on a number o f datarequirements and assumptions about effectiveness: a. Percentageo f the targeteduopulationthat change behavior as result o f the urogram. Inprevious studies inGuatemala, Thailand andBurluno Faso, this has been found to range from 10to 18percent. b. Cost per targeted household. There is 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 will dependon which cost figures apply. 4.77 Private costs will be incurredbecause of the program. More water will be used, along with soap and other hygieneproducts. Estimates of these costs have been made from Peruvian data and surveys and are estimated at 38 soles per mother or caretaker. 4.78 A summary of the benefits and costs of a rural and anurbanhandwashing program has been calculated (Tables 4.7 and 4.8). The assessment is 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 of 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 indiarrheal morbidity andmortality. Table 4.7. Benefits and Costs of a Rural Handwashing Program I RuralHouseholdswith Children I * There are about 1 million rural children under the age of five years in Peru. It i s assumed there is one child under five in each household (thus the program target is 1 million households). However, the estimatedbenefit-cost ratio is higher for householdswith more than one child under five. ** 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 84 the "low" scenario, since the "high" scenario assumes a percentage of households with behavioral change that i s twice that of the "low" scenario. Private costs per household on water and hygiene products are estimated to be the same across all scenarios because it is assumed that households' spending on these itemsis independent ofresponserates. ***The Benefit-Cost Ratiosonly considerthe costs andbenefits of households with behavioral change. **** Benefits and costs inthe second and third years are discounted at an annual rate of 10percent. 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.69Finally, urban programs are uniformly lower than rural ones, because diarrheal incidence perpersonandmortality rates are generally lower inurbanareas." 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, becausediarrheal incidence is so much lower in these ho~seholds.~~ Table4.8. Benefitsand Costsof an UrbanHandwashingProgram * There are about 1.9 million urban children under the age of five inPeru. consider only the costs and benefits of households with behavioral change. *****The benefit-cost ratios Benefits and costs inthe secondand third years are discounted at an annual rate of 10percent. Source: Larsen and Strukova (2006b) 69One might expectsome attrition over time, butbehavior changes shouldcontinuefor more than oneyear. Programs that last longer may also have a higher costthat is not analyzedhere. 70 Disease and hygiene conditions in poor pen-urbanareas bear similarities to rural areas as indicated in Prisma's (2004) handwashingstudy. Therefore, the benefits of a handwashingprogramin these areas are likely to be higher than inother urbanareas. 71 The fact that the benefit-cost ratio is less than one here is not particularly important because it i s a comparisonof private benefits and costs. Ifthe private benefits are less than the costs, then individuals will not adopt the program (or will not adopt it for long). 85 Table 4.9. Benefitsand Costs of aHandwashingProgram: Householdswithout Children * Privatecosts per householdfor water andhygiene products are estimatedto be independentofresponse rates in both urban and rural programs. **The benefit-costratio i s independent of duration of sustained handwashing improvement because the upfront handwashing program cost is allocated to the primary target ofthe program, i.e., to householdswith youngchildren. Source: Larsenand Strukova(2006b) Drinking WaterDisinfection 4.81 The USAlD 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 is the method considered inthe benefit-cost analysis here (Table 4.10). Fewtrell and Colford (2004) report from their meta- analysis that disinfection o f dnnking water at point-of-use reduces diarrheal illness by 47 percent inrural areas and23 percent inurbanareas. 4.82 There are no estimates o fprogramcosts to promote drinkingwater disinfection at point- of-use. The same program costs and behavioral change rates as for hand-washing programs are therefore applied. The private cost o fboiling drinlungwater i s estimated at 75 soles per year for households using commercial fuels and 35 soles for households usingfuelwood. In rural areas, the program is estimated to avert 160-320 thousand cases of 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 dnnkingwater disinfection sustained for two years. Even for the "high" program cost, and with improved hand washing only sustainedfor one year, the benefit-cost ratio i s 2.4. 86 Table 4.10. Benefits andCosts of a RuralDrinkingWater DisinfectionProgram *Private Costs per household are estimatedto be equal inthe three scenarios, buttotal 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 of the "low" scenario. Private costs per household for water and hygiene products are estimatedto be the same across all scenarios because it is assumedthat households' spending on these items is independent of response rates. The benefit-cost ratios consider only the costs and benefits o f households with behavioral change. *** ** Estimate based on efficiency o f LPG and wood stoves, cost o f LPG, fuelwood collection time o f 30 minutes per day and 10% o f fuelwood is 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 10percent. 11Low9t ItMediumIl "Hi h" Target households -urban population not practicingdisinfection (millions) 1.24 1.24 1.24 Percent reductionindiarrheal illness per person (Fewtrell and . - Colford, 2004) 23% 23% 23% Cases o f diarrheal illness avertedper year (thousands) 120 180 240 Deaths in childrenavertedper year 4 0 4 5 <20 Benefit-CostRatios LOW: Ifbehavioral change lasts 1 year 1.o 0.8 0.5 MEDIUM:Ifbehavioralchangelasts2 years* 1.1 1.0 0.7 HIGH:Ifbehavioral changelasts 3 years* 1.2 1.1 0.8 4.83 The benefit-cost ratio for urban areas is only above 1.0 for the "low" program cost, or for "medium" program cost if disinfection is sustained for at least two years (Table 4.11). The benefits are so much lower in urban areas because o f the substantially lower percent reduction indiarrhea expected from disinfection andbecause ofthe lower diarrheal incidence per person insuchareas. 87 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 of benefits to costs (Figure 4.4). This is unlikethe earlier conventional cost-effectiveness rankings for urban air pollution, but it serves a similar purpose. Figure4.4 shows the amount o freduction o f environmental damage on the horizontal axis (inmillions 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 drinkingwater disinfection (i.e., household boiling o f drinkingwater) has the highest ratio of benefits to costs, but makes a relatively small reduction in environmental damages. It is followed by rural handwashing by mothers or caretakers o f young children; this yields a slightly higher reductionindamages. Next is urbanhandwashing, 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 is also estimated to provide higher benefits than costs, but it contributes only a small reduction indamages. Finally, thebenefits o fhandwashing among adults, unless caring for young children, are estimated to be significantly lower than the Intotal, the measures with a positive benefit-to-cost ratio couldreduce the cost o fhealtheffects by 350 million soles per year.73 Figure4.4. Water Supply, Sanitationand HygieneInterventions 6 B 5 4 3 2 1 0 0 50 I00 150 200 250 300 350 CED reduction(mllllonSoles peryear) ote: B/C = benefit-cost ratio. CED= cost o fenvironmental damage (i.e., cost o f health effects). Recommendationsfor Actions on Water Supply and Sanitation 4.85 From the analysis presentedhere, it is clear that most measures to improve the water supply and sanitation facilities inrural 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 ratioswould be higher (lower) if, as aresult ofpromotionprograms, households sustain improvedbehavior for longer (shorter) than two years. 73 This figure does not consider the possibleinteractioneffects between differentinterventions (i.e.,how the impacts of a first interventionaffect those of a second intervention), because data constraints preclude a sound analysis of such effects. 88 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. Indoor Air Pollution 4.86 It is well documented fiom studies around the world that air pollution fiom solid fuels usedfor 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 LPG 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 inadult females, andlungcancer inadult females from coal smoke. Table 4.12. Relative Risksfor Strong and ModerateHealth Outcomes Evidence HealthOutcome Group RFt CI Strong ALRI Children<5 yrs 2.3 1.9-2.7 COPD Women>30 yrs 3.2 2.3-4.8 Lung cancer (from coal smoke) Women> 30 yrs 1.9 1.1-3.5 Moderate4 COPD Men>30 yrs 1.8 1.0-3.2 Lung cancer (from coal smoke) Men>30 yrs 1.5 1&2.5 Moderate4 Lung cancer (from biomasssmoke) Women> 30 yrs 1.5 1.c-2.1 Asthma Children5-14 yrs 1.6 1.0-2.5 Asthma All > 15 yrs 1.2 1.0-1.5 Cataracts All > 15 yrs 1.3 1.0-1.7 Tuberculosis All > 15 yrs 1.5 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 pollutionloads fiom solid fuel use. However, actual pollutionexposure can vary substantially in each scenario, anddependon 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 of these factors on the benefit-cost ratios o f interventions. BeneJit-Cost Analysisfor Indoor Air Pollution Interventions (IAP) 4.89 A benefit-cost analysis is 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 inTable 4.13. The estimated benefits o f these interventions are presented in Tables 4.14 and 4.15. Avoided cases of ARI and COPD are estimated from the relative risk ratios for ARI and COPD inwomen, as estimated across a number o f studies inLatin America and elsewhere, combined with baseline estimates of annual cases o f ARI and COPD. More 89 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 GDPper capita as a proxy for the cost o freduced ~ell-being.~~ 4.90 Regardingthe valuation o floss oflife, child mortality is valued usingthe humancapital approach (HCA) o f discounted life 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 upperboundhas been derived based on the willingness-to- pay 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 of valuation technique for adult mortalityaffects the total health benefits ofthe interventions by only 20 percent. Table 4.13. Fuels, Stove Technology, and Pollution Scenarios Stylized Situation Stylized Description Relative Risk I.Unimprovedwood stoves Low energy efficiency. No chimney or ventilation Very High or open fire device. Very highindoor pollution load. 11. Improvedwood stoves Relatively low energy efficiency. Chimney (or High other ventilation device) taking much o f the smoke outdoors. Still, relatively high indoor pollution load ifstove/chimney i s not maintained well. 111. Unimproved wood stoves Pollution load reduced in proportion to the use o f Medium and LPG (or other clean fuel) LPG(relative to situation I.). IV. Improved wood stoves Pollution load reduced in proportion to the use o f Mediumto Low and LPG (or other clean fuel) LPG (relative to situation 11.). V. LPG or other clean fuel Absence o f smoke from solid fuels. Low 4.91 An estimate of the value of time savings fiom reduced fuelwood collection is 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 of 30 minutes per day on fuelwood collection. It is assumed that household substitution from an unimproved to an improved stove provides a 33 percent time savings, becauseo 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 is valued (as before) at 75 percent o f average rural wages. Intotal, 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 becauseo f time savings incoolung inadditionto avoided fuelwood collection. 74DALYs are an alternative measure o floss ofwell-beingresultingfrom illness. As an approximationthat has been usedinother studies, they havebeenvalued at GDPper capita-see Larsen and Strukova (2006a). 90 Table4.14. Benefitsand CostsofRuralIndoorAir PollutionControl LPG from Mix of Improved Stove and LPG 0.35 0.05 20 15 J C 12 8 2 Annual cost of LPG(million soles) 380 25 25 Benefit-CostRatio(healthbenefits only) 5.1 0.4 0.9 0.4 Benefit-CostRatio (health and timebenefits) 6.8 0.7 1.3 0.7 *This i s from using VSL for COPD adult mortality. Using the HCA approach gives 20% wer health benefits. ** Substitutionfrom unimprovedto improvedstoves is assumed to reducehealtheffects by 50 percent, and substitutionfrom improvedstoves to LPG is assumed to avert the remaining50 percent of healtheffects from IAP. Table 4.15. BenefitsandCostsof RuralCommunityKitchens * This is from usingVSL for COPD adult mortality. Usingthe 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 LPGfuel switching, and sustaining a stove inspection andmaintenance program is included inthe 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 healthbenefits, and four ratios include bothhealth benefits andbenefits o f time 91 saving from reduced fuelwood collection, i.e., total benefits. The estimatedbenefit-cost ratios o f adopting improved stoves far exceed unity, even without the value o f time saving. The benefit- cost ratio for switchng to LPG from unimproved stoves, or from a mix o f unimproved stoves andLPG, is higherthanunitywhentime savings are includedinthe benefits, but less than unity ifonlyhealthbenefits are included.75Theratios for switchmg from improvedstovesto 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 is 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 LPG efficiency gains from larger pots used for cooking in community kitchens compared to pots used in individualhouseholds, and substantial time savings o f one kitchen cooking for manyhouseholds. However, for households with improved stoves, the health benefits alone are not large enough to outweigh the cost of switchingto community kitchens withLPG. 4.95 While promotion of improved stoves is a very attractive intervention, the merits o f promoting LPG 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, ifrural households value their time at only 50percent ofruralwages, then LPGprices wouldneedto bereducedby40 percent for benefits to exceed costs. Therefore, it seems that LPG will have a chance o f success only in better-offhouseholds andcommunity kitchens. Summary Assessment of IAPInterventions 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. This is followed by switching to community htchens with LPG from use of unimproved or improved stoves in individual households, and household switchmg to LPG alone from a mix o f unimproved stove and LPG.76Each o f these measures contributes an increasingly smaller amount o freductioninenvironmental damages; intotal, they reduce the cost o fhealtheffects by 250 million soles per year. This 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 LPG or fiom improved stoves to LPG, depend on the cost figures andbenefitfigures used. Hence, a more detailed analysis needsto be carried out for such changes, lookingat specific cases andtahng into account other benefits. 75 The benefit-costratiosfor switchingto LPGfromunimprovedstove are not presentedinTable 4.14. 76 A substitution fiom unimproved stoves to LPG i s not included in the graph. This would represent a double counting of reductionsin health effects from indoor air pollution because substitution from unimprovedstoves is alreadyreflectedinthe substitutionto improvedstoves. 92 Figure4.5. IndoorAir PollutionInterventions BIC 8.0 7.0 6.0 5.0 fuelfrom unimproved 4.0 3.0 2.0 I.o 0.0 0 50 100 150 200 250 300 350 400 CED reduction(million Soles per year) Iote: B/C =benefit-cost ratio. CED = cost o f environmental damage (Le., cost o f health effects). OverallShort-TermRecommendations 4.98 Overall recommendations for actions relating to environmental heath are summarized below in Table 4.16. To address air pollution, urgent attention is 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 of lead pollution and to prepare an action plan for dealing withthem are also urgent and low cost. Other actions that have been identifiedhave 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 LPGand other cleaner fuels to those predominantly dependent on fuelwood, and the implementation o f a programto promote improved stoves for those who do not have them. 93 Table4.16. RecommendedShort-TermActions for EnvironmentalHealth Objective RecommendedShort-Term Actions Reduce health risks EstablishnationalbindingMaximum PermissibleLevels(LMPs) for associatedwith ambientair PM2.5 andPMlO inpriority urban areasand strengthen technology- pollution specific emissionstandardsfor PMand its precursors(particularly sulfur andnitrogenoxides) (Cost: low) Implement an air qualitymonitoringprogramto monitor PM2.5, PMlO, and ozone inpriority urbanareas(Cost: modest) Prepare an actionplanto reduce leadpollution from sources other than gasoline, particularlyinlocalitieswhere leadconcentrations exceedthe nationalAir Quality Standard.(Cost: modest) Implement interventionsfor air pollution control, including(a) promotingretrofitting of diesel-poweredvehicles; (b) implementinga programoftestingvehicle exhausts; (c) reducingsulfur contentin diesel to less than 500partsper million, alongwith increasingclean importsof dieselwith low-sulfur content. (Cost: modestto high) Reducehealthrisks Promotehandwashingprogramsthat target childrenunderthe age of associated with inadequate five. (Cost: low) water supply, sanitation Promotesafewater programsthat includedisinfectionof drinking and hygiene water at point-of-use.(Cost: low) Reducecost of Promotethe use of LPGand other cleaner fuels inareas that environmentaldegradation predominantlyuse fuelwood, and implementactionsto improve associatedwith indoor air availabilityand affordability for fuelwoodusers inasafe and cost- pollution effectivemanner (Cost: modest) Implement aprogramto promoteimprovedstoves with achimney or other ventilation device. (Cost: modest) 94 CHAPTER 5 REDUCINGVULNERABILITY TO NATURAL DISASTERS Peru is one of the Latin American countries most highly prone to natural disasters- earthquakes,jloods, landslides, drought, the periodic impacts of El Niiio, and other events. The impacts in terms of human lives, homes destroyed and damaged, and destruction of thesocial and economic infrastructure have been severe. Aside from natural causes, the effects of these disasters have been exacerbated by influencesfrom human activities, including deforestation, soil erosion, andpoor land usepractices. 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 thepastj h eyears 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 thesepolicies andpractices arefully integrated into theplans and budgets of national, regional, and local institutions.77 Introduction 5.1 Over its long history, Peruhas suffered profoundly from natural disasters. Located on a continent that i s one o f the most disaster-prone regions on earth (IADB, 2000), Peru i s characterized by its 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 its rate of 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 El Niiio phenomenon, most recently in 1997-1998, have causedmajor flooding, landslides, and associateddevastation, especially inthe 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 of 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 inresponse to heavy rains, including those associated with El Niiio. This suggests that strategic interventions to assess sources of risk, ameliorate the effects of natural disasters, and target public investments to reduce human vulnerability hold the potential for significant payoffs for the Peruvianpopulation. Current Situation 5.2 Statistics show that the incidence o f natural disasters increased in Peru over the 2000-2004 period, accordingthe National Civil Defense Institute (Instituto Nacional deDefensa Civil, INDECI). The frequency of specific types of disasters varies annually. However, in most years as well as the five-year period as a whole, the three most prevalent types o fnatural disasters were strong winds, floods, and heavy rains. Together, these accounted for nearly two-thirds o f the total number of natural disasters during this period. However, it should be emphasized that the incidence o f natural disasters i s not necessarily 77This chapter was preparedby David Lee, based in part on abackgrounddocument preparedby Lenkiza Angulo (2005) for this study. 95 correlated with their impact (see discussion below). Other common disasters include landslides, huaycos (a local term for gully-type landslides), and frost. Duringthe 2000-2004 period, the incidence of natural disasters increasedmore than threefold. Source: Regional Offices, National Operations Office, INDECI, 2005 5.3 The increase in natural disasters seen during 2000-2004 (Table 5.1) i s also evident over the lengthier period of 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 secondhalf o f the 20th century inPeru, and i s independent o f the fact that the registry o f natural disaster events i s increasing incoverage and quality (hgulo, 2005). Moreover, this trend is characteristic of Latin America as a whole, as it i s globally (CharvCriat, 2000). As discussedbelow, there are several reasons for this, including increasing deforestation in the Andean highlands and increasing degradation of many of 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 inthe 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 inrecent years. The situation inPeru i s similar to that o f other nations. Inthe 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-meteorologicalhazards (UNEP, 2005). 96 Table 5.2. Incidenceof Earthquakes,FloodsandHuuycos, by Departmentand Decade, 1970-2000 Source: DESINVENTARNatural DisasterData Base, ITDGNetwork.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 Niio. Peru i s inone of 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 inHuarazin 1970, whichcaused70,000 deaths, more than 150,000 injuries, andtotal damages exceeding US$500 million; the 1966 and 1974 Lima earthquakes; and the earthquake and tsunami in southern Peru inJune 2001. 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 inthose provinces (Angulo, 2005). 97 5.6 Not only is Peru highly prone to 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 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-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 to 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 to the human population, houses, public infrastructure, and productive agricultural land stemming from 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 of natural disasters interms 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. Total Cultivated Year Number of Deaths Injuries Disappeared Houses Houses Hectares Disasters Persons Victims* Affected Destroyed Lost * Includes deaths, persons directly injured and persons affected. Source: Regional CivilDefense 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 of 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 work time and time caring for illfamily members), and the average values o f human mortality calculated using two different approaches. The first, a lower value, stems from 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 to pay for a reduction inthe risk o f death (Chapter 3, and Larsen and Strukova, 2006a). By far the two largest categories o f annual economic costs due to natural disasters, accounting for 80 percent o f the total cost, are those associated with damage to and destruction o f housing. The effects on apculture and human life are the next most important. These estimates likely underestimate the full effects o f natural disasters due to several factors: the conservative estimates stemming from the HCA 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 98 over this period. Nonetheless, these estimates clearly demonstrate the order o f magnitude o f total losses as well as the relative contributions. To 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 is an average o f HCA and VSL (Larsen and Strukova, 2006a). * Includesdeaths, persons directly injuredandpersons affected. Source: Regional Offices andNational Operations Office, INDECI These effects on Peru's population were caused by numerous different types of 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 causedby snow and frost took place mainly in2002 and 2004, with 99 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 inPeru 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 on the northern Coast (Piura). Heavy rains are severe both in the Sierra (Apurimac, Cajamarca, Huancavelica and Puno) and in lower elevations both inthe Oriente (Amazonas) and on 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 half (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 highvulnerability to multiple natural disasters; more than 17.65 millionpeople, representing more than 76% o f Peru's population, live 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 of NaturalDisasters 5.10 While the underlying causes o f many natural disasters stem from natural forces, the effects on 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. Two 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 of 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 ingeneral. In addition to its 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 humidityretention in dry years and decreasing the land's vegetative cover, particularly in higher altitude areas o f watersheds, makmg them more vulnerable to 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 to the flooding and landslides inthe Sierra andCoast. Deforestationand 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 acknowledgingthe linkbetween deforestation and flooding at small geographic scales, has questioned the linkat larger scales (FAO-CIFOR,2005). 100 Table 5.6. Location ofNaturalDisasters inPeru by 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 inturn, create conditions for mass soil movement resultinginlandslides and huaycos. On the Coast, intense rains associated with El Niio on barren or deforested soils cause periodic heavy runoff, gully erosion and huaycos. Ifrivers are not properly channeled and river banks not reinforced in critical areas, or if vegetation and building construction have interfered with 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 of interlinked series of events. As shown above (Table 5.4), the economic impacts on the housing stock are particularly devastating. 101 5.12 Another key factor contributing both directly and indirectly to the impacts o f natural disasters in Peru is climate change. Some of these processes are well understood; others are not. One o f the direct links is through increased glacial melt. Peru contains roughly 71% of the globe's tropical glaciers. Since the early 1980s (PCC, 2004) Peruvian glaciers have lost about 22% of their glacial surface (500 krn'), equivalent to 7,000 million m3of water (about ten years of water supplies for Lima). Peru also has over 12,000 lakes and ponds that could be destabilized by glacier melt. Furthermore, the combined impacts of global warming, ENSO (El Nifio Southern Oscillation) and extreme weather events on mountain hydrology are diminishingthe water flow used by populations downstream (IRD, 2004). This i s likely to have devastating impacts on highland and associated downstream ecosystems, altering the ecology and livelihoods of millions of people, whose greenhouse gas emissions are negligible. In addition, Peru's energy sector could be affected, since 80% of its energy generation comes from hydropower. 5.13 While the above effects are relatively direct, the underlyingconnections between greenhouse gas (GHG) emissions, global warming, and ENSO are less clear. There is some evidence that increases in GHG emissions causedby human actions are possibly linked to the increased frequency and severity of 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 of 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., no date; Toniazzo, 2006). Regardless, as discussed in Chapter 2, Peru's contributions to overall GHGemissions 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 on Climate Change and the Kyoto Protocol. 5.14 UNDP's recent global report on Reducing Disaster Risk (2004) emphasizesthe close relationship between economic development, urbanization, and disaster risk globally. In Peru, the urban population grew from 2.2 million (26% of 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% of its public budget and 84% o f its national tax base (Galarza, 2001). The potential effects o fnatural disasters are intensifiedby this progressive urbanizationand associated factors: the concentration ofpeople andhousinginurbancenters; a concomitant concentration ofprivate business assets and public infrastructure investments; and an increase ineconomic interdependence, which inflates the costs o f disaster-related business interruption. Together, these increase the human and economic exposure to potential disasters inspecific areas. 5.15 Conditions of poverty and marginality of the population further worsen the situation. The National Statistics and Information Institute (INEI, 2004) estimates that, in2004, more than half (5 1.6%) of Peru's population lived in poverty, and 19.2% o f the population was under conditions of 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 of many o f the extreme poor. This vulnerability hasbeen demonstrated many times in the past, such as inLima's 1966 and 1974 earthquakesand inIca's 1963 and 1998 floods. 5.16 As this discussion shows, the causes of 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 inhelpingcause some natural disasters and contributing to worsening the impacts o f others. The second i s the important role o f risk assessment and disaster prevention inhelpingto avoid, or at least lessen the impacts o f natural disasters 102 on people, homes, agriculture and infrastructure. To date, the government's approach to natural disasters has been largely focused on mitigating the effects of disasters once they have occurred, rather than assessingex ante the sources o f greatest risk, preventingdisasters, 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. InstitutionalandPolicyFramework 5.17 The first two parts of this section discuss the policy framework and institutional network, respectively, which comprise Peru's national systemof disaster mitigation, prevention, and response. This system i s evaluated inthe 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-termvulnerability to natural disasters, and for reconstruction and rehabilitationwhen disasters occur. The Plan incorporates six specific strategiesrelating 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 of these strategies, the Plan defines programs, indicators and responsible institutions. However, it fails to define terms, specific operational roles and responsibilities of 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 of sectoral disaster plans at the national level within 30 days and regional plans by each regional government within 60 days, an undulyambitious schedule. Law No. 28551 (May 2005) requires the preparation o f sectoral and governmental contingency plans consistent with the National Plan. 5.19 National disaster planning is 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 of prevention and control of risks and vulnerability to natural disasters, assigning resources to prevention, assistance and reconstruction." Specific goals include having, by 2006, (1) the National System o f Civil Defense (SINADECI), which i s responsible for coordinating the national response to (and prevention of) disasters, functioning at 100%; (2) 100% of public infrastructure projects incorporating riskcontrol and prevention mechanisms; (3) 80% o f Civil Defense Committees and offices o f regonal and local governments and public and private institutions being hlly 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 inview of actual operations as ofDecember 2005. Inaddition, Policy No. 15 ofthe National Agreement on Food Security contains a concrete goal of taking measures to confront threats to national food security, includingdrought, desertification and disease. 5.20 With 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 of scientific experts and public sector representatives. The Commission proposed a national effort to identify the main disaster threats in the country, sources of social and economic vulnerability, ways to institutionalize risk assessment and 103 control, and the production and use of 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 its work, it was deactivated in October 2004 (reportedly to prevent turfbattles with INDECI), with its functions to be assumedby a yet-to-be-created National Center of Strategic Planning (Centro de Planeamiento EstratigicoNacional- CEPLAN). 5.21 Following the deactivation of the Multi-sectoral Commission, the Ministry o f Economy and Finance has assumed leadership in incorporating risk analysis into the formulation of public investment projects, and there has been some progress. A recent General Directive (Resolution 012-2002 EF 6801) of 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. 5.22 The Andean Community's Program on Promoting Prevention in Andean Country Development (Promocidn de la Prevencidn en 10s Procesos de Desarrollo de 10s Paises Andinos - PREANDINO), supported by the Andean Development Corporation (CAF), has charged the CAF with incorporating risk assessmentand preventionbroadly into the Community's development projects and processes. This 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 inPeru), a major emphasis on risk prevention (CAF, 2000). The PREANDINO strategy prioritizes risk reduction in development planning and seeks to have risk assessment methodologies incorporated by institutions like the PCM, Ministry of Economics and Finance (MEF), the National Environmental Council (CONAM), and INDECI. The program's previous activities are currently on hiatus, with progress continuing to be monitored from its central office in Caracas, emphasizing promotion, transfer of 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 of Disasters in the Andean Community (PREDECAN), and with MEF, with its focus on risk analysis in public investmentprojects. 5.23 The Sustainable Cities Program (Programa Ciudades Sostenibles), executed by INDECI with support from the UNEnvironment 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 of 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 inrecent years, the activities of the Sustainable Cities Programhave been particularly important. Through October 2005, the programhad activities in 18 regions and 104 cities inPeru; 93 of those cities have urban hazardmaps and 59 also have completed land use and disaster mitigation plans. O f these, 50 municipalities have approved them with fomal decrees. 5.24 Other major ongoingprograms dealingwith riskassessment 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 of 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 2005- 2010), approved in April 2005, has the goal of incorporating the themes o f risk assessment and 104 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 highrisk in Peru. The European Commissionhas also supported the Prevention of Disasters inthe Andean Community Project (Proyecto Apoyo a la Prevencibn de Desastres en la Comunidad Andina - PREDECAN). This recently established (2005) project began with the objectives of promoting risk assessment and disaster prevention through institutional strengtheningand 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 Systemof Civil Defense (SistemaNacional 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 assistanceinthe event o fnatural disaster. SINADECI i s constituted by bothpublic and non- governmental entities, including the National Institute of Civil Defense (INDECI), and its regional offices; regional systems of civil defense; and offices o f civil defense associatedwith individual sectors, institutions and public agencies. In tum, regional civil defense systems are composed of 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 INDECIi s the central coordinatingmechanism o f the national civil defense system. It i s incharge of planning, organization, direction and coordination o f SINADECI's activities; and supervising and coordinating the activities of all organizations that receive public funds for civil defense purposes. Its leadership has historically come from the military, and it has had the reputation o f being a hierarchical institution. Its 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 andreconstructionactivities. 5.27 The National Environmental Council (Consejo Nacional del Ambiente - CONAM), according to Decree No. 048-97-PCM, has overall responsibility for coordinatingnational environmentalmanagement, 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. CONAM is in charge o f approving the National Environmental Action Plan, regional environmental action plans, the National Reporton the State of the Environment, and the National Plan for EnvironmentalManagement. 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 fnaturalresourcesandriver basins. According to the Law No. 25902, this sector is 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 of Agncultural Research (INIA), and the National Program of Watershed Management and Soil Conservation (PRONAMACHCS). INRENA is the governmental 105 authority responsible for environmental and natural resource management, including areas relevant to natural disaster protection: regional watershed planning and land use mapping (through its OGATEIRN office); proposing measures for ecosystem conservation and recuperation; and through its PERPEC program, river channeling andwater storage structures. 5.29 The Ministry o f Housing, Construction, and Sanitation, according to Decree No. 002-2002- VIVIENDA, is responsible for housing and urban development. Included in its mandate are the formulation, proposal and execution of policies and plans for riskprevention 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 andpolicymaking to prevent and mitigate disasterrisk. 5.30 The National Meteorological and Hydrological Service (SENAMHI), through its 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 fillmany of the gaps inGoP efforts, interact closely and directly withregional and local governments, and have played a major leadership role inrecent years to put disaster prevention and risk assessment on the national agenda. Major NGO efforts include those of PREDES, Red Cross- Peru, OXFAM, GTZ (Germany), Save the Children, World Vision, ITDGand 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 of 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 ina country's economic development (Clarke, 2000) without which the resultant costs of 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 fundingexist inreducing risk, vulnerability and the destructive effects of natural disasters, and what the priority areas should be for the GoP's focus and attention. 5.33 As discussedpreviously, multiple public initiatives exist inPeru, begun mostly over the past five years, which are addressing these priorities. However, the organization and integration of these concerns at the operational and budgeting levels in national, regional and local governments i s still 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 risk assessment in national and regional development planning and management; accomplishing these objectives awaits the planned imminentformation of 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 of these and other types of natural disasters. Poverty, by itself and inconjunction with uncontrolled land uses, greatly increases human vulnerability to natural disasters. Thus, reinforcing efforts to address both 106 the environmental causes of disasters (see Chapter 7) and the problems o f poverty that exacerbate calamities, i s key to improving the effectiveness of risk management and mitigating the impacts o f disasters. 5.35 Addressing the root causes o f natural disasters requires dealing effectively with soil erosion and deforestation. Although the agricultural sector has the greatest availability o f resources to deal with river basin and natural resource management, that sector's efforts are diffuse, partial and not integrated. The Ministry highlightssome 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 of prevention and risk into the educational culture andrequires monitoring o f its progress and impacts. 5.36 The National Plan for Preventionand Attention to Disasters has several key limitations. First and most importantly, it 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. Law No. 28551 (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 of 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 inrevision and 15 were informulation. 5.37 The National Plan should be reviewed and revised with broader participation by the public and civil society institutions involved in its 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 civil society groups were not involved in the development o f the original plans. Simply issuing directives from INDECI and approving sectoral and regional disaster plans-for both prevention and response4oes not guarantee that the institutions involved will actually incorporatethese plans into their strategic and operational plans. Nor 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 it has been limited by the lack o f management capacity o f many local governments, lack o f commitmentby 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 5040% of 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 of Civil Defense have many limitations in staff, resources, organization, management and training. The impacts of 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 disasterpreparation and emergency action. 5.39 InPeru, national, regional, andprovincial levelsofgovernment typically approve plans, laws, and 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 to risk management, most changes centered on the central organization of SINADECI. This model i s being significantly modified inthe context of decentralization. Nevertheless, it i s occurring without clear plans 107 and orderly adjustment. The sectors (ministries) only indirectly count on specific mandates regarding prevention and other areas. However, it i s possible to improve mandates and directives to allow clearer integration of reduction of risk and vulnerability in the context o f national and regional policy. Given its legal and historic responsibilities, INDECIhas the task of generating instrumentsand regulations to better promote and monitor the changing functions o fthe different elements inthe national civil 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 of risk and disaster mitigation into the educational curricula (Measure 4). Progress toward Measure 1(incorporating a focus of riskprevention and control throughout SINADECI) has been limitedby the traditional lack o f focus onrisk and protection (versus that of responseto natural disasters) in SINADECI(notably, INDECI) andbythe lack of specifiedindicators. This is confirmedby the small proportion of INDECI's total budget in 2003-2005 that i s accounted for by prevention and risk analysis- related expenditures (Table 5.7). Although the percentage of the budget devoted to "risk analysis" declined sharply in 2005, this was due to a transfer of these responsibilities-although not associated budgetary increases-to the local and regional levels. Well over halfo 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. 2003 2004 2005 Total Budget(Soles) 59,804,851 85,315,955 86,432,560 RiskAnalysis (%) 2,905,949 (5%) 3,462,573 (4%) 542,594 (1%) Prevention(%) 8,162,479 (14%) 11,488,613 (13%) 11,961,225 (14%) Total Staff 443 442 603 Permanent Sstaff 103 102 102 Contractedby SNP 340 340 501 5.41 Progresshas been reportedinthe training o f civil defense committees, particularly at the regional and provincial levels, but there are no statistics or indicators to confirm this. In2004, 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 risk 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. 5.42 The processo f decentralization provides an opportunity for anewvision and emphasis on disaster prevention and risk assessment throughout Peru. Decentralizationplaces more responsibility on regional, provincial and local governments to plan and to manage economic development jointly with the reduction of 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 risk 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 108 have yet to buildtheir new responsibilitiesinto their budget planning. Inmany cases, the NGO sector fills 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 Landuseplanning is an important instrument for the preventiono fnatural disasters. However, the national framework for land useplanning-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 of government, this demands a much-improved level o f integration and consistency. Thus far, the statutory laws o f the sectors, regional governments andmunicipalities have not adequately generatedthis 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 of information to building inspectors who provide the critical link to contractors. Incorporatingrisk 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 is clear fromthe incorporation ofthese conceptsinmajor documents andefforts such as the National Agreement and the National Plan for Prevention and Attention to Disasters. Yet, as a matter of 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 of disaster risk and vulnerability as a national priority. The prevention of disasters andthe reductiono f disaster risks and vulnerability should be highlightedas 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 civil society as well, includingNGOs and the private sector. It i s important to strengthen technical and organizational capacities, especially at the regional and local levels, to manage riskreduction and organize the responseto naturaldisasters. 2. Create an Office for Reduction of 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 inthe short term and might be complemented by establishing a parallel office inthe 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 109 disasterprevention andriskassessment policies acrossthe 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 of 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 of 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 of 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 risk assessment and monitoring, training and education. Changes to INDECI will not come easily, given its 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 beingdevolved to 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 of incorporating disaster planning into their budgets. A long-term commitment to better budgetaryplanning, both at the national and regional levels, can be better used to assure that disaster prevention and risk assessment are included inthe operational plans of governments and ministries. The use o f regional government revolvingfunds should be considered for dealing with natural disasters, much like that o f INDECIat the national level. 5. Greater participation in developing disaster plans. To 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 of the actors and institutions involved in its execution. These reviews and revisions should be conducted in a transparent, inclusive and participatory fashion. To 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 of the sectors, regional and local governments and, importantly, into their institutional operating plans. 6. Establish a national framework for integrated watershed management. The institutionalization of watershed management should be redefined. The Independent Watershed Authorities (Autoridudes Autdnomus de Cuencus)have structural problems originating from their design, in that they ignore the need of 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 of this effort should be the establishment o f early warning systems and monitoring systems in the main river basins. This will help identify the processes that generate environmental degradation inthe first place and that lead to greater vulnerability to natural disasters. Examples of such processes are poor land use management, soil erosion, deforestation, mining, sources of surface water contamination, and the construction o f human 110 settlements in risky areas. In organizations like PRONAMACHCS, indicators of environmental deterioration and increased risk vulnerability to disaster in watersheds should be considered an additional criterion for its targeting o f critical watersheds, one that would complement its existing focus on poverty. An effort shouldbe made to identify and systematize the lessons and successful experiences in watershed management and soil conservation, not only o f PRONAMACHCS but also o fNGOs. 7. Establish a policy on land use planning. Land use planning is a key tool for risk reduction, because it identifies spatial uses for different human activities-housing, infrastructure, and productive activities like agnculture. Furthermore, land use planning identifies critical constraints, risks and limitations arising from both human activity and the environment. While "Economic and Ecological Zoning" is a widespread requirement across ministries and different levels o f government, its interpretation and requirements are diffuse and ambiguous. This needs better articulation and consistency, with priority given to disaster prevention and mitigation; this could be a role for both CONAM and CEPLAN. Landuse 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 of Decree No. 087-2004-PCM-to clarify the roles and functions of landuse planning at the three levels of government, to specify the processesof civil society participation, and to guide the allocation ofresources. Technical Assistance 1. Promote disaster prevention and risk assessment through the comprehensive incorporation of planning and management tools at all levels o f government. Indicators of 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 of 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 risk and vulnerability reduction at regional and local levels; and monitoringpolicies, programs, plans and outcomes. This will necessitate a much greater effort to train andbuildhuman capital inthese 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 shouldbe strengthenedto incorporate risk analysis and disaster prevention into the formulation of public infrastructure and investment projects, beginningwith the SNIP. This will necessitate greater attention to buildingstandards 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 of risks inurbanplanning and development. It i s also necessaryto better incorporate risk and vulnerability assessment into the formulation of urban plans. In the case of the Sustainable Cities Program, it i s necessaryto 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 inthe design and execution o f these studies. 111 4. Diffusion of 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 of 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 to access the necessary financial resourcesto deal with disaster mitigation. One possible mechanismwould 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 INDECI in times of disaster, butwould direct funds to help meet localneeds, where local funds are also available, and would be spent on disaster prevention, notjust emergencies. 2. Consideration should also be given to alternative mechanisms for transferring risk. Disaster insurance i s seldom used indeveloping countries for a variety o f reasons (Freeman, et al., 2003): the high probability of extreme weather events, the difficulty o f spreading risk in small economies (relative to the magnitude ofrisk),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 inPeru have been made by the Peruvian Association o f Insurance Companies (APES). The company Cooper Gay P e d Corredores de ReasegurosS.A. hasrecently presented a proposal for catastropheinsurance to INDECI. These and similar initiatives shouldbe considered further. 112 Summaryof PolicyRecommendations Objective RecommendedShort-TermActions Recommended Medium- and Long-TermActions Emphasizedisasterprevention 0Establishand fundVulnerability Incorporate disaster and the reductionof disaster Reduction Office inCEPLAN.-(Cost: prevention and risk reduction riskandvulnerability as low) across all levels o f nationalpriorities. EstablishVulnerability Reduction government, NGOs, education, Office inMinistryofHousing. (Cost: private sector, etc. (Cost: low) moderate to hgh) 0Develop and apply riskassessment Incorporate risk and andprevention methodologies, vulnerability assessment in indicators, andinstruments to assess urbanplans. (Cost: moderate to andmonitor vulnerability andrisk in high) national and regional plans, program Establish a national andproject planning, infrastructure framework for integrated design, etc. (Cost: moderate) watershed management to help Strengthen MEF efforts to incorporate avoid natural disasters. (Cost: riskanalysis inpublic infrastructure moderate) projects and inbuildingdesign standards. (Cost: moderate to high) Investinearly alert systems in targeted areas. (Cost: moderate to high) Strengtheninstitutions 0National Planneeds to identify roles, 0Foster better budgetary involvedindisaster planning responsibilities, budgetary allocation planning, and greater and management,especiallyin guidelines, andp e r f o m c e accountability indisaster the context of decentralization. indicators for national (INDECI), prevention and planning. regional, and local entities. (Cost: (Cost: low to moderate) moderate) 0Foster greater civil society Increase financial resources spent on participation and greater disaster prevention andplanning, transparency indisaster especially at regional and local levels, prevention andplanning. given decentralization framework. (Cost: low) (Cost: high) 0Establishnational andregional Improve training, at all levels o f policies on landuse planning, SINADECI (especially at regional and androles o f different levels o f local levels), indisaster planning, risk government, as part o f disaster analysis, public infrastructure prevention effort. (Cost: planning, etc. (Cost: moderate to high) moderate) Diffuse information on safe constructiontechnologies. (Cost: low to moderate) Evaluatealternative 0Establishnational fund to facilitate co- 0Evaluate feasibility o f mechanismsfor financing financing o flocal and regional catastrophe insurance and publicandprivate responses infrastructure and disaster prevention other risktransfer to naturaldisasters. projects. (Cost: high) mechanisms. (Cost: low to moderate) 113 CHAPTER 6 SUSTAINABLE FISHERIES THROUGH IMPROVED MANAGEMENTAND 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 andprocessing 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 will 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 regulatolyframework.78 Introduction 6.1 About fifty years ago, Peru started to develop an industrial fisheries sector, based on its rich anchoveta and sardine resources. These resources account for nearly 10% o f the global marine catch. Inaddition to being a major natural resource for Peru, they are key constituents of 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 of abundance to one o f scarcity, no major policy innovations have been introduced into the sector, except for privatization. Successive governments have shied away from tackling critical issues. This 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 fpollution 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 oil remain promising, biotechnology may enable the development o f alternatives to these products, and long-term buoyant and remunerative export markets for fishmeal and oil 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 is the anchoveta fishery; however, the economic and social importance of 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 froma backgroundreport preparedbyPatriciaMajluf, Albert0 Barandiarin,and Juan Carlos Sueiro (2005). 114 Background 6.2 Peru's fishing grounds are the richest in the world, and anchoveta remains the largest single stock fishery inthe world. Over 300 millionMT of fish have beenharvested from Peruvian waters during the almost 50 years of industrial fishing (from 1960). Since 1960, the average yearly catch has been 6.56 million MT. During the last seven years, since the last El Niio in 1998, the average yearly catch has been 8.65 million MT (Tables 6.1 and 6.2). Table 6.1. Landingsof Maritime and InlandResourcesAccordingto Use: January-December 2005 (Thousand Metric TonsLiveWeight TMB) - TYPE OFUSE II Anchoveta 8,797.1 8,530.6 -3.0 Other Species II 13.5II 0.1 II -99.3 II 115 Table 6.2. Landingsof Resources by Use, Accordingto Species: January-December 2005 (ThousandMetric Tons Live Weight -TMB) SPECIES Total FishMeal Canned Frozen Cured Fresh TOTAL 9,285,365 8,530,657 87,554 305,213 51,599 310,342 Anchoveta 8,555,630 8,530,551 14,156 498 10,425 Tuna 10,902 9,861 1,008 33 Mackerel 44,992 25,256 3,345 2,913 13,478 (Caballa) Horse mackerel 83,469 19,723 2,253 2,603 58,890 (Jurel) Squid (Calamar) 8,783 169 6 165 2,449 FlyingSquid 276,144 2,875 226,925 40 46,304 (Pota) Shell (Caracol) 2,730 497 1,651 582 Scallop (Concha 11,290 10,656 634 de Abanico) Crayfish 9,226 13 8,410 803 (Langostino) Flathead Mullet 6,403 465 5,938 (Lisa) Hake (Merluza) 28,671 21,737 158 6,776 Silversides (Pejeney) 8,957 299 8,658 Other Species 238,168 106 15,004 22,266 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 million MT, and are currently in the 8-10 million 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 oil for export, primarily to Europe and China, to supply a growing livestock and aquaculture industry with essential animal feed ingredients. Only a small fraction (2 to 7 percent) o f the total marine catch, including the artisanal catch, i s usedfor 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 to over 100,000 MT in recent years. In2003, overfishing ledto the collapse o fthe 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 to 200,000 MT per year. Official estimates indicate more than 116 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 17percent, algae for two per cent andother 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 on the lakes, and in particular Lake Titicaca, targeting indigenous species, especially the "ispi", but also introducedspecies, 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 from "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 of Peruvian scallops has also shown strong growth, with a production o f 10,000 MT in2004. 6.8 Peru's extraordinarily rich 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 LMEi s subject to major periodic disturbances in the form o f El Ni60 Southern Oscillations (ENSO). Warm westerly winds drive the nutrient-rich Humboldt Current further south and offshore, replacing it with warm water from the Southern Equatorial Current. During EE Ni6o years, plankton levels decline and changing ocean temperatures contract and distend the habitats of 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 on the marine ecology, the fisheries, and the economy (see Figure 6.1). 117 Figure6.1. RelationshipbetweenAnchovetaLandingsandMeanENSO Index, Demonstratingthe InverseRelationshipbetweenthe Two Anchoveta landings and ENSO 14000000 , , 2 12000000 1.5 10000000 1 E 0.5 8`0 f: 8000000 .-$ E 0 .- u) 6000000 `0 -0.5 3 E 4000000 E -1 2000000 -1.5 0 -2 Importanceofthe Sector 6.9 The fisheries sector remains a significant contributor to Peru's economy. It i s the second largest earner of foreign exchange after mining, accounting for between US$1 and 1.7 billion annually in exports (Peru Statistical Yearbook,2003), or 11-16 percent of total export earnings. It generates about 4 percent of rural employment, and comprises approximately 1 percent of GDP. However, the sector is currently a minor source o f revenue for the public sector. Finally, one-fifth of 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 ofprotein and nutrition. 6.10 Inaddition 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 of marine mammals and bird species. These, inturn, 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 of guano generated from the droppings of these fish eating birds. This system has been identified as a marine biodiversity hot spot, and a proposalto 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 inEurope and the U.S. Exports could generate alternative livelihoods for coastal fishers andhelp 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, andpelicans. 118 6.3 provide a simplified illustration o f the complex trophic relationships and show the anchoveta's pivotal role inthe Humboldt Current LME. Figure6.2. MainTrophic Interactionsinthe PelagicEcosystemoffPeru (fromMuck, 1989) Figure6.3. Schematic of TrophicInteractions inthe Peruvian UpwellingSystem, with andwithout Fisheries Sinpesquerias Conpesquerias la) Aves I@I Otros Otros Aves depredadores Marinas depredadoreo Marinas 38.4% ZooPlancton Anchovetas Zooplancton=> Anchovetas T Fitoplancton Fitoplancton No aprovechado No (se preciplta) aprovechado Nutrientes Nutrientes (se precipita) (N. P. W (N. Pvgil 6.11 There have been numerous studies on the fisheries sector, including a Fisheries Sector Note prepared with World Bank support (World Bank, 2003b). More recently, Majluf et al, (2005) produced a detailed environmental assessment o f the fisheries sector. That report is a 119 central background source for this chapter. All studies emphasize the need to strengthen governance, transparency, andobjectivity indecision-making. Specific Issues 6.12 The tremendous potential productivity of 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. Key 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 to 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 well inexcess o f 100,000 MT in a single day), the extreme volatility of changes in the fish stocks caused by El Niiio events, and lack o f a broad consensus roadmap in a volatile political climate have all contributedto making the problems appear intractable. Overcapacity 6.14 Perhaps the greatest single factor currently threatening the fisheries sector is fleet and processing overcapacity, fueled by continuous growth inthe fishhold storage capacity o f the fleet and characterizedby 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 hullcapacity, 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 inthe north-central part of 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 still provide adequate protection for the juvenile anchoveta. The fishhold capacity o f individual vessels is, on 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 31.5% 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 to 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 raw material in processing, adversely affecting product quality and price. In 2003, the total fish- 120 meal processing capacity was estimated to be 9,000 MT per hour, equivalent to about 170,000 MT per day in three shifts, or 30 million MT per year (based on 200 days o f fishing per year), thusexceeding the available fish supplybymorethan 200 percent (World Bank, 2003b) 6.18 Overcapacity has two distinct effects: (i) fish-resource depletion and marine ecosystem imbalance, and (ii) dissipation or loss o f economic benefits from the sector. 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 to 25 c m in 2001. Stocks have collapsed twice inthe last 25 years, most recentlyin2003, when catches registered lessthan 8,000 MT, a decline from nearly 120,000 MT in 2001. In response to its overfished status, the fishery was closed temporarily in2003, but reopened shortly thereafter, and stocks are now recovering. 6.20 Inthe anchoveta and small pelagics fisheries, the picture is more complex. Overfishing 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 Niiio years, catches have periodically declined to less than 2 million MT; this is a quarter o f the yield innormal years. The relative importance of 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 of overfishing and ecosystem imbalance. Figure 6.4. Variations inthe Historic Catch of Marine Fishalong the Peruvian Coast, Total Catch 1950-2004. Scale 0 to 14 millionMT 1 I I 1 I I I 14.000.0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Source: Fisheries statistics from FA0InformationPortal (2005) 121 Total CatchExcludingAnchoveta (Engruulisringens) and Sardines Scale 0 to 2.5 millionMT 1950 1855 1960 1965 1970 1975 1980 1985 lag0 1995 2000 Anchoveta Horse mackerel FlyingSquid `e` Sardines Menhaden B o n y f i s h Mackerel Anchoveta (other) Hake Other species 6.21 The development o f the anchoveta fishing industry has caused the anchoveta biomass available to birds to drop from about 14% to only 2% now (Figure 6.2). As a result, the population o f seabirds in the coastal areas o f Peru has declined from about 15 million in the 1950s and 1960s to about 2 million. Similar declines inmarine mammal populations are evident, demonstrating that the marine ecosystem has altered radically from its status several decades ago. There has also been a marked decline in fish stocks in the inland fisheries, where a combination o f habitat destruction and pollution by extractive industry (miningand oil), and overfishing have ledto declining catches. Economic heficiency 6.22 Based on estimates o f fleet overcapacity presented above, the capital investedinthe fleet may be as much as 4-5 times higher than necessary. This overcapacity reduces crew employment to about 120 days per year, and there is political pressure to expand the fishing season to the detriment o f resource recovery". This overcapacity, combined with resource fluctuations, has led to the reportedmajor indebtedness o f the sector and absorbs capital that could be usedto 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 its debt burden means that the sector's contribution to national However, the awareness o f Peru's policymakers seems to be increasing. For 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 is able to catch more than 8 million MT of anchoveta-its entire year's quota (Majluf, 2005). 122 welfare is disproportional low. While exact data are not available, and favorable market conditions for fishmeal and oil have reportedly reduced the debt from US$1.8 billion in 2000 to less than US$1 billion in 2003, the highly volatile nature of the pivotal anchoveta fishery makes the restructuring of 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-endmarket demands nor modem environmental standards for fishmeal plants. As mentionedbefore, Perui s not alone infacing these problems. A number o f international comparisons demonstrate how problems o f overcapacity can be addressed.81The following Box indicates how Norway overcame these problems. Box 6.1. Example from Norway on Reducingthe Capacity ofthe Fleet and ProcessingPlants Relevant experience inmethods for reducing both fleet andprocessing plant capacity comes from Norway, where reductions of 80% and 88%, were achieved, respectively, for the purse seine fleet and fishmeal processing plants over the course of about 35 years. This was achieved through comprehensive structural adjustment programs that included industry-financed buyouts, industry consolidation, mothballing o f plants, comprehensive price agreementsbetween vessels andplants (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. EnvironmentalEcosystemandPublicHealthImpacts 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 of MT of anchoveta each year (Figures 6.2 and 6.3). Seabirds are included among the affected species, and although their populations are still estimated to comprise millions o f individuals, studies conducted by NGOs indicate a steady decline in the number of seabirds associated with the expansion o f the fishing industry.Anchoveta production i s also responsible for environmental impacts relatedto water and air pollution, thus underminingthe sector's social and economic contributions. The introduction of 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 usingsteam dryers to process fishmeal instead o f direct heat. T h s would augment the amount and quality o f protein inthe final product, and generate a price differential o f US$30-80 perMT abovethat for standardfishmeal. 81See, for example, OECDdocuments: AGFUFI(2004)4/Revl: Further Examination o f Economic Aspects Relatingto the Transition to Sustainable Fisheries. Reviewof the Use ofManagement Systems. AGR/FI(2004)5/Part3: IcelandCase StudybyProfessor R. Amason. 123 Figure6.5. Industrial FishingLanding and Processing Facilities ShowingProcessingQuality Weak Governanceand 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 on 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. This largely results from enforcement difficulties and loopholes in the law regarding limits on 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 Many 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 fish anchoveta when it became clear shortly thereafter that a fishery for these "underexploited" species was not economically viable. 6.26 In1998, Viking class vessels were legitimizedaspart ofthe anchoveta fleet. Classedas artisanal vessels, the Vilungs were exempt from regulations limiting the size o f the industrial fleet, despite recognition by authorities that the sector suffered from overcapacity. This act 124 precipitated the rapid construction and growth o f Viking class vessels in the fleet, with the addition o f 380 wooden vessels since 2001. The Viking Fleet currently captures around 1million MT annually, with far lessvariability incatchthan the fleet o fsteel 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 on fishing licenses and permits for the operation o fprocessingplants. 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 to allegations of violations and fraud. For example, the percentage of 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 inthe M C S system would affect the successful introduction o f more market-based fishing-rights systems, as will be proposed later. InstitutionalArrangements and Public Participation 6.29 The huge overcapacity in the Peruvian fishing industry is a sign o f the basic weakness inthe fisheries sector's governance. It is fimdamentallyimportant to strengthen the sector's governance, taking account o f ecosystem considerations through an EcosystemApproach to Fisheries and Ocean management (EM). IMARPE (Instituto del Mar de Peru), the biological research arm o fthe Divisiono fFisheries within the Ministry o f Production, issues its recommendations on the TAC for different stocks each year. These recommendations are based on IMARPE's assessment o f the different stocks' condition and recruitment potential, oceanographic and other factors. At times, IMARPE's advice is not reflected inministerial management decisions; this shows weak linkages between research, policymaking, and implementation at the level o f the Ministry (Figure 6.6). 82P e d Pesquero, No. 9, 1992 125 Figure 6.6. Framework for an EcosystemApproachto OceanManagement The illustration describes the interactive management decision cycle. All stakeholders from the fishery sector and from civil society must be includedinthe process to 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 to environmental oversight o f the fisheries sector. Civil society, inthe 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 sign has been the initiation o f discussions on 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 of Peru's anchoveta fishery depends not only on the ecological and economic viability o f production, but also on the extent to which benefits from this public good accrue to society. As noted above, the vast majority o f the catch i s destined for conversion into fishmeal and fishoil for livestockand aquaculture productioninChina and Europe, with only 2- 7% 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 unaffordableto 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 126 bythe industry.Some indicative studies suggest that the sector is probably losing several hundred million dollars annually innet benefits: Aguero (1987) concluded that eliminating fleet overcapacity could have increased net benefits by over 60 millionUS$. This was based on a 37% fleet overcapacity compared to the current overcapacity o fmore than 100%. The poor utilization of investment and infrastructure was conservatively estimated in a 2002 study (PRODUCE, 2002) as causing losses of 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 of some US$20 millionper 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 its earnings to the national treasury. Annual aggregatetaxes paid to the state in recent years range between US$22 and US$60 million, or less than 1% of total government revenues. Iftaxes were leviedat rates equivalent to those on other productive sectors, or equivalent to the sector's contribution to GDP, public revenues could increase upto US$lOO millionper year. License fee levels are low because vessels currently pay only US$0.72 per ton of catch, yielding total revenue of about US$7 million. In comparison, for a smaller fishery, the Chilean treasury receives US$20million inrevenue. Production inefficiencies and the low grade o f the fishmeal (especially regarding protein quality) lead to the loss of benefits. Recovering these benefits would require significant changes in catch management on board and at the landing sites to prevent spoilage, and investments inmore efficient recovery sytems for fish oil andprotein, now available. 6.33 The dissipation and drain of 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 ingeneral; lostjob opportunities from diversified and value-added industries related to anchoveta, including marine tourism associated with seabirds and marine mammals dependent on anchoveta inthe 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 its dependency on fishmeal and fish oil; and (2) climate change or, more specifically, the frequency and intensity o f ENS0events. The degreeto 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 infisheries management and governance. 6.35 Future prospects for fishmeal and, inparticular, for fish oil 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 127 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 of protein in livestock feeds are advancing. However, fish oil 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 fish oil supplied largely by Peru will continue. This will put a premium on improved processing and techniques for fish oil 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 processingplants. 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 to maximize resilience and recovery o f anchoveta stocks will require improved oceanographic information on 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 to 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 on stock recovery potential will also be required to manage stocks for optimal yields. These studies shouldbe extendedto other species in the food webs o f economically important fish 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 to establishing economic stabilization mechanisms to provide insurance or compensation to vessel operators and crews that may have to stop fishing inEl Niiio years. 6.37 Business as usual on 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 to Peru from 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 (inU S dollars) per year. PolicyRecommendations 6.38 Policy recommendations to improve sector governance center on three major objectives: 1. Substantially increase the net benefitsfrom 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 indetermining 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 to longer term, with potential high returns on investment. 128 I.Substantially increasethenet benefitfrom thefisheries andensureequitabledistributionof 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 duringnormal years through a structural adjustment program. Develop a timeline for decision making and for implementing effort reduction inthe 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 to the moral hazards involved. Institute a general system o f quotas to be gradually developed for the different fisheries. For hake fishery, a system o f individually transferable quotas (ITQ) might be considered and, if proven successful, expanded to other demersal and pelagic fisheries. Enforce a freeze on the Viking Fleet's capacity until a comprehensive plan to reduce fishingi 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. This can be expected to eliminate the least efficient factories. Increase revenue capture from industry to support the development of 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 remlatow mechanisms to `automatically' adjust fleet activity and plant capacity duringEl NiEo events to (a) retain a highlevel o fnet 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.EnsureEquitableDistributionof BenefitsandImprovedManagementof theSector a. Create a system o f co-management with participationby industry,civil society, and other legitimate stakeholders indecisions 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. 129 c. Strengthen the monitoring and enforcement of fishery regulations, including the vessel monitoring, surveillance, andcontrol (MCS) system. d. Ensure transparent independence from industxv. Ensure that institutional arrangements for drafting, adopting, monitoring, and enforcing environmental standards and safeguards maintaina transparent independencefrom industry. III.AdoptanEcosystemApproachtotheManagement of Fisheries a. Strengthen the fisheries- and oceans-research capacity o f IMARPE for science-based management o f marine resources. b. Pursuea precautionary approachinfisheries management. C. Establish, where necessary, a revised systemo f fishery regulations to ensure the rational and sustainable harvest of fish stocks. These regulations should address factors such as minimumfish size, seasonal closures, and gear restrictions. d. Internalize the environmental costs of the fisheries sector. Reduce andor internalize the negative externalities of the fishing industry on the coastal population, the coastal environment, and the ecosystem. e. Establisha systemo fmarinereserves. Incompliance with Law No28793 (Law for the Protection, Conservation, and Re-populationof the Country's Guano Islands, Rocks, and Points) promulgatedinJuly, 2006, incorporate the Guano Reserve System (Sistema de Islas, Islotes y Puntas Guaneras) into the National Systemo fNatural ProtectedAreas (SINANPE) and launcha program for their conservation and re-population.This will protect critical breedingand nursery habitats for threatened marine species and protect areas o fhighproductivity for artisanal fisheries and aquaculture. 130 Summaryof PolicyRecommendations:Actions for the FisheriesSector Objective RecommendedShort-TermActions Recommended Medium- to Long- Term Actions Substantially Limitaccessandallocate fishing 0Reduce the capacity o fthe fleet and increasenet rights. Institute a general framework fishplants to a levelthat maximizes benefitsfrom for the allocation o frights, paying net economic returns duringnormal fisheries, and particular attentionto (i) equity in years through a structural adjustment ensure equitable the allocation, (ii)distribution o f program. (Cost: high-but canbe distributionof social benefits, and (iii)human moderate through the use o f these benefits welfare issues. (Cost: low) potential mechanisms for financing (socialand Develop a timeline for decision by industry) economic) from the making and for the implementation fisheries. o f effort reduction inthe whole fishingindustry, includinga period for public vetting and securing financing. (Cost: low) 0 Increase revenue capture from industry.(Cost: low) 0Restructure the industry's debt by opening a dialogue with industry stakeholders and key donors. (Cost: h h ) Explore market and regulatory mechanisms to `automatically' adjust fleet activity andplant capacity during El Niiio events to (a) retain a h g hlevel o f net economic benefit and (b) facilitate rapidrecovery o f the anchoveta and other stocks following such events. (Cost: moderate to high) Consider establishing an industry drivenstabilizing fundto addressthe volatility o fthe stocks and landings. (Cost: moderate) Improvesector 0Ensureopen public accessto key Create a systemo f co-management governance. information (biological, economic, with participation by industry, civil fiscal, and social) about the fishery society, and other legitimate sector. (Cost: low) stakeholders indecisions affecting Strengthen the monitoring and management o fthe fisheries sector. enforcement o f fishery regulations. (Cost: low) 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) Establisha multi-stakeholder working group to examine the trade- offs andviability o f instituting a general framework for allocating fishing rights. Particular attention 131 should be givento (i) biological carrying capacity, (ii)social equity in the allocation process, and (iii) financing issues. (Cost: low) 0Transfer to CONAM, DIGESA, and INRENAdecisions relatedto (a) the drafting and adoption o f environmental standards for industry emissions, and to (b) monitoring and enforcement within an integrated framework o fthese standards and of environmental safeguards. (Cost: moderate) Sustainably exploit Strengthen the fisheries- and oceans- 0 Internalize environmental costs of fisheries resources researchcapacity o fIMARPEfor the fisheries sector. Reduce andor through adoption science-basedmanagement o fmarine eliminate the negative externalities of an ecosystem resources. (Cost: high) o f the fishing industry on the approach to 0Establisha revised system o f fishery coastal population, the coastal managing the regulations to ensure the rational and environment, and the ecosystem. fisheries sector. sustainable harvest o f fish stocks. (Cost: moderate) These regulations should address 0 Establisha system o fMarine factors such as minimumfish size, Protected Areas to protect critical seasonalclosures, and gear breeding and nursery habitats for restrictions. (Cost: moderate) threatened marine species and to Finalize the incorporation o fthe protect areas o fhighproductivity Guano Reserve System(Sistema de for artisanal fisheries and Islas, Islotes y Puntas Guaneras)into aquaculture. (Cost: moderate) the National System o fNatural Protected Areas (SINANPE). (Cost: low) 132 CHAPTER 7 CONSERVATION OF NATURALASSETS: 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 largestforest 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 will 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 7.1 Peru possesses a vast natural resource base that serves as the foundation for much o f its 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 andhuman-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 andpolicy framework, and recommendations for institutional andpolicy changes to reduce environmental degradation andpromote future sustainable use o fthese resources. Soil Degradation Current Situation-Soil Erosion and Soil Salinity 7.2 Soil erosion and soil salinity have long presented formidable constraints on improving the productivity of Peruvianagriculture. A fact that cannot be stressed enough i s that cultivable land i s scarce in Peru. The country's 4.2 million hectares of 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 of lowest among developing nations. This makes soil erosion, which affects all three regions of the country (Coast, Sierra, and Oriente), all the more serious as a problem. O f the various types of 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 rills or gullies, but nonetheless causes loss of soil fertility. The second important erosive process i s concentrated surface runoff that produces furrows (rills) 83This chapter was preparedby David Lee. This chapter draws on background documents prepared by Jorge Elgegren(2005, 2006) andJuan GuerreroBarrantes(2006). 133 of various depths, some eventually becoming deep ditches (>lm) or gullies. This accounts for another 24,100 million hectares. Mass soil movement, sometimes resulting inmudflows and landslides, accounts for another 18.8 million hectaresof eroded soils. 7.3 Based on the most recently available statistics-which are from the 1970s and are severely out- of-date-approximately 18.9 million hectares in Peru are affected by moderate-to-severe erosion (includingnonarable land). On another 109.9 million hectares, erosion is 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 is more prevalent inthe soils of the Coast and Oriente. ____ ~ Table 7.1. DominantTypes of Soil ErosioninPerubyRegion(Millionhectares) Type of Erosion Coast Sierra Oriente Total Mudflow 0.39 1.52 39.98 41.89 Sheet erosion 1.30 4.92 1.08 7.30 Non-concentratedsurface runoff 1.69 4.92 41.06 49.19 Rillerosion 0.75 15.75 16.50 Rillandgully erosion 7.60 7.60 Concentratedsurface runoff 0.75 23.35 24.10 Mass movement (mudflow, seasonal soil 18.80 18.80 creep, intensive sheet erosion, landslides) Mass movement and surface runoff due to torrential events 3.50 3.50 Fluvial deposition 17.30 17.30 TOTAL WATER EROSION 5.94 I 29.79 I 77.16 I 112.89 TOTAL WINDEROSION 5.60 5.60 Glacial processes and wind erosion 3.80 3.80 Landslides and wind erosion 5.70 3.80 9.50 TOTAL EROSION 17.24 37.39 77.16 131.79 Table 7.2. Intensity of Soil ErosioninPeru(1,000 Hectares) Source: ONERN(1985) 134 7.4 Several studies have estimated the aggregate soil loss arisingfrom soil erosion inPeru. Early on, Gamarra (1945) estimated annual sedimentation inPeru's Coastal rivers at 63.2 million m3,representing a loss of 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. Low (1966) estimated that 1,500 metric tons per km*annually were lost. The National Soil andWater Conservation Program(1986) estimated soil loss in44 river basins on the western slopes o f Andes equivalent to 318,000 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, 1989). "Soil ~alinity"'~indicates the total amount of soluble salt inthe soil. Salts, especially nitrates and 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 nutrientimbalances, reducedwater infiltration, and the accumulationo f toxic elements. High soil salinity can lead to plant stunting, leafburn and defoliation, resultinginyield 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, andwaterlogging (Szabolcs, 1989). 7.6 The main requisite for managing soil salinity i s adequate drainage, either natural or 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 inexcess of4 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 of "evident salinity" has beendefinedas "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 of these Coastal valleys, over 60 percent of cultivated land was characterized by some level of soil salinity, and in another eight valleys, this figure was between 4040% o f cultivated land. The severity o f the problem is confirmed by the results from evaluations of soil salinity in 16 selected Coastal areas (also inthe 1970s), showing that salinity affected fully 69% of 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 still reported by INRENA, are basedon data assembledby its predecessororganization, the National Office of Evaluation o fNatural Resources(ONERN), inthe 1970sand 1980s.At this point, this information i s of questionable utility, due to its age (20-30 years or more), the fact that soil salinity problemshave 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 is widelyreportedto have become worse inkey areas ofthe Coast such as the Chira-Piura region. 84The discussion of soil salinity draws from Kotuby-Amacher et al. (1997). 135 Source: Ministryof Agriculture Portal(2005), basedon data from ONERN(1973) 136 Causes of SoilDegradation 7.9 There are many causes o f erosion inPeru. Peru's Sierra region, accounting for nearly 30% o f the total national area of 1.29 million Ian', i s a mountainous area o f great topographic variation with mountain valleys ranging fiom 1,500-3,000+ mas1 and widely characterized by steep slopes (FAO, 2002). This makes mucho f the country's soils highlyvulnerable to erosion. Reinforcing this problem are seasonal rains in many areas, exacerbated by periodic occurrences of El Ni60,most recently in 1997- 1998, 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 of flooding even more severe. Wind erosion is a major source o f soil erosion on the Coast. 7.10 Adding to these natural causes of erosion are numerous human-induced influences. Overgrazing, particularly inthe Sierra, which includes 90% o f the nation's cattle, is a common problem. Widespread deforestation (see next section), currentlyinthe Oriente and earlier inthe Sierra, has further exacerbated this problem. Poor crop cultivation practices also contribute to erosion. Data fiom the Andean region (Peru and Ecuador) shows a close association of cultivation practices and soil erosion (Table 7.5). Both choice of 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 of the erosion problem i s illustratedby the Poechos Reservoir innorthern Peru, which had an initial capacity o f 1 billion m3when constructed in 1977. Now, sedimentation, due in part to poor soil managementpractices, hasreducedthis reservoir's effective capacity to 400,000 m3. ITable 7.4. Area Affectedby Soil Salinityat SitesEvaluatedby ONERN (1973) I Number Area Area of Sites Evaluated Y O Area Evaluated Evaluated (ha) Affected (ha) Affected Chicaza 9 50,620 1,000 2 Moche, Viru and Chao 19 99,400 17,900 18 Santa, Lacramarca, Nepeiia, Casma, 31 104,700 34,625 33 Atico, Caraveli, Pescadoresand 61 18,655 I 18,655I 100 Ocoiia Majes and Camana 17 126,990 107,450 85 Quilca and Tambo 15 335,700 297,100 89 Osmore, Locumba, Sama and 26 258,000 189,000 78 Caplina TOTAL 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, low inmoisture and organic material and highinmineral salts due to their marine origins, have left Peru's Coastal valleys with soils that have a high soluble salts content. Salinity i s further affected by a variety of environmental and management factors, including climate and irrigation practices. As soil dries inhot, dry conditions, such as those on Peru's Coast, salts become concentrated, increasing salt stress. Consequently, salinity problems are most severe inthese areas, but suchproblems are often accompaniedby increasing irrigation frequency. Table 7.5. Estimated Rates of Soil Erosion for Peru and Ecuador Authors Conditions Experiment Treatment Erosion (rainfall, slope) (mg/ha/yr) Felipe- 500-750 mm Runoff Maize-potato-oats, mulching 3.7 Morales, Slope: 25% plots, Maize-potato-oats, contour plowing; 6.9 1993 40 m2 Maize-potato-oats, up-down plowing; 14.2 Maize, up-down plowing 20.0 Low, 1966 Simulation, Peru 0-70 USLE Southern Andes 10-30 Pastor, 1,050 mm Runoff Naturalvegetation 0.4-1.1 1992 Slope: 3040% plots, Sweet potato, contour plowing 0.6-1.4 40 m2 Sweet potato, up-down plowing 1.8-4.0 Clean fallow (bare land) 3.1-14.9 Torre, 2,000 mm Maize-pea rotation 4 4 5 1985 Slope: 20% Pea-cassava rotation 12-70 Alegre & 2,200 mm Runoff Contour hedgerow cropping 6 Rao, Slope: 15-20% plots, Annual crops (rice, cowpeas) 79 1996 150 m2 Bare soil 141 Byers, Rainfall Maize 82 1990 simulations Harden, 800-1,400 mm Rainfall Thin dusty soils 20 1988 Slope: >SO% simulations High-altitude, richorganic-matter 40 soils 80 Intermediate altitude, dark Andean soils Source: Authors listedabove, cited inPosthumus (2005) 7.12 The over-application of water inexcess of plant demand often occurs duringhot, dry periods to minimize salinity stress. This leads to a highly inefficient system and high groundwater levels in the absence of an adequate drainage system. Due to h g h evaporation, irrigation water is o f poor quality. Overplanting o f rice uses a great deal o f water, up to 30,000 m3/hectareor more, worsening preexisting salinity and drainage problems. Inmajor irrigation projects such as Chira-Piura, irrigation and drainage systems are poorly maintained; in many cases, they have fallen into total disrepair. hgation 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, low water costs, typically well below the cost of water delivery, mean that little economic incentive exists for farmers to economize on water use. 138 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 of land inappropriate for agriculture would render these measures unnecessary. However, for land that i s already highly eroded, such as much of the Peruvian Sierra, explicit measures are typically requiredto prevent further soil loss. The use of these measures entails benefits-lower erosion, greater soil moisture retention, higher crop productivity-as well as costs, principally interms of labor inputs. Some soil conservation measures are ancient; estimates of the extent of remaining Incan and pre-Incan steppedterraces range from 200,000 hectares to ten times that amount (Inbar and Llerena, 2000), most of which are abandonedor indisrepair. 7.14 The crop productivity effects of soil conservation measures are well documented, although most applied researchregarding Peru i s somewhat dated. Three studies, all from the late 1980s, compare crop yields from unterraced land to those with two types of apcultural terraces, among the most commonly promoted soil conservation measures inPeru (Table 7.6). The results from the La Encaiiada study, using "slow formation" terraces inwhich the soil is slowly builtup over time, show a 17.6% increase inyields Table7.6. CropProductivityEffectsof Soil ConservationMeasures Crop Yield without Soil Yield with Terraces* EstimatedIncrease ConservationMeasures inYields @/ha) (kg/ha) (YO) Potato 3,800 4,300 13.1 Maize 794 951 19.7 Barley 726 798 9.8 Andean tubers 6.33 1 6.709 5.9 Drvbeans 640 755 17.9 Peas 596 830 39.2 Potato 4,581 11,091 142.1 Maize 482 490 1.7 Barley 740 993 34.2 Oats (for forage) 5,625 7,675 36.4 Wheat 723 1,113 53.9 Quinoa 8,500 11,550 35.8 Oca** 5,433 9,300 71.2 Olluco** 2,700 5,000 85.2 Alfalfa 567 6,345 1019 Apples 1,500 1,666 11.1 Potatoes (fertilized) 12,206 17,206 41.0 Maize (fertilized) 1,807 2,982 65.0 Barley (fertilized) 1,333 1,910 43.3 Barley, forage (fertilized) 15,865 23,000 45.0 139 (simple average across six crops). The other two studies, using bench-type "water absorption" terraces, whichrequire greater construction costs, demonstrate a 52.4% average yield increase85inthe Cajamarca study anda 48.6% yield increaseinthe Colca Valley study. A recent study (FCPS, 2003) was conducted inthree Sierra sub-watershedsin which soil conservation measures were introduced along with small- scale irrigation. This 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 To 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, limitingthe comparability of economic and financial estimates (Table 7.7). The four measures include slow formation and water absorption terraces (both described above), the reconstruction of traditional Andean terraces (Andenes), and water infiltration ditches. For all four measures, cost estimates vary widely depending on factors such as the study's location and date, soil type, soil moisture level, and cost of local materials. Table 7.7. Construction Costs for Selected Soil Conservation Practices Soil ConservationMeasure Labor Investment Estimated Cost ($/ha) Reconstructionoftraditional 1,013 daysha $1,993-$3,985 (1996)' Andeanterraces (Andenes) 600 daysha $1,764-2,472 (labor only, 2005)2 Water absorptionterraces 1,250 daysha $3,675-$5,150 (2005)3 (terrazas de absorcidn) 1,000 dayslha $2,940-$4,120 (labor only, 2005p $3,323 (1994)4 Slow formation terraces 500 daysha $1,470-$2,060 (labor only, 2005)' (terrazas deformacidn Zenta) $ 807 (1994)4 $250-$ 1 , 5 6 6 h (2005)5 infiltracidn) on soil type and soil moisture 210daysha $617-$865 (labor only, 2005)2 'Olarte $ 1,649-$2,31 l h a (2005)6 andTrivelli (1999). Basedon calculations made in 1989and 1996.Excludesadditional irrigation 'costs of $1,15Oha. World FoodProgramme(2000), Promocionde Desarrollo Sustentable de MicrocuencasAltoandinas, WFP/EB.2/200016-A/21Add.1, Lima, Peru, May. Labor costs updatedto 2005. M.Romero(2005), Instituto de Desarrolloy MedioAmbiente, Lima. Fondode Contravalor PERU-SUIZA (1994). SBnchez Cevallos (1986), withlabor costsupdatedto 2005. Fondode Contravalor, PERU-SUIZA (1994), with labor costs updatedto 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 of estimated costs s5The yield increasefor alfalfa appearsto be anoutlier and i s excluded&omthis calculation. 86 Where possible, costs were updatedto 2005. In two studies, the underlyingdata were not sufficiently disaggregatedto enable this updating; thus, costsare reportedin 1994and 1996USdollars. *'2005labor costs are estimatedat 1C-14 soles per 6-hour workday (jornd),depending on location. 140 and yield levels stemming from soil conservation measures, as well as the outdated nature of most cost estimates, it i s difficult to conclude whether investingin these measures represents an economic use of resourcesfor most farm households at present. Institutional and Policy Framework 7.15 The National Institute of Natural Resources (Instituto Nacional de Recursos Naturales - INRENA)is the authority incharge of promoting the sustainable management of Peru's soil, water, and forestry resources. INRENA was created in 1992 as a successor institution to the National Office of 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. This 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 incharge of local water and irrigation management inthe 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 inconcert with INRENArepresentatives and water-users associations. 7.16 INRENAand other agenciesworking inirrigationmanagement are greatly hamperedbythe 1969 Water Law (No. 17752), which states that water i s state property and that there are no "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 still 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 ledto, among other things, the highly inefficient use of water on the Coast and has stimulated the widespread cultivation of crops like rice that, without below-cost charges for water use, would not be economically viable. More generally, the multipledemands 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 addressedby more integrated and economically oriented allocation mechanisms. As mentioned inChapter 2, a strategyto for water resourcesmanagementwas developedin2004 and abillto modernize water resources management i s awaiting Congressional review. The enactment o f the bill would be a capital step to address the distortions generatedby the current law (Bemales, 2006). 7.17 The main initiative to address soil degradation issues i s the National Program o f Watershed 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 relatedresponsibilities extend back to 1981. Over time, the focus of this program has changed from a technical emphasis on soil conservation to a broader focus on sustainable naturalresource management. In the 1990s, PRONAMACHCS became highly politicized and lost much o f its technical focus. Its current strategy focuses on enhancing livelihoods and strengthening production-marketing chains ina 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, ruralcommunity organization, andagtlcultural 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). Muchactivity focuses specifically on eight selected"model" sub-watershed areas. 141 7.18 Financing for PRONAMACHCS's activities has beenheavily 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 High Altitude Watersheds (MIMA) in three Sierra sub-watersheds (in Cajamarca, Hunin, and Cuzco Departments). A $51 million Bank loan complemented by $14.3 inGoP support and $27.9 million of in- kindcommunity labor supported the Natural Resource Management for Poverty Alleviation inthe Sierra Project in 1997-2002. PRONAMACHCS's total budget has declinedfrom about US$93 million in 2000, to $84 million in 2001, and $42 million on 2004. The 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 reforestationhave 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% ofthe soil conservation budget is 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, this equals an annual programbudget of approximately US$38.34 million in2005. Source: PRONAMACHCS (2005), Cumulative Budget Summary 7.19 As was the case for erosion, GoP attention to the salinity problems of 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. This was followed by the National Plan for the Rehabilitation of 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 duringthe 1990sunder the Fujimori administration (1990-2000), when the General Directorate for Water and Soils was transferred to INRENA.INRENA'scurrent Water Resources Office has little technical expertise and its efforts to address soil salinity and drainage problemsare greatly reduced compared to earlier years. 7.20 Another agency, the National Institute for Development (Instituto Nacional de Desarrollo - NADE), despite its broad title, was created in the 1990s. Its specific focus is 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 of these projects total more than 570,544 hectares of improved, new, and rehabilitated Coastal lands (plus 3.11million hectares "involved" in the Chavimochic Project in the Chao-Viru-Moche-Chicama region). Principal projects include the binational (withEcuador) Puyango-Tumbes Project (126,000 hectaresinbothcountries), the Chira-Piura Project (83,356 hectares in three areas), and the Tinajones Project, covering 200,000 hectares. Total investment inthese projects through 2000 was US$3.367 billion, with total projected costs o f US$11.283 billion. 142 7.21 INRENA'sOffice ofTrans-sectoral Environmental Management, Evaluation, and Information of 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 is 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 is very modest, comprising only two staff members. This office engages in a variety o f activities primarily involving coordination withresearchers,NGOsand university collaborators, entailing efforts to evaluate soil salinity problems in selected Coastal valleys (including Chancay, Lambayeque, Chao, Tambo and Sama); the early stages of a monitoring and evaluation effort; and the elaboration of 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 cadastralregistry o f expropriated and state-owned land, as well as for the promotion of private sector and cooperative investment in the rural sector. Beginning in 1996, with support from the Inter-American Development Bank and the collaboration of the National Superintendency o f Public Registry (SUNARP), the Land Titling and RegistryProject (PTRT) has devoted significant resources to cadastral surveys and land titling o f farms and rural landholdingsinPeru. By the end of the project's first phase in2001, it had titledmore than 900,000 farms (IADB,2001). Landtitling is widely recognizedas a valuable mechanism to encourage long-term investment inland improvements and farm productivity. 7.23 A number of other governmental and non-government-based efforts attempt to improve land management.The NationalNetwork for Watershed Management (REDNAMAC) i s composed of public, private, and NGO sector participants and has the objective of coordinating, promoting, and diffusing work in watershed management. Its Coordinator heads INRENA's Directorate of Waters and Soils, and its nationaltechnical committee i s composed o f public sector and NGO representatives. Among NGO-led projects, the SESA (Sewicio Silvo Agropecuario) project at the National University in Cajamarca i s perhapsthe best known, especially for its work inreforestation and soil and water conservation. RecommendationsRegardingSoils 7.24 Inlarge part, the recommendations below have a common origin: the progressive disinvestment of the Peruvian government in mechanisms to address soil degradation issues over the past 30 years. Given the scarcity of Peru's arable soils, this disinvestment has come at a price: highlevels o f eroded land and increasing salinity problems in many areas of the Coast. A number o f changes in policy, technical assistance, and investments would helpredress this situation, inboththe short and long terms. Policy 1. Revise the 1969 Water Law 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 of 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, inCoastal irrigation projects, water use fees are typically far below cost. Thus, inthe 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 inthe Sierra. 143 2. Create a new Water Resources Agency. Water i s a critical resource in Peru, with strict competition for multipleuses, especially on the Coast and inthe Sierra. Peruhas several institutions with a role inwater management, butnone that has broad-based responsibilities for the integrated management of 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. Transferringresponsibilities for water management from INRENAand assigning this global task to a new Water ResourcesAgency could be accomplished inthe short runand with relatively low investment. This change could strengthen the general management of this critical resource and better insulate the government from the short-term demands of water users. The Agency could continue to work with the local ATDRs and AACHs, much as at present. INADEcould continue its largely technical role. However, the new agency would have an overall coordinating role as well as responsibility for assuring sustainable long-term availability of water resources, including reconciling short-term demands with long-term best interests. To assure its success, greater budget support than exists at present would be required. TechnicalAssistance 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 diminishedgreatly since the 1970s.The ability o f INRENAto address soil degradation should be strengthenedover the mediumto longrun, even ifonly to monitor and assess the nature of these problems-and this should certainly be done if greater level of public sector intervention is 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 INRENAto focus more narrowly on soil degradation issues. 2. Conduct comprehensive feasibility analysis of soil conservation investments. Many millions o f dollars of both donor and government funds have been spent on soil conservation investments over the years. However, the evidence on the costs versus benefits of these investments i s inconsistent and out-of-date. PRONAMACHCS has emphasized the building of terraces (among other interventions), but some estimates show the reconstruction of traditional Andean terraces to be less expensive, Overall, it i s not at all clear which of 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 of alternative conservation investments before expendingfurther funds. This could be accomplished inthe short to medium run, with returns from improved public investment strategies generated over the long run, as funding is increasingly directedtoward high-payoff investments and away from those with low economic rates o freturn. Investments 1. Conduct new national inventories of soil erosion and soil salinity. The 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 of government, and do not include conducting inventories o f soil 144 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 of natural forests (FA0and INRENA,2005). This is the world's eighthmost extensive forest cover and secondto 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 of 1.29 million hectares. However, Peru's forests are distributedhighlyunevenly 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 its forest cover o f mangroves and dry and sub-humid forests. Inthe 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 mustnote that time-trenddata on forest cover and deforestation inPeruare not highly conclusive, because they come from different sources and use diverse and non-comparable methods of 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 concessionsused 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 of 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 of timber and forest products. Of a total US$186 billion of forest products traded internationally in 2002 145 (Seneca Creek Associates and Wood Resources International, 2004), Peru's exports o f forest products accounted for roughly $136 millionthat year, representing less than 0.01% of 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 ofPeru's forestry resources. Table 7.10. ForestPropertyRightsRegimes, 1990-2004 1990 2000 2004 1 Other areas3 I 20,140.69 I 1,203.26 13,784.31 TOTAL 69,213.26 68 742.06 Ofthis land, some 7.5 millionhectares are under concession contracts as of October 2005. 'As o f October 2005, conservation concessions hadincreasedto a total of 199,623 hectares and ecotourism concessionscover 43,190 hectares. The total area ofthese categories now amounts to 242,813 hectares. Definedas the difference betweentotal forest andthe two other categories. Source: FA0 and INRENA (2005) 7.29 Past analyses of deforestation inPeruhave shown dramatically differentresults. The most widely cited estimate, which i s based on data through 2000 provided by Peru's National Institute of Natural Resources (INRENA), has been an annual rate of deforestation of 261,000 hectares (Reitegui, 1996; CIFOR, 2003), with cumulative forest loss of 9.6 million hectares over the last 25 years. However, CONAM 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 of 1:100,000), extensive ground-truthing, and forestry inventories on 120 forest plots inthe PeruvianAmazon. 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 inthe PeruvianAmazon, whichprojectedannual 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 involvesthree regions coveringabout 7.87 millionhectares, or roughly 10.2% of the PeruvianAmazon. 146 the regions most severely affected by deforestation, followed by Junin, Ucayali, and Huinuco (Table 7.11). Most of this forest loss is due to land conversion to agnculture and grazing, but other drivers includeroadopening andmaintenance, coca cultivation and illegal logging (discussed innext section). Table 7.11. Cumulative DeforestedArea throughYear 2000 by Department Department Deforested Area (ha) % of total deforested area SanMartin 1,327,736 18.5 Amazonas 1,001,540 14.0 Loreto 945.642 13.2 Junin 734,304 10.2 Ucayali 627,097 8.7 Huanuco 600.655 8.4 cusco 537,632 7.5 Caiamarca 520.062 7.3 Pasco 302,021 4.2 Madre de Dios 203,892 2.8 Puno 146,041 2.0 Ayacucho 135,373 1.9 Huancavelica 51,991 0.7 Piura 31,737 0.4 La Libertad 7,232 0.1 TOTAL 7,172,954 100.0 Department Adjusted Deforestation Estimated Mean Annual %Increasein Deforestation 2000** Increase in Deforestation Deforestation 1990" (ha) (ha) Deforestation 1990-2000 (ha) 1990-2000 1990-2000 (ha) Amazonas 645,582 1,001,467 355,885 35 588,52 23.78 Loreto 638,071 945,591 307,520 30 751,97 20.55 Cajamarca 366,618 520,030 153,413 15 341,29 10.25 cusco 395,850 537,601 141,752 14 175,16 9.47 Madre de Dios 79,268 203,879 124,611 12461,lO 8.33 Junin 622,859 734,273 111,414 11 141,36 7.45 Ucayali 547,750 627,064 79,315 7 931,48 5.30 Huinuco 532,457 600,620 68,163 6 816,30 4.56 Puno 101,358 146,033 44,676 4 467,55 2.99 Piura 287 31.735 31.448 3 144.81 2.10 Huantavelica 23,561 51,987 28,426 2 842,61 1.90 SanMartin 1,300,O 14 1,327,669 27,655 2 765,47 1.85 Pasco 287 353 302 008 14 655 1 465 51 0 98 Ayacucho 128,642 135,366 6,725 672,47 0.45 La Libertad 6,570 7,23 1 662 66,17 0.04 TOTAL 5,676,236 7,172,554 1,496,3 186 149,63 1,76 100.0 ISource: PROCLIM (2005) 147 7.3 1 The recent estimate of Peruviandeforestation o froughly 150,000 hectaresannually shouldnot be interpreted as a decline in the rate of deforestation from earlier years, but rather as an improved e~timate.'~ As discussed in Chapter 3, the estimated annual cost o f deforestation during the 1990-2000 decade is U.280-590 million. This includes the estimated value o f the sustainable flow of 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 increaseindeforestation for the same period are La Libertad, Ayacucho, and Pasco. 7.32 Forestry plantations are of 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. This was followed by an Amazon ReforestationRoyalty in the 1980s (100,000 hectares), and since 1988, promotion of reforestation inthe Sierra by the National Watershed Management and Soil Conservation Program (PRONAMACHCS). The result of these efforts i s the growth o f forestry plantations from about 262,997 hectares in 1990 to 754,244 hectares in2003 (FA0 and INRENA,2005). However, most of this landi 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 of 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 muchas two-thirds ofdeforestation globally. Large-scale commercial agriculture and plantations convert forested land to agricultural use for commercial crops such as oil 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 of which i s in San Martin (800,000 hectares) and Hudnuco (450,000 hectares); if 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 of roads and facilities, as well as indirect impacts associatedwith increased colonization and agricultural land uses due to those activities. Rural colonization programs have promoted the relocation of colonists into forested land. Infrastructure development, particularly the opening o f roads, has promoted forest clearing and has made millions o f hectares of tropical forests more accessible to colonization by settlers. Although it i s not intrinsically destructive of forests if conducted ina sustainable fashion, firewood gathering and charcoal production tends to significantly affect the forest and forest fauna to the extent it i s highlyselective of commercialtimber species and closer to urban areas. 7.35 Illegal logging and, more generally, illegal trade in timber are an important cause of deforestation. Since forest concessionaires must pay harvest fees and produce according to costly 89 The earlier estimate of 261,000 hectares annually beginning in the mid-1970s through theend of the 1990swas based on alternativemethodologies that are not directly comparablewith the improvedestimates obtained from the PROCLIM study (see Table 7.9). 148 sustainable forest management plans, illegal loggers have a competitive advantage from avoiding these costs. Illegal harvesting is highly selective: 80% o f mahogany i s reported to be illegally extracted and sold. The worldwide economic loss from illegal logginghas been estimated inthe range o f $10-1 5 billion annually (Contreras-Hemosilla, 2002) to $23 billion (Seneca Creek Associates and Wood Resources International, 2004). InPeru, conservative estimates value the economic cost of illegal logging associated to mahogany alone at $40-70 milliodyear (M. Romero, WWF-Peru, personal communications, 2005). It 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, oil palm, and peach palm. About 440,000 hectares (63.8% of total deforested agncultural land) i s inthree 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% of the total. Secondary forests cover 2,067,765 hectares, of 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 inthe 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 mininginfrastructure; more than half of 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 on 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 is extensive, with over half (51.6%) of the population in conditions o f poverty, and the extreme poor accounting for nearly 25% o f the population (MI,2004). As muchas 70% of the rural population is estimated to live inpoverty. Malnutrition and food insecurity are highly correlated with poverty. It i s logical for the rural poor, given their limited economic opportunities, to regardthe country's forested areas as an attractive solution to their economic problems. 7.38 Other causes of 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 Belahde administration inthe 1960s and 1980s promoted agriculture in the Amazon basin, misconceiving this region as the nation's food pantry. Land titles inPeru are still granted only on deforested land, so that land suitable for forestry purposes is 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 sponsoredby USAIDand Peru's Ministryo f Transport and Communication. They find one additional kilometer of 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'sPacific ports may greatly stimulate in-migration and deforestation ifleft uncontrolled. 7.39 Past studies' lack of 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 of the factors that underlay deforestation inthe 1980s, and that may have retrenched inthe 1990s, may resume their roles in the current decade. Weak economic growth that characterized much o f the 1990shas reversed course, and, on both supply and demand sides, a stronger national economy would be expected to contributeto pressures on forest resources.Peru's internal security situation was precarious in the 1990sand ledto significant migration from rural to urban areas helpingrelieve the demand for forest 149 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 adequatetitling andpoor enforcement capability. The exploitation o f forestland for coca plantations continues, although the inherent nature o f this activity makes estimates of its magnitude difficult. Finally, following a decade or more o f little government investment in infrastructure projects, the construction of the Inter-Oceanic Highwayhas the potential to greatly exacerbate deforestation inthe 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 inthe current decadeifnotaddressed. 7.40 A final underlying cause of deforestation is the lack of understanding and economic undervaluation of the environmental services provided by the forest, which discounts their incorporation into private and public decision making. A variety of studies is 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 non- timber products, at US$1.6 to US$2.0 billi~dyear.'~Chambi (2002) estimates the carbon sequestration value o f forestland covering 2.26 million hectares inMadre 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 of 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 recoveringhigher 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 Law (Law No. 21147). 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 of 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, 2005)--between the timber industry,intermediaries, and resource-poor small loggers made it difficult for the latter to operate effectively. Overall, the law left considerable scope for ambiguity and corruption in the management of forestry contracts. 7.42 A number of initiatives, including preparation of a National Forestry Strategy covering 1985- 1996 and a national debate extending over much o f the 1990s, eventually led to the passage o f the new Forestry and Wildlife Law (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 This figure i s based on an estimated deforestationrate of 250,000 hdyr, andthus should be revisited in view of the results of the PROCLIM Project,which estimatedannualdeforestationinPeru's Amazon at roughly 150,000hdyr. 150 public forums among timber industryrepresentatives and those with a stake inthe old system, as well as local and internationalorganizations, community leaders and other authorities. 7.43 The new Forestry Law and its centerpiece, the introduction o f timber concessions under INRENA's supervision, represent a significant improvement over the old legal framework, although implementationproblems continue. The new framework for timber concessions9'has the following main features: (1) Access to timber resources through transparent public bidding. (2) Concessionsmay become tradable. (3) Concessionsare 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 LoggingPlan (POA), mapping the trees to be harvested eachyear, i s requiredprior to the authorization o f harve~ting.~~(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 onthe harvest fee). 7.44 INFENA launched the forest concessionsprocess inMarch 2002, after establishing the forestry base suitable for timber production (column two in Table 7.13). The total area o f potential forest concessions amounts to 24.34 million hectares, almost 15 million of which are in Loreto. By the end of 2004, over 7.5 million hectares o f forest had been awarded in the form o f forest concessions to 576 concessionairesfor timber production inMadre de Dios, Ucayali, Huhnuco, SanMartin, and Loreto. 7.45 The new Forestry Law introduced some other innovative features. A new forest use category, Forest Recuperation Areas, was defined, where concessions can be granted on bare or open land for afforestation and reforestation. The Law created Forest Management Committees to involve local stakeholders inmonitoring sustainable forest use to help assure compliance with the Law, the PGMFs, 9' The Forestry and Wildlife Law o f 2000 and its 2001 Regulationpermit other forms of 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 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, is a cause for nullifyingthe concession contract. 151 and the POAs. The Law also created so-called 'Local Forests', 500-hectare forest plots for use by local communities. Finally, the law introducedthe possibility o f financing environmental services provided by forests for soil protection, water regulation, biodiversity conservation, and other purposes. In August 2005, INRENAformed a task force to plan PEPS implementation. 7.46 INRENA's Forestry Superintendency is responsible for managing forestry concessions and 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 of the same name, which became operational in March 2005, whose mandate is 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 implementa system for law enforcement, timber tracking, forest raids, and timber trade transparency. (c) Promote and support participationby civil society and the local population inforest control and supervision. As part of the strategy, INRENA i s developing a computer system and database to effectively review, evaluate, and manage concessionsnationwide. 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, is charged with enforcing the forestry law, including the GoP's quota on mahogany exports, now set at 23,621 metric tons. The concentration o f bothmanagement and enforcement responsibilitiesinINRENAhas resultedin ambiguity and inconsistency in the execution of governmental management functions. Like similar institutions inBrazil, Paraguay, and elsewhere, Peru's National Forestry Consensus-Building Roundtable (Mesa Nacional de Dicilogo y Concertacidn Forestal - MNDCF) i s composed of numerous prominent governmental agencies and NGOs, and played a key role in facilitating the implementation of the new forestry law. It continues to be a locus of consensusbuildinginthe forestry sector, and i s beingreplicated inseveralregions of the country, including Ucayali, San Martin, Tingo Maria, andLoreto. The National Protected Areas System (SINANPE) includes 25 NPAs, protecting over 14 million hectares o f Peruvian Amazon ecosystems, approximately 20% of the region. The NPA Law o f 1997 allows for the creation of Private and Regional Conservation Areas outside o f SINANPE and some of 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 of preparingthe National Reforestation Plan to INRENA and a number o f other institutions. The Plan i s pendingapproval as of December 2005. 7.48 Nongovernmental programs play an important role in Peru's forestry sector. The Netherlands- funded 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 sign 338 forest concession contracts through July 2004. 7.49 The Certification and Development of Peru's Forest Sector Project (CEDEFOR) i s an ongoing USAID-fundedproject, originally for US$16 million, to helpreform, 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 includeproviding technical assistanceto 132 (23%) o f 576 existing forest concessions; helpingINRENA inthe review and approval of 86 Forest General Management Plans (representing 1.53 millionhectares), 152 and 62 Annual Logging Plans; advising on the creation and operation o f 21 Forest Management Committees; assisting inthe certification of roughly 63,000 hectares o f forests; helping inthe generation o f 615,734 temporary jobs; and generating almost $10 million intimber sales through June 2005 (WWF- PeruProgramOffice, 2005). 7.50 The Forest Development Promotion Fund (FONDEBOSQUE) i s a public-private organization (presided over by the head of INRENA) and funded mostly by the donor community. Its 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, its 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% of 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%). Specific projects have provided the following: (1) technical assistance to 31 forest concessionaires, including timber processing; (2) support to Brazilnutsharvesters (394,106 hectares); (3) support for construction of the first industrial timber products factory inMadre de Dios; (4) creation of a Forest Development Center in Oxapampa, with an estimated production o f 730,000 seedlings; and (5) Creationo f a forest business information center. Evaluation of Forest Concessions 7.51 The introduction of 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 implementedon a largely ad hoc basis, and muchremains to be done to make the process more effective and credible. Criticisms to date include its inadequate planning and scheduling o f the initial public bidding process; poor mapping of 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 of 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. Two separate and independent surveys (WWF's of 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 of operating capital. The rate of delinquency in the payment o f harvest fees i s highso far. To date, only 36 concessionaires o fthe 343 concessions granted inthe first 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 to 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 launderingo f timber fromprivate land and indigenous communities). Part o fthe problem is that, although infractions are specified in the Forestry Law (Article 363), accompanying sanctions are not (Glave and Morales, 2006). InNovember 2004, INRENAbegan random concession inspections inMadre de Dios to verify compliance with the PGMFs and POAs, and to monitor mahogany extraction as required by CITES commitments. Of 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 returnedto public control. Violators should be prosecuted as required by law. 153 However, untilJune 2005, no legal action hadbeen 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 to 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 fjurisdiction from the central to 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 civil society, including local and indigenous populations, inthe concessioning process, through such mechanisms as the National Forestry Consensus-building Roundtable and the regional roundtables. Such forums could constitute an adequate to ensure that the concessioning process contemplates the rights, traditions, culture, and languages o f indigenous populations. Landtenure problems continue to 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). RecommendationsRegardingForests 7.55 The new Forestry law 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 to 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 new timber concessions until needed changes are made. It i s preferable to focus first on the consolidation o f existing concessions and assuring their economic feasibility. Inthe future, efforts should be made to 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 needto temporarily suspend the concessioning process, and should therefore be considered as an important element to overcome political and social resistances to such measure (Bernales, 2006). Consideration should be given to creating a secondary market, where forest concessions could be traded and thus attract private investment, the forging o f alliances with international buyers focusing on certified markets, and strengthening o f the concessionaires' capacity to becomepart o f a chain o fproduction andhence secure a demand for their timber (Bernales, 2006). The criteria for concessionaire profiles need to 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 to the technical 93 Inthe first bidding competition o f 2002, the technical proposal counted for 70% and the economic proposal for 30%. Inthe 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. 154 Promoting the formation of 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 potentiallinkswith foreign markets. 2. Strengthen INRENA.INRENA's limitedfunding and staffing, along with the limitations of 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 of 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 succeedwith long-term GoP commitment. 3. Improve control o f illegal lorrning and timber trade. Existing gaps in the legal framework should be addressedto better attack illegal logging and trade intimber. Inthe 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 relationshipbetween INRENAand OSINFOR (which surfaced as recently as December 2005) limits the effectiveness o f both. The GoP should consider placing OSINFOR in the PCM to enhance its 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 ForestryRoundtable (MNDCF) i s an important locus for stakeholder involvement at the national level. This model shouldbe replicated at the localhegional levels through Mesas Regionales de Concertacidny Didogo Forestal wherever possible; these already exist inseveral departments. 5. Promote alternative sources of revenue generation in forest management to supplement GoP and external funding. Once the concessions are on a firm financial footing, harvest fees might be increased and the proportion of 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 highlightthe importance of financial viability, which has been a chronic problem inthe past. Inthe future, transferring responsibility o f monitoring and enforcement schemes to the logging industry itself should be considered, such as in the case of Guatemala's system of forest auditors (regentes forestales). 6. Address land tenure and titling problems in forestrv concessions and surrounding areas. INRENA needs to review its concessioning procedures to avoid titling conflicts. The law requiringthe cutting 155 o f forests to get private land title should be revised. This will entail a closer coordination with the Special LandTitling Program (PETT), the Ministryo f Energy and Mines, and other GoP agencies. Strengthen international markets. Many of the above constraints result in a lack of 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 of 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. Strenahenthe participation of indigenous populations in forestrv management to mitigate problems with the concessioning process and to minimize conflicts over land tenure. There is handful of 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. TechnicalAssistance 1. Provide support for the decentralization of forest management. INRENA's current initiative to delegate functions from its central office to its 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'scommitment to Permanent ProductionForests should be continued even as its functions are increasingly transferred to the local and regional levels. Greater transparency inthe concessioning process will beneedediflocal stakeholders and regional governments are to be effectively involved. Biddingprocesses and procedures, inparticular, need to be fully disclosed. The creation of Forest Management Committees and Local Forests should be reinforced; these mechanisms are currently inadequate for effective forest control and surveillance. 2. Strenahentechnical 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 its environmental effects. Brazil's extensive experiencewith RILshouldbe considered inlight of Peru's similar conditions. RIL includes management practices such as pre-harvest inventory and mapping of trees, vine-cutting, and planning o f roads and skidtrails; directional felling; cutting stumps low to the ground; constructing roads and skid trails o f optimum width; winching of logs to skid trails; constructing landings o f optimal size; and minimizing ground disturbance and slash management (Holmes et al., no date). Widespread use of these practices not only mitigates the environmental impacts o f logging but also can result in higher profitability. CONAM and/or the Ministry o f Transportation should be involved inthis dialogue given their national-level authority. The construction of the Inter-Oceanic Highway 156 provides an important opportunity for the use of these practices and other means to moderate the impacts ofroad 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 fthe plots for whichbids are sought. Biodiversity Conservation Current Situation 7.56 Peru is recognized as one of the twelve "mega-diverse" countries o f the world. It hosts 70% of the world's biological diversity and contains some 25,000 plant species, 460 mammal species (the thirdmost 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 fifthmost inthe world), and almost 2,000 marine andfieshwater fishspecies (the mostintheworld) (Brack, sd; Portilla, 2002; Skchez et al., 2005). Peru's speciesendemism i s also very high, with at least 6,288 endemic species, 5,528 species of flora and 760 species of fauna (Shnchez et al., 2005). However, Peru also has a long list of endangered species, including 301 fauna species, o f which 23 are considered "critically endangered"; 332 orchid species; and 375 other species of 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 of plants, mammals, reptiles, frogs, and birds not previously known to science. Some of these efforts were initiated as part o f the large Camisea natural gas project during 1996-1999. The Field Museumof Chicago has sponsored Rapid Biological Inventories intwo areas. Incollaboration with the Frankfurt Zoological Society and INRENA, the National Agrarian University-La Molina's Center for Data Conservation (CDC) has undertaken a number of exercisesto standardize environmental monitoring for the National Protected Areas System (SINANPE). The World Wildlife Fundalso tried to produce a national monitoring system to measure SINANPE's managerial capacity and biological diversity conservation. 7.58 These efforts have been mostly implemented by local and international NGOs, and by projects fundedby the international donor community. A consistent long-term, national-level monitoring system to gauge the progress of biodiversity conservation does not exist. CONAM 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. 157 7.59 A variety of different methodologies has beenemployed inthese biodiversity-monitoring efforts. Some of the most notable include those of The Nature Conservancy (TNC), including ConservationAction 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 inforest cover as an indicator of illegal logging, with site visits andoverflights to ground-truth the data. Conservation International's approach to biodiversity conservation, which includes RapidAssessment Programs andbiological 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, employedwidely incommunity ecology. Table 7.14: Major Biodiversity Monitoring and Assessment Projects inPeru - SponsoringInstitution Project Conservation International andBirdlife ImportantBirdAreas (IBAs) o fthe Tropical Andes International Conservation International RapidAssessment Programs FieldMuseumofNaturalHistory RapidBiological Inventories inCordillera Azul NationalPark andin Yavari region(Loreto) UniversidadNacional-La Molina Environmental monitoring inNationalProtected Areas System: Conservation Data Center, /Frankfurt Bahuaja Sonene NationalPark, Tambopata NationalReserve, Zoological Society/INRENA Amarakaeri CommunalReserve, ManuNational Park andAlto Punis ReservedZone World Wildlife Fund Nationalmonitoring systemfor SINANPE Conservation International Biological Assessment o fTambopata Candamo ReservedZone, southeasternPeru Conservation International Biological Assessment o fCordillera del Condor RegioninPeru and Ecuador Conservation International and Biological andSocial Assessmentsofthe Cordillera de Vilcabamba, Smithsonian Institution Peru Conservation International Biological Assessment inZona ReservadaTambopata Camdamo (Madre de Dios andPuno) DukeUniversityCenter for Tropical Alto Punisregion (covering partso fthe Ucayali andMadre de Dios Conservation Universidad Nacional-La Molina Biodiversity loss inthree coca-growing areas ofthe Peruvian Conservation Data Center andWWF Amazon The Nature Conservancy (TNC) Conservation Action Plans; Biodiversity monitoring inPacaya Samiria NationalReserve(Loreto) and Central Selva Compound (in Yanachaga-Chemilltn National Park, SanMatias-San Carlos ProtectedForest, andYanesha Communal Reserve) PeruvianAssociation for the PIMA Project -biological monitoring inAmazon Conservation o fNature (APECO) PeruvianAmazon ResearchInstitute BIODAMZ Project innorthern Peruvian Amazon (IIAP)and Government ofFinland lource: Assembled from datainElgegren (: 105) 7.60 Many o f the areas o f highbiological diversity inPeru lie within or proximate to the country's 61 natural protected areas. The Natural Protected Areas Law of 1997 defines the purpose of 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 of the country. Together, the 158 various categories o f protected areas inPeru comprise 17.66 million hectares, representing13.74% o f the country's total area (Table 7.15). Each category has a distinct objective and associatedlevel o f protection, the highest for NationalParks andNationalandHistoric Sanctuaries(for further details, see Pulgar-Vidaland Calle, 2003). Most of these areas are located inthe Mente, with smaller areas inthe 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 growthinPeru's ecotourism industry. 7.61 Beginningin 1997, an effort has been madeby INRENA,with technical assistance from the CDC, WWF, andUSAID,to assessthe managementcapacity o fthe ProtectedAreas System, SINANPE, usingthe so-called Management Monitoring Matrix (M3) approach. This assessment has focused on management criteria including registration of the PA inthe public regstry to avoidminimize land-tenure conflicts, the establishment of ProtectedArea Management Committees to secure open and transparentparticipation of all those with a stake inprotecting the area, financial sustainability, the approval of Master Plans to provide management guidelines, and the approval of Annual Work Plans. The M3 tool does not include monitoring and evaluation of the status of biological diversity itself. The fact, however, remains that no standardized monitoring system is inplace inPeru, even inthe protected areas system, unlike neighboring countries like Colombia, to assessthe status o f or changes inbiological diversity. 7.62 In addition to its wild biodiversity, Peru is also one of the most ancient sites for species domestication, dating to over 6,000 years ago. The country hosts a genetic diversity of over 128 cultivated species, includingthe highest global diversity o fpotato varieties, one of the four most important food crops of the planet, along with wheat, rice, andmaize. At leastnine species of domesticatedpotato are known with almost 3,000 ecotypes and an estimated 150 wild species with highgenetic value. (Peru's potato production hada farm-level value of about $425 millionin2003). 7.63 The annual global market for biodiversity-derived products4omprising agricultural products, functional foods, pharmaceuticals, biopharmaceuticals, herbal medicines and nutraceuticals, seeds and personalcare andcosmeticproductehasrecently been estimatedat over US$230 billion @oca et al., 2004). As notedabove, estimatesbyChambi (2002) andothers suggest that there is considerableeconomic value to Peru'sbiodiversity. Ifproperlymanaged, the value ofbothwild andago-biodiversity couldbe translatedinto a source ofincreasednational income and employment. Inadditionto conventional agriculture andgrowth of industries such as ecotourism, Peruhas considerablepotential for the improved commercial managementof many types of species of fauna and flora. Roca et al. (2004) identify more than 40 sources of wild and cultivated biodiversity inLatinAmerica with current or potential commercial use. InPeru, 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 prospectivemeans for Peruto takebetter advantageofits competitive advantage inbiological diversity. 159 I ProtectedArea Table7.15. Peru'sProtectedArea System (Date Established) I Area (ha) IProtectedArea (Date Established)I Area (ha) I NationalParks(11) 7,812,667 Cutervo I 1961\ 2.500 Yanachaca-Chemillen f 1986) I 122.000 Manu(1973) I 1,716,295 Cordillera Azul(2001) 1,353,191 Huascaran (1975) 340,000 Otish (2003) 305,973 160 Causes ox and Threats to, Biodiversity Conservation 7.64 Without doubt, deforestation i s a key driver of biodiversity loss, since it deprives living species o f their habitats. As indicated in the previous section, forest cover loss i s significant inPeru, 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 of three coca-growing areas o f the Peruvian Amazon, Huallaga, Pachitea-Aguaytia, and Apurimac (CDC, 2004). One of the major findings o f the study is that, o f the 7.87 million hectares inthe study area, 31.4% (roughly 2.47 million hectares) were estimated to be of "highconservation value" based on a set o fbiodiversity and landscape criteria. 7.65 A recent study sponsoredby CONAM and the NationalBiological DiversityCommission(1998) identifies three categories o f threats to biodiversity. The first category, conceptual threats, consists of misconceptions about biodiversity and lack of knowledge and awareness about ecosystem functioning, the role of biodiversity, and its economic potential. The second category, political and economic threats, consists of policy gaps and failures such as perverse incentives for slash-and-burn cultivation inareas not suitable for agriculture, lack o f policies to facilitate the preservation of genetic resources, and economic instability and widespread poverty. A third category, direct threats, consists o f human activities that can lead to the degradation of 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 leadto loss of traditional knowledge about biodiversity. These direct threats also include large-scale projects such as Camisea and the Interoceanic Highway, o f which 1,100 lanisbeingbuiltinPeru,potentiallydisruptinglandscapes,ecosystems, andconservation comdors. Institutional and Policy FrameworP4 7.66 Biodiversity has long been recognized as having many of the qualities of 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 accordinglymay be suboptimal, becauseo f the tendency to free-ride and expect others to pay for the benefitsprovided, andbecauseprivate provision i s often limitedto immediate capturable private benefits (FAO, 2002; Zilbennan, 2002). As explained above, even though there i s great scope for greater private investment inand private capture o f the economic benefitsrooted inPeru's biodiversity, the public goods rationale and the need for Peru to comply with its international treaty obligations, among other factors, providejustification 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 of 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 diversityworldwide, including Peru, is the 1992 Convention on Biological Diversity (CBD), which Peru ratified in April 1993. InPeru, the response to the CBD was to create the National Biological Diversity Commission (CONADIB). This Commission has been fundamental in facilitating the implementation of the CBD and defining national positions and policiesregardingbiodiversity, notably through formulation o f the National Biological Diversity Strategy (ENDB) that provides regulations, priorities, and actions to operationalize the CBD's principles inPeru. 94This section and the next draw inpart ftom Shchez et al. (2005). 161 7.68 A recent report by the UNDevelopment Program and CONAM (Sinchez et al., 2005) suggests that CONADIB has a mixedrecord in galvanizing efforts regarding biodiversity conservation inPeru. A first phase o f CONADIB's effort (1996-1998) was highlyproactive and the passing o f the Conservation and Sustainable Use of Biological Diversity Law (1997), the Protected Areas Law (also 1997), the approval of the National Biological Diversity Strategy (ENDB) in 2001, and the creation of thematic working groups, such as those in agro-biodiversity, biotechnology, access to genetic resources, and economic valuation o fbiodiversity. Inrecent years, the efforts have been less visible buthave focused on consolidating national policies and negotiations in international forums regarding biodiversity, approval of regulations governing the operation of the Conservation and Sustainable Use o f Biologcal Diversity and Protected Areas Laws, and approval of the law protecting the biodiversity-related knowledge of indigenous populations (2002). Technical assistance from UNEP has helped strengthen CONADIB and make its operation more efficient, though it i s still as weak entity for several reasons, includinglack o f financial support. Making CONADIB more effective will require greater political visibility, a strategic planwith concrete and measurabletargeted impacts, and additional fhding from the donor community. 7.69 CONAM 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 its 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, agro- biodiversity and access to genetic resources; and (3) biosafety, dealing with biotechnology and transgenic organisms. Unlike INRENA or IMARPE (Peru's Oceanic Institute), CONAM i s not an implementing agency but acts largely in a coordinating role, conducts training programs and acts as an information clearinghouse. Its 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 Law o f 2003. The Biodiversity and Biosafety Directorate i s a minimally staffed office (four people), which creates major challenges inexecuting its wide mandate. 7.70 INRENAis the primary implementingagency for biodiversity management inPeru, through its 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 on Migratory Species. This 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 systemo f biodiversity monitoring i s that such a system couldwell confirm the weaknesses of current GoP policies and procedures indealing with biodiversity conservation and deforestation. The Directorate is also active in the National Biotrade Commission (over which CONAM presides), in environmental education - important given the lack of knowledge about biodiversity and its importance -and inconservation 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 of protected area management in Peru (Global Environment Facility, 2003). The Peruvian Amazon Research Institute (W)has an active program of biodiversity research management focusing on Peru's Amazon regon, including projects with commercial applications. The National Agncultural ResearchInstitute (INIA), with its four regional stations, has a small gene bank collection and researcheffort. A number of in situ and ex situ agro-biodiversity conservation efforts are underway inPeru, 162 with involvement of INIA,the International Potato Center (CIP) and several nationaluniversities, 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 inthe Sierra; andthe "Condor Route" network of in situ Andean conservation sites plannedto extend from southernVenezuelato Bolivia. 7.72 Finally, efforts funded by the Global Environment Facility (GEF) on conservation and biodiversity inPeru focus primarily on biodiversity conservation and protectedareamanagement through public participation, particularly through enhancing the capability o f indigenous people to participate actively inprotected area management. By mid-2006, there were six active biodiversity projects funded by the GEF through the UnitedNations 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-relatedissues. 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. This in turn impedes communication and creates conflict with other sectors o f the Government including relationships with other ministries. The recently approved General Environmental Law (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, CONAM has little field-level expertise and implementation capacity (Shnchez et al., 2005), which will continue to hamper it. INRENAi s widely perceivedas the agency that has the most hands-on experience and its current leadership i s well respected. However, excessive bureaucracy, understaffing and a chronic lack o fresourcesleave it difficult for INRENAto adequately fulfillits many mandated functions. 7.74 Even though Peruhas a comprehensive policy and regulatory framework covering biodiversity, the application ofthis body of regulations and policies leaves much to be desired. This is inpart 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 of the agencies and institutions within CONADIB to establish baseline information and tangible targets and goals. There are also overlaps and inconsistencies, which is 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; inBolivia, the Ministry o f Sustainable Development). This effort has been complemented in the past by donor community contributions, which have created numerous benefits but have fostered a project-based approach to dealingwith 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: INRENAdeals with forests, CONAM deals with biodiversity policy, IMARPEdeals 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 is often not a problem rooted in lack of willingness to coordinate, but in time constraints and shortage of personnel. The multi- 163 institutional framework also leads to duplication of efforts across projects, and therefore a need for coordinationamong donor agencies. 7.76 Despite Peru's enormous biological diversity, GoP efforts, and those o f donors, NGOs, universities, and civil society, there is no comprehensive and consistent biodiversity monitoring systemin place in Peru. As reviewed above, many monitoring systems have been employed in one-off donor- fundedprojects, butthese efforts are typically intermittent, unsustained, and narrow ingeographic scope. Even in the Protected Areas system, there is no ongoing monitoring system. The Protected Areas Superintendency (IANF') does not have an information specialist and has only one person handling monitoringfor the whole ProtectedAreas System. A 2004 report on the previouslymentioned M 3 evaluation of the ProtectedAreas systemfound, for example, that only 28 of 56 ProtectedAreas were registered inthe public registry as state-ownedland; ofthe 28 Management Committees, 18hadaWork Plan; only 4 PAShad a financial sustainability plan; only 18 PAShad an approved Master Plan, of which only 13 were used as a managementtool, 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. Informationgatheringand systematizationhasnot beenapriority, though. 7.77 Finally, there is very limited capacity to properly manage biodiversity at the regional and local levels. This i s a critical constraint because, under Peru's decentralization laws (Nos. 27680 and 27783, bothin2002) INRENAi s gradually devolving responsibility for the management o f forestry and wildlife biodiversity to the regional governments, which are demanding a role and participation inan area which they foresee as a future source of 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 still frequently contact INRENA in Lima for guidance and support on key biodiversity management issues. Overall, only about 0.15% of 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. RecommendationsRegardingBiodiversity 7.78 Despite progress in complying with national commitments to international treaties such as the CBD, there are severe constraints. The most challengingproblem 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 inPCM's agenda. Some ministries do not have a clear view that, inbeingresponsible for biodiversity, they are the stewards of the nation's storehouse o f genes, species, and ecosystems. It may be unrealistic to think that Peru will soon approach the commitment of a country like Costa Rica, but the country can go much further in tahng advantage o f its unique biodiversity resources, including in a commercial and developmental context. Important recommendations for changes inpolicy, technical assistanceandpublic investment include the following: Policy 1. Strengthen institutional capacities of key actors inbiodiversity 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 of Biological Diversity Conservation and Natural Protected Areas Superintendency, IMARPE, and the regional governments. This strengthened capacity i s especially needed in view o f the decentralization framework. In the 164 specialized area o f biodiversity management, the central offices of INRENA and CONAM can be expected to serve as national resources. However, there is great need to build institutional capability over the longer term 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 its strengths in agro-biodiversity and in developing commercial uses o f its unique wild biodiversity. This should begin by building on current efforts, such as those underway in institutions like the National Bio-Commerce Program implementedby the National Commission for the Promotion o f Exports (PROMPEX) under CONAM's leadership. However, these efforts should be reinforced and givennew focus and vision. Such efforts should also be geared towards strengthening Peru's capacity to access and manage the country's genetic resources, focusing inareas such as research, access, and intellectual property (Bernales, 2006). 3. Speed uuthe process o f review and approval o f CONAM roles and functions, which will clarify and strengthen its Biodiversity and Biosafety Directorate. In view o f the National Biological Diversity Strategy and Peru's new Environmental Law (2005), CONAM's regional offices (CARs) may also need strengthening in view o f the increasing importance of decentralized efforts in biodiversity management. These objectives can be accomplished inthe short to mediumrun. 4. Refinecoordination mechanisms among external donor agencies working on biodiversity, because of the important role of these agencies. Improved mechanisms will help avoid duplication of 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 of donor resourcesthat have supported biodiversity conservation inPeru. TechnicalAssistance 1. Strengthen GoP efforts to disseminate biological technical knowledge and training. This should include the regional governments, CARs and INRENAregional offices, as well as more specialized opportunities for private sector participation, such as in agro-biodiversity and promising biotrade opportunities. This 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 fundingfrom GTZ. This initiative should receive more attention in view o f decreasing fhding resources from the donor community. This effort is 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 of its status in Peru. Peru's commitments under internationaltreaties will notbe fulfilled ifno consistent and reliable data is available regarding the state o f biological diversity, nor will the national vision and objectives stated inthe 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 non- comparable results. In addition, it i s advisable to strengthen Peru's Biodiversity Clearinghouse 165 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 of Policy Recommendationsto Address Soil Degradation, Forestry, and Biodiversity Objective Recommended Short-Term Recommended Medium-and Long- Actions TermActions Foster more efficient public 0 Conductlupdate new national Use updated information to planningand private inventories o f (1) soil erosion improve planning o fpublic and resource allocation through and (2) soil salinity (none private interventions insoil improvedinformation. completed since 1980s). salinization, water and irrigation (Cost: low to moderate) use, landuse planning, soil erosion and soil conservation. (Cost: low) Use water resources and 0 Revise the 1969, 1989, and Increase water use fees to cover associatedlands more 1990Water Laws to authorize provisioncosts and generatemore efficiently. higher, broad-based fees for efficient water use and associated water use. (Cost: low) landuses. (Cost: low) 0 Endpreferential treatment for rice inwater allocation in Coastal irrigationprojects. (Cost: low) ~ Strengtheninstitutional Consider establishing a new Improvetechnical capacity o f capacity to address water use independentWater Resources personnel working insoil and soil conservation. Agency with a mandate for conservation, and improve staffing integrated water use resources (INRENA, management. (Cost: low) PRONAMACHCS, etc.). (Cost: 0 Refocus INRENA'smandate moderate) on soil conservation. (Cost: 0Improveinter-institutional low) coordination (PRONAMACHCS, NGOs, donors) through REDNAMAC and other venues in guiding investments insoil conservation. (Cost: low) I I Allocate government and Conduct comprehensive 0Use feasibility analysis, improved external resources for soil feasibility analysis of soil information, and estimated conservation more efficiently. conservation investments. economic costs and returns to guide (Cost: low) public investments insoil conservation. (Cost: low) 166 Objective RecommendedShort-Term RecommendedMedium- andLong- Actions TermActions 11.Deforestation Improvefunctioningof new 0Suspendconcessioning 0Provide ongoing targeted technical 2000 ForestryLaw, especially process untilfurther reforms assistanceto bidders and regardingforest concessions. are made. (Cost: low) concession holders through 0Improve mapping, zoning, INRENA,FONDEBOSQUE, and forest inventories prior to NGOs, and other institutions to further concessioning. (Cost: assure success o f forest low) concessions. (Cost: moderate) Create secondary market in 0Provide more intensive ongoing forest concessions. (Cost: institutional support (INRENA, low) OSINFOR, etc.) for forest Revise concessionaire criteria, concessioning process. (Cost: especially higher capital moderate to high) requirements,andpromote Strengthen alliances with bidding consortia. (Cost: low) internationalbuyers, especially in certified markets. (Cost:_low) 0Assign greater weight to economic vs. technical criteria Promote ReducedImpact Logging inevaluatingconcessionaire (RIL)practices throughincreased proposals. (Cost: low) technical assistance and incentives. (Cost: low) 0Improve stakeholder involvement inforest Promote alternative sources o f concessioning process revenue generation, including through NationalForestry increased harvest fees, transfer of Roundtable, local Forest monitoringand enforcement to Management Committees, etc. industry, etc. (Cost: low) (Cost: low) 0Expandnational information 0Strengthen the participation o f network and database to assist indigenous populations in monitoringand enforcement o f forestry management through Forestry Law. (Cost: low to AIDESEP, COICAP, moderate) INDEPA, etc. (Cost: low) Strengtheninstitutions 0Devote increasedresources to Consider making OSINFORan involvedinmanaging inspections and compliance; independent agency that reports to forestry resources. monitoringand enforcement PCM. (Cost: low) o fharvest and transport Address landtenure and titling authorizations; closer 0 problems inforestry concessions coordination with SUNAT, through better coordination with OSINFOR, PETT, etc. (Cost: PETT, MEM, etc. (Cost: low to moderate) moderate) Clarify division o f responsibilitiesbetween INl7ENA and OSINFOR. (Cost: low) 167 Objective RecommendedShort-Term RecommendedMedium- and Long- Actions Term Actions Support decentralizationof Continue national support o f Promote greater role for Forest forest managementand Permanent Production Management Committees inlocal associatedinstitutions. Forests. (Cost: low) monitoring o fforest resources. 0Suppodstrengthen devolution (Cost: low to moderate) o f administrative and 0Promote greater participation and technical functions to stakeholder involvement inlocal departments and regional forest management through INRENA offices. (Cost: regional forestry roundtables, etc. moderate) (Cost: low) Increase fimding,.staffmg, technical monitoring and evaluation, and enforcement capabilities at regional level. (Cost: moderate to high) Improvecontrolof illegal 0Devote greater resources to 0Expand NRENA databaseto create loggingandtrade. inspections, compliance, NationalIntelligence Center to monitoring and enforcement support monitoring and o fharvest andtransport enforcement activities. (Cost: low) authorizations; closer coordination with SUNAT, OSINFOR, PETT, etc. (Cost: moderate) Clarify role o f Multi-Sectoral Commission to Control Illegal Logging. (Cost: low) 111.BiodiversityManagement Provideimproved 0Increase resources-financial 0Support national efforts to value informationto foster better support and technical biological diversityand planning, includingplanning assistance-to create an environmental services. (Cost: for compliancewith adequatenational biodiversity moderate) international treaties and monitoring system, including agreements,and for agro-biodiversity. (Cost: allocationof private moderate) resources. Strengthen CONAM's Biodiversity Clearinghouse Mechanism. (Cost: low) Strengtheninstitutional 0Clarify responsibilities o f 0Refine coordination mechanisms capacityinbiodiversity different public institutions in among donor agencies. (Cost: low) management. biodiversity management, including CONAM, INRENA, IMARPE, and ministries. (Cost: low) 0Speedup review and clarification o f CONAM's functions inbiodiversity management. (Cost: low) 0Strengthen GoP efforts to disseminate biological technical knowledge and 168 Objective RecommendedShort-Term RecommendedMedium-andLong- Actions TermActions training, especially at regional level, given decentralization framework. (Cost: moderate) Foster greatereconomic 0Register all protectedareas as 0 Foster public-private linkages to returnsfromPeru's state-owned landinpublic promote Peru's ecotourism sector. "comparativeadvantage"in registries. (Cost: low) (Cost: low) biologicaldiversity,including Assure that all Protected Promote commercial uses o fwild agro-biodiversity. 0 0 Areas have Management biodiversity through PROMPEX, Committees. (Cost: low) and foster private sector For all Protected Areas, initiatives. (Cost: low) develop: (1) Work Plan, (2) Provide adequatefinancial and Financial Sustainability Plan, staffingresources to enable (3) Master Plan, and (4) INRENA andProtectedAreas to Monitoring Plan, as provided cany out Plans #1-4, once they inexistingnational legislation are developed. (Cost: moderate) andregulations. (Cost: low to moderate) 169 CHAPTER 8 ENHANCINGCOMPETITIVENESSTO IMPROVE DESIGN AND IMPLEMENTATION OF ENVIRONMENTALPOLICY 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 EIA 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 needfor 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 mechanismsfor 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 existfor 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 and command and control measures are far more effective and efJicientfor tacklingPeru 'spriority environmental problems. Introduction 8.1 A growing body o f regulations has been passed in response to Peru's environmental management include environmental assessment procedures (environmental impact assessments - The main environmental policy instruments for environmental planning and EIAs- and environmental compliance and management program - PAMAs) and environmental emission standards (Eimites mhimos permisibles - LMps). 8.2 The private sector routinely expresses concerns that lack o f coordination and clarity in the environmental approvals process leads to uncertainty and affects investor confidence. This 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 environmentalperformance i s directly related to the quality of the country's business climate and the competitiveness o fthe businesses (Hammond, 2005; IADB,2005). 8.3 Adopting strict and stable environmental requirements, and enforcing them ina 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 This 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. 170 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 of 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 resourcesbase and offers new business opportunities inglobal 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 key factor that affects the growth and competitiveness o f important economic sectors. In this context, failure to adequately address or respond to pollution problems undermines the country's growth potential and its business sectors' competitiveness. Inthe same vein, failure to reduce potential health risks to the public from exposure to hazardous wastes and substances has detrimental implications for the population's health and productivity. 8.5 Therefore, Peru has a dire need to 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, PAMAs and L M P s system, i s urgently neededinPeru. Table 8.1. Peru: Environment and Competitiveness (Total of 117 Countries) I I Position Position of Indicator Position Position World Leader in of Peru of Of Colombia Leader Latin America Stringency of environmental regulations 70 35 41 Germany Brazil (25) Clarity and stability o fenvironmental regulations 78 38 50 Denmark Chile (38) Protection o f ecosystemsby business 83 23 45 Iceland Chile (23) Extent o f government-mandated environmentalreporting 87 45 58 Denmark Panama (44) Effects o f compliance onbusiness 88 37 78 Denmark Chile (37) Prevalence o f corporate environmental reporting 88 36 59 Denmark Brazil (32) Prioritization o f energy efficiency 60 30 44 Denmark Brazil (25) Importance o f environment inbusiness planning 96 67 66 Japan Panama (28) 8.6 While EIA i s still a relatively new process in Peru, it i s being applied to 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; World Bank, 2000,2005e; Garcia, 2005). Much less is known, however, about the influence o f EIA and environmental licensing on Peru's environmental quality and the effectiveness and efficiency of EIA tools. Relative to 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 of 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 inPeru, particularly its environmental impact assessment system. Following this introduction, section two o f this chapter describes the 171 evolution o f Peru's environmental impact assessment system. Section three discusses the effectiveness of the EM 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 EM to three projects in the mining, electricity, and oil sectors. Section six discusses the limitations of EM. Finally, section seven presents conclusions and discusses options to improve the design and implementation o f environmental assessment. Peru's EnvironmentalImpactAssessment System 8.7 The institutional and legal framework governing environmental assessment and licensing in Peru has evolved from 1990 when the Code of 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 ministryresponsible 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 freference for the content o f environmental impact studies. Table 8.2. PeruvianEnvironmental LegislationPertinent to Environmental Impact Assessment Law Reievance to EIA Code o f the Environment and First law to establish need for EIA. Natural Resources Legislative Indicatedlist of activities subject to EIA. Decree No. 613 o f 1990 (CAM) Provision superseded by L a w 757. Framework L a w for Increasing Delegatedresponsibility for EL4 and environmental management to Private Investment. Legislative sectoral authorities (ministries). Decree No. 757 o f 1991 Law for EnvironmentalImpact Established CONAM's oversight role inEIA process, but Ministries Assessment ofProjects and responsible for EIA. Activities. L a w No. 26786 o f 1997 L a w o f the National System for Established a true "one-window'' system for EIA. EnvironmentalImpact Assessment. Established uniformprocedures to identify requirements, steps, and Law 27446 o f 2001 scope o f EIA. Established three categories for EM: I. EnvironmentalImpact Declaration(DIA) 11.Semi-detailedEIA 111.DetailedEIA Established mechanisms for public participation. A s o f December 2005, this Law was not inforce, as regulations have not been enacted. General L a w o f the Environment. Article 24 states all project, plans, programs and policies that could L a w No. 28611o f 2005 cause significant environmental impacts are subject to SEIA 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 of Production. INRENAhas a dual mandate inthe EIA process. It acts as a review agency to other ministies where natural resources may be affected and i s the sectoral authority for the EIA review o f agricultural projects. The 172 devolution o f responsibility to 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 to unify the EL4 process with respect to categorization, content, process, and timing, they have yet to be promulgated. As a result, Peru currently lacks a unified approach to EIA, and each ministry conducts EIA according to its specific regulations and institutional practices. EIApractices 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 Peruvianministries conduct EIA o fprojects and activities. 8.9 The current ministries that undertake EIA inPeru include Energy and Mines, Production, Transport and Communications, and Agriculture. The status, as of December 2005, of EIA in other government ministries is describedbelow: Foreign trade and tourism - Currently, Tourism does not have a legal framework for EIA.The sector has been worlung with CONAM to define an EIA guide for the tourism sector. Some EIAshave been done o f tourismprojects, mostly on ecotourismconcessions offered by the Government. The Ministry o f Foreign Trade and Tourism recently approved the tourism sector's environmentalpolicy. CONAMwill lead the preparation of a Strategic Environmental Assessment o f the Strategic Plan o f the Tourism Sector, scheduled to begin inearly 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-Nolegal framework for EIA is established. The draft SEIA regulationsinclude a series o fprojects that will require EIA inthe future. Housing, Construction and Sanitation -In2006, the Environmental Directorate o f the Ministry will develop EIA regulations for the sector. Consultants have been hired to prepare a proposal for environmentalmanagement. 8.10 At the regional and local level, EIA is mostly nonexistent. Regional Authorities have limited EIA capacity and focus their attention on construction and operating licenses, which require the approval o f DIAs or EIAs in order to be made effective. In practice, little i s done regardingthis.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 Nprocess and land-use zoning, and pollution control. 8.12 Law No. 27446, passed in April 2001, establishes a new environmental assessment process, the National System for Environmental Impact Assessment (SEIA). This new process 96An exception is the Municipality ofLima, which has undertaken EIAs, but onlyinthe historic center ofthe city. 173 provides a one-window system for environmental impact assessment and establishes a process for environmental approvals. LawNo. 27446 and its regulations have yet to come into force. 8.13 The law regarding the National System for Environmental Impact Assessment, Law 27446, establishes several objectives for Peru's EIA system. On one side of the spectrum, the Law 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 to 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 law also allows for the design o f an EIA system that is the basis for an environmental protection statute. Inthis case, a portfolio o f environmental regulations mightbe designed and implemented to 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. Inthis latter case, the EL4 system would include requirements for the design o f environmental management plans based on detailed mitigationmeasures. 8.14 Currently, at a conceptual level, clear conflicts exist with respect to normative understanding o f the EIA inPeru. At the project level, different stakeholders (public and private) inthe development-assessment processhavevery different expectations for the EIAprocess. EIA is 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 PeruvianNational System o f Environmental Impact Assessment (SEIA), EIA is 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 civil 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, to prevent, control, mitigate, recuperate or compensate those negative impacts, while promoting the positives. (CONAM, 2005:43)" 8.15 This definition incorporates the different objectives o f EIA (NEPA, 1969; IAIA, 1999), including the following: 0 To openup decision malung to public scrutiny by providing citizens the opportunity to better understand an investment project's alternatives and impacts 0 To ensure that environmental considerations are explicitly addressed and incorporated into the decision-malung process o fprojects 0 To anticipate and avoid, minimize or offset the adverse significant biophysical, social and other relevant effects o f development proposals 0 To protect the productivity and capacity o fnatural systems and the ecologcal processes that maintain their fimctions 97 Translatedby Scott-Brown (2005). Page 43: Reglamento de la ley delsistema nacional de evaluacidn ambiental. 174 To 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 inthe 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) of public consultation procedures from the onset o f the project through timing approval and implementation; (ii) mechanisms for incorporating the results o f public consultation into the decision-malung process; (iii) public disclosure of project information and accessibility o f information (e.g., location and language); and (iv) feedback to participants of the results of 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 of the land-use planning process. EIA goals associated with avoiding, minimizing or mitigating environmentalimpacts to thirdparties could only be attained with the design and implementation of 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 of EIA practices in the Ministries of 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 excessivenumber o f unnecessaryEIAs.The resources of 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 is "to determine whether or not a proposal should be subject to EIA and, if so, at what level of detail" (IAIA, 2005).98 In Peru, the responsible ministerial authority determines screening ofprojects 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 of project impacts. Insome cases, projects with significant impacts are not subject to EIA. A case in point in the transport sector is the construction of 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 is often unnecessary, since preventing or mitigating project impacts could be addressed through technical environmental specifications, environmental management plans, land-use zoning bylaws, or apollution-control regulation. 8.19 To address this deficiency, Article 4 of the Law o f the National System of Environmental Impact Assessment (Law 27446) aims to assess project proposals, which are assigned to one o f three categories, basedon their environmental risk: Category I: Environmental Impact Declaration-no significant negativeimpacts expected 98See www.iaia.org for description o fbest EIA practices. 175 Category 11:Semi-detailed Environmental Impact Assessment (EIA-sd) -Projects that couldresult inmoderate impacts that can be minimized through mitigation measures Category HI:Detailed Impact Assessment -projects whose characteristics and location couldresult insignificant negative quantitative or qualitative effects requiring a detailed analysis o fproject impacts and the development of environmental mitigation strategies (EIA-d) 8.20 Contents o f the EIA for Categories I1and IIIare specified in Annexes of the proposed regulation o f the Law 27446. Since neither the SEIA law nor the regulations are in force, screening and focus o f EIA scrutiny inPeru are highly inconsistent and ineffective. 176 Scoping 8.21 The purpose o f scoping inEIA is "to identify the issues and impacts that are likely to be important andto establish terms o f reference for EIA" (MA, 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 of reference are available for the mining, oil and gas, electrical, agricultural, andindustrial sectors. Withinthe various EIAterms 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. Eventhen, there is little elaboration on methods for scoping o f both environmental and social issues. Similarly, in most EIA processes, public participation is absent inthe scoping for identifylng key issues for analysis. 8.22 There are significant differences in the treatment o f key components o f what is considered best practice for EIA. These components include (i) scoping based on public EIA 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) consistent process for a 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 incontent andscope o f environmental management plansinrelation to predicted impacts; (viii) detailed monitoring and follow-up plans to 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 ingovernmental decision malung. 8.23 The EM terms o f references reviewed for this 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 limits the definition o f EIA scope primarily to projects' direct impacts, often with the result that regional and induced impacts with more significant andwidespread consequences are not addressed. 8.24 Anunbiased analysis ofalternatives is a critical part o fEIAandshould 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 fprojectjustification. 8.25 As of December 2005, Peru's EIA process neither explicitly nor effectively addresses the assessment o f cumulative effects from all other past, present, and pending developments associated with the proposed project's impacts. The existing EL4 TORSfor each sector do not explicitly refer to how such an assessment should be considered and conducted (Hegmann et al., 1999). 8.26 In Peru, EIA terms of reference contain information on what impacts should be assessed, but lack specific details regarding how impacts should be assessed and, more importantly, how their significance should be determined. To be 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 to remove or reduce impacts to an "acceptable" level. 99 See www.iaia.org for descriptiono fbest EIA practices. 178 8.27 To be effective, EIA terms o f reference should consider the following inthe assessment o fproject impacts: (i)Impactsshouldbequantifiedasmuchaspossible, basedonthebestinformation available to the EIA consultant at the time o fpreparation. (ii) determinationofimpactsshouldbedefensible,inthatitinvolvesaclearand The transparent process whose adequacy can be independently verified by the public or third-partyreviewers. 8.28 A number of procedures, models, and matrices are available for the determination of 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 of these variables. Other TORSshould consider their use. 8.29 With respect to the quality of EIAs in Peru, the focus of environmental assessment is geared toward approval o f the project EIA, rather than toward ensuring long-term environmental managementand sustainability (De la Puente, 2005).'00Scoping o f EIAswithout 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 is gven to the determination, prediction, and analysis o f project impacts. There is no formal requirement to assess the cumulative effects o f single projects, nor an establishedmethodology. 8.30 EIA preparation is 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 is largely a bureaucratic exercise; inpractice, 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 is common worldwide, the cost o f EIA preparation inPeru is 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 andtransport sectors. EIAs insectorsthat have low economic returns, such as the fish- processing 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 of 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 inPeru (Furst, 2005).'0' Public Participation 8.32 "Public involvement" is the term used for a spectrum o f approaches that can help mitigate misunderstandings or disagreements with stakeholders. It 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 of EIA for mining and hydrocarbon projects in Peru, de la Puente (2005) states that EL4 is an administrative procedure for obtaining environmental approval rather than a tool for environmental management. lo'Personalcommunication to Miles Scott-Brown by Dr.Thomas Furst.environmental scientist. Vector Peru S.A.C., Lima, Peru. 179 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 is no standardized public consultation process across the anticipated life o f a project. While initiated early in some cases, public participation is usually conducted only untilthe time o fthe public hearing, which i s usually heldwithin 30 days o f an approval decision. Consultative processesand mechanisms vary substantially betweenministries. 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 its potential impacts and management, and to inform the public about its legal rights. Formal public hearings are geared more towards dissemination of project information than to providing a mechanism for public comment and input to enter the decision-making process and affect the outcome of approval decisions. As stated recently by Manuel Pulgar-Vidal, "...public participation implies, among other rights, involvement at the true level o fthe decision-making process, to have the rightto reject a project, to participate inan effective manner inthe benefits arisingfrom the project and to demand from government objectiveness andrepresentation inproject decisions.. ." (Brunke, 2005). Holden et al. (2005) comment on the shortcomings o f the public participation process resultingfrom 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 of projects in the Amazon, such as infrastructure expansion, as infringingupon their habitat and threatening their home and source o f livelihood, since clear regulations providingfor their protection do not exist."' Monitoring and Follow-Up 8.35 EIA follow-up is defined as "the monitoring and evaluation of the impacts of a project or plan.. .for management of, andcommunication about, the environmental performance o f that project or plan.. .."Io3 Recently, academic groups have proposed a shift in EIA follow-up and monitoring from monitoring and evaluating impact predictions towards establishing links with environmental management, sustainability assurance, and communication with project-affected stakeholders.IO4 8.36 As inmost countries with EIA systems, Peru's EIA follow-up andmonitoringprocessis poorly developed and largely ineffe~tive."~The responsible authority at the ministry level grants approval o f the environmental impact assessment study. However, the responsible authority is not necessarily accountable for the supervision and compliance o f the project. This responsibility is 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 is assumedby OSMERG, a separate organization responsible to the lo* Opinions expressed by participants from AIDESEP, CONAIE, and CIDOB at the ECODIALOGO held in February2006. 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: Learningfrom experience: emerging trends in environmental im act assessment follow-up. Impact Assessment and Project Appraisal. Vol. 23 (3):170-174. `"The official word in Spanish isfiscalizacidn, which hasno direct translation inEnglish. "Compliance monitoring and enforcement" is the closest translation available. Fiscalizacidn is moreconcernedwithlegal and financial aspects of compliance than follow-up of environmental and social commitments contained within the EL4 and its related environmentalmanagementplan. 180 Presidency of the Council of Ministries. Within the Vice-Ministry of Mines, Ministry of Transport and Communicationand Agculture, the monitoring function is assumed by another agency withinthe same ministry. 8.37 Compliance monitoring is largely concerned with administrative procedures, and far less with ensuring that commitments made in the EM are upheld. In addition, financial constraints often impede effective compliance monitoring in the field. Finally, monitoring reports are not availableto the public for review, and the public has no role inthe EL4 follow- up process. 8.38 The PeruvianEMsystemcurrently does three kindsoffiscalizacidn: 0 Completed withinthe Ministry itself, e.g., Compliance Monitoring Directorate, General Directorateo f MiningIM 0 Completedby independent government agency -e.g., OSINERG, which reports to the Council o f Ministers Completedby 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 8.39 At the time of EM preparation, only preliminary engineering details are usually available. Consequently, the environmental management plans presented in EIA are largely conceptual and are intended as a guide to how they will be implemented once the detailed engineering design is finalized. The compliance-monitoring entity is directed by legal requirements that are more concerned with formal compliance than with the actual commitments made in the EM. The overall result is a weakened and largely ineffective E M follow-up process. 8.40 A number of other observationsand concerns exist about how compliancemonitoring Cfiscalizacidn) is actually implementedinthe field: Random inspections cannot be made unless there is a fatal accident or emergency situation (CED, 2002; IADB,2002). Since the compliance-monitoring agency or consultant i s not basedpermanently inthe field, butrathervisits theproject ona scheduledbasis, there are concerns about the number o fvisits and the levelo f detail possible, compared to a full- time compliance-monitoring presence. Although companies are registeredto conduct compliance monitoring and guidelines exist for some ministries, there are concerns about companies' qualifications andthe budget available for monitoringcompared to EIA preparation. There are questions about the technical competence o f third-party companies and how they are contracted. There are questions as to how the compliance-monitoring budgets are determined relative to compliance needs. The focus o f compliance monitoringi s aimed more at financial and legal compliance than on the actual implementation o fEIA commitments. There are concerns about the capacityto monitor discharges and evaluate actual compliance. There are concerns about penalties andthe implementation o f fines.'07 IO6DirectionGeneraldeMineria-Direccibnde Fiscalizacibn. IO7 According to a September 25, 2005, article in the Peruvian newspaper, El Comercio, OSINERG fined17 petroleumcompaniesin2005 for environmentalinfractions, noneofwhichhasbeenpaid. 181 8.41 Realizing the complexities associated with the follow-up and monitoring of complex mega-projects, the Peruvian Government established the Inter-institutional Technical Coordinating Group (GTCI) for the Camisea Gas Project. GTCI was establishedunder 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 To support the findings of this 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 establishedbest internationalEIA practice. Case studies were selected from the mining, electricity and oil and gas sectors (Tables 4.4 - 4.6). The miningproject 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 inthe district o f Chilca, inthe Lima Department.The plant will consist o f two 190 MW turbines and a 220V electrical substation. The Lote IXproject involves the drilling of two development oil wells inLote IX,Piura. Case Study I:Antamina 8.43 The following i s an analysis o f the Antamina Mine operated by Compaiiia Minera Antamina S.A. (CMA). Table 8.4. Case StudyAnalysis: AntaminaMine lll". _I_ Analysis Antaminai s the world's third largest mine andthe leadingcombinedcopper-zinc mine; ithas a capitalcost of US$2.3 billion. It is locatedinthe Departmentof Ancashinthe PeruvianAndes, approximately473 kmnorth of Lima. The project ProjectDescription consists ofthreecomponents: an open-pit mine; processingfacilities and infrastructure(port, pipeline,roads, andpowertransmission).The minebegan productionin2001 andhas an expected operating life of20 years. March 1998,EIA submittedfor approval April 1998,public hearing (Lima) took place May 1998,MEMand INRENA presentedobservationsto the EIA June 1998,CMA respondedto all the observations July 1998,CMA filed the RoadAddendum July 15, 1998,EIA approved Timeline of EIA January 1999,ConcentratePipelineEIA Addendum submittedfor approval Activities January 1999,public meetings inHuallanca, Chiquian, Chavin, SanMarcos, Huaraz,Aquia, Chasquitambo,andHuarmey, andaPublic Hearing(Lima) took place February 1999,INRENA presentedobservations March 1999,MEMpresentedobservations March 1999,CMA answeredall observations March 1999,MEMapprovedaddendum 182 ..-.._. ..-- EIA Coniponent According to regulations o f the Ministry o f Energy and Mines, Environmental Screening Issues, Mining, an EIA was required Scopingo f issueswas done using a simplified failure modes and effects analysis Scoping (FMEA) andworkshop. Workshop consisted ofexperts only and didnot involvethe public or affected stakeholders. InOctober 1996,CMA retainedKlohn Crippen SVS SA.(KC-SVS) to prepare an Environmental Impact Study (EIA) for the Antamina Project. The EIA was filed with MEMinMarch 1998.Addendums were submitted for a new access road EIA Preparation (1998) and concentrate pipeline (1999). The EIA was preparedconsidering Peruvian Government EIA requirements, CMA environmental and socioeconomic policies, and World Bank guidelines developed for miningprojects. EIA approach, for the mostpart, consistent with World Bank standardsandinvolved athree-part process: Issue scoping, impact assessment analysis, implementation. Detailed assessment o f project boundaries and impacts was done usinga matrix approach as either significant or non-significant. Variables consideredincluded EIA Content magnitude, duration, geographical extent, andprobable frequency o f occurrence o f expected interactions. N o analysis o f cumulative or regional effects. N oformal alternatives analysis including impact evaluation presented. An analysis of alternativesfor the concentrate transportation route was completed. The EIArefers to an analysis o f alternatives, but no formal analysis appears inthe Analysis of EIA document. An analysis ofalternatives consistent with the requirements of0.P Alternatives 4.01 Environmental Assessment was not done. Environmental: impacts on surface water quality, loss ofhabitat, heavy metal release, local impacts on air quality, reclamation, and long-term liability issues associatedwith closure, impacts on cultural resources. Major Impacts Socioeconomic: resettlement, immigration, increasedhousing demand. There are anticipated improvements in educational and health facilities, increasedemployment opportunities, new housing development and improvedinfrastructure and social services. Peruvian legislation inforce in 1998 providedthat MEMand INRENAwere EL4Evaluation involved inEIA approval. It i s likely that, today, interventions o f other ministries andDecision such as M T C would be involved. 183 kcordingto the EIA, CMA will 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 inNorth America. The project will employ a best management practices approach, as usedby the nining industryworldwide, to control emission sources and prevent accidental .eleases during operations.During construction, control measuresto minimize listurbance andto prevent and control erosion and spills were developed for each xoject element (mine, port, roads, andpower line) to limit environmental effects mdprotect watercourses andsensitive habitats. These measureswere described :onceptually inthe EIA and further elaborated by C M A as part o f a comprehensive Mitigation and xoject environmental management plan. Duringconstruction, operations, and Monitoring :losure, CMA will monitor the quality o f discharges to the environment as well as h e ambient condition of surface water, groundwater, air, and soil that may be affected by such discharges to verify compliance with Peruvianregulatory requirements. Inaddition to direct monitoring of water and air, CMA will implement EnvironmentalEffects Monitoring (EEM) to document the health of biological communities. A resettlementpolicy and community-development plan were prepared. The community-development program builds on the principles o f respecting the local communities, engaging them inplanningfor change, emphasizing self-sustaining andcommunity-driveninitiatives, and securingbenefits for the community from project development. EIA follow-up and compliance involves the following: MEMperforms periodic audits (usually 3 times a year) tothe mine andport sites. It also reviews the quarterly environmental monitoring information submitted by EIA Follow-up and CMA. Compliance DIGESA performsperiodic surveillance ofthe ambient air andwater adjacent to the mine and port sites. Monitoring results are reportedto local environmental monitoring committees. A total of US$5-10 million was spent on EIA costs andpermits. The Annual EIA Cost Environmental Budget i s between US$3-4 million. Public participation for the project followed Peruvian guidelines and includedthe following: public meetings in the project area, open house inLima 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 upin communities across the project. Current public consultation efforts include: Public meetings to discuss environmental issues Public Distribution o f quarterly reports on CMA's environmental monitoring program Participation 0 Delivery o fthe Environmental Impact Assessment (EIA) and annual Sustainability Reports Joint monitoringwork with the participation o f the community, local entities, government authorities, NGOsand other stakeholders 0 Resolution o fenvironmental grievances and claims Guided visits by stakeholders to CMA's operations 0 Involvement by CMA inregional environmental work groups, sponsoringthe participation o f the environmental committees and assisting inthe development o f local environmental policies. 184 .... ...... .--. . . ___ EIA Component Anafysis Suggestedimprovements to the EIA process are as follows: The EIA only consideredthe impacts o f eachmine component separately and should have assessedthe project's combined effect. A stand-alone alternativesanalysis should have beencompleted compliant with O.P. 4.01 requirements The EMP was conceptual innature and more details should havebeen provided. A cumulative-effects andregional assessment should have beendone. Although public consultation and disclosure complied with Peruvian requirements, efforts couldhave been initiated earlier inthe EIA process. Since project approval, CMA has adopted a comprehensive environmental management program to implement project environmental controls. This has overcome a weakness o fthe EIA inwhich details o f environmental management plans were not fully available at the time o fpreparation. Long-term liabilityissuesare being addressedinresponse to new government EIA Improvements legislationon mine closure. and CMA i s actively monitoring the implementation o f EIA commitments and success Recommendations ofproject mitigation. A third-party company also conducts independentaudits. for Follow-up Government monitoring and compliance review focus on compliance regarding project air andwater discharges, solid waste management, and tailings impoundment stability. Onthe social side, public consultation andinvolvementprocessescould havebeen initiatedearlier duringthe project-approval process. Since project approval, CMA has taken a more proactive approach to public involvementb y forming environmental committees across the project. CMA is initiating these efforts without being directed to by regulatory demands or requirements. C M A has also formedthe Ancash Association to help foster sustainable development acrossthe project. A fund o f US$1.5 million was established for this purpose. The EL4 for the Antamina Project demonstrates that EL4is a tool to be usedin a comprehensive environmentalmanagement process over the life of a project. The EIA forms the basis for corporatecommitments, which are then developed during project operations. An adaptive management approach is 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 of 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 MEMwebsite andreviewed. Table 8.5. Case StudyAnalysis: Kallpa Thermoelectric Plan EIA Component Analysis Globeleq Peru (S.A.), a division of Globeleq, i s proposingto construct and operate a 380 MW thermal generationplant inthe district o f Chilca, Project Description Canete Province, Lima Department. The plant will consist o ftwo 190 MWturbines and a 220V electrical substation. The plantwill use gas from the Camisea Project as an energy source and connect to the national grid. N o information is provided on project costs. Timeline o f EL4Activities September 2005, Submission o f EIA. Screening Regulations o fthe Ministryo f Energy and Mines, Environmental Issues, Energy requiredan EIA. Scoping There is no indication inthe EIA as to whether scopingwas conducted. The EIA was prepared by Walsh Peru S.A. The EIA complies with Laws 757 and 27446 and was prepared inaccordance with the Guidefor Environmental Impact Studiesfor Electrical Activities, the Environmental EIA Preparation Protection Regulation for ElectricalActivities -D.S. No. 029-94-EM (06- 08-94) and World Bank Thermal Power Guidelines for New Plants (1998). Globeleq's corporate policyi s to comply with the most stnngent of either Peruvian or World Bank emission standards. 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 usedto evaluate project impacts consideringthe EIA Content following: duration, intensity, frequency, magnitude, andprobability o f occurrence. A positive or negative impact value was determined and an impact significance value was assigned. No analysis of cumulative or regional effects was conducted. Analysis ofAlternatives IN o analysis o f alternatives was describedinthe EIA document. Impactswere describedfor boththe construction and operations phase. A summary of major impacts follows: Environmental: impacts to air quality, noise, visual quality, changes in Major Impacts land use. and faunal disturbance. Social: impacts on traffic flow, expectations for employment, increase in landprices andliving costs, potential for social conflicts. Positive impacts include provision of employment and improved availability of services. EIA Evaluation andDecision 1Under evaluationby MEM. 186 - l_l__ . l^l ELAComponent Analysis Monitoring will be done duringboth construction and operation phases. Monitoring during constructionwill focus on contractor compliance with the project environmental management plan. A community-relations plan Mitigation and Monitoring will alsobe put inplace to manage construction and operations impacts on local communities and residents. Monitoring duringoperations will be done for stack emissions, air quality, noise, and vibration. Compliance monitoring on behalf of the Government will be done by OSINERG. Globeleq will implement an environmental management plan during construction and operations; the plan will includethe following: Impact prevention EIA Follow-up and Compliance Solid waste management Monitoring Occupation health and safety Community relations Management of social conflict A Contingency PlanandanAbandonment Plan are alsoprovided. EIA Cost N o figures available inthe EJA. Four participatory workshops and four focus groups were conducted to assess the local population's perceptions of the project andto gain Public Participation baseline information.Additionally, in accordance with the Regulation for Public Participation, two information and consultative workshops were held prior to the EIA andtwo others during preparation o f the EIA. Suggestedimprovements to the EIA process include A stand-alone alternativesanalysis should have been completed compliant with O.P. 4 01 requirements The EMP was conceptualinnature and more details should have been provided A cumulative effects andregional assessment should have beendone EIA Improvementsand considering other electncal generationprojects and other industries Recommendationsfor Follow-up The levei o f effort expended inthe EIA appears to be sufficient, but no details are provided onproject or EIA costs Public participationappears to be sufficient relative to the extent ofthe project, but no information is providedas to how information collected in the EIA was usedinthe decision-making process. Source: Scott-Brown (2006) 187 CaseStudy 3: EIAfor the drilling of two development wells in Lote IX Piura Table 8.6. Case Study Analysis: Two DevelopmentWells inLoteIX,Piura EIAComponent Analysis -. .___ - I . Project Description The project involves the drilling o f two development wells inLote IX, Piura. Lote IX is anexisting field. Timeline o f EIA Activities EIA was submitted inJuly 2005.N o further information onthe status of the EIA i s provided on the MEMwebsite. Screening Regulations o fthe Ministryo f Energy and Mines, Environmental Issues, Energy required an EIA. Scoping There is no indication inthe EIA document that scoping was conducted. EIA Preparation The EIA was preparedby ECOLAB SRL, Lima, Peru. N o information is available on EIA cost. EIA approach, for the most part, consistentwith World Bank standards and involvedthe following: project description, EIA Content description o f natural andhumanenvironment, impact evaluation usingamatrix approachandpreparation ofan environmental management plan. No analysis o f cumulative or regional effects. N o formal alternatives analysis, including impact evaluation presented. Analysis of Alternatives An analysis of alternativesconsistentwith therequirements ofO.P. 4.01 environmental assessmentwas not done. Environmental: impacts to air quality andnoise associated with drilling activities; impacts on soil quality from construction, spills andimproper disposal ofdrilling waste; loss of vegetation and landscape alteration; and disturbance to wildlife due to noise and air Major Impacts quality impacts. Socioeconomic: visual impacts o f drillingrig, potential impacts on health due to operations and improper waste disposal, and risk of accidents due to increased traffic. No archaeological resources were encountered. N o information i s available on the MEMwebsite regarding a ~~ EIA Evaluation andDecision decision on the EIA. Monitoring of air quality, water quality inrunoff, andnoise will be Mitigation and Monitoring conducted. The environmentalmanagement plan outlines typical best management practicesto minimize the impacts o f drilling activities. EIA Follow-up and Compliance No information on follow-up and compliance provided.According to established practice, OSINERG will be responsible. EIA Cost No information i s provided on EIA costs. The status o f public consultation efforts is not clear. The EIA refers Public Participation to participatory workshops, butthe MEMwebsite does not provide the respective annex with the EM. 188 EIA Component Analysis _ _ _. - activities, with the most effort expended on analyzing baseline information. Suggestedimprovements to the EIA process include: A stand-alone alternatives analysis should havebeen completed compliant with O.P.4.01 requirements. EIA Improvements and The EIA provides an extensive qualitative evaluation o f Recommendationsfor Follow-up project impacts usinga matrix approach, but project impacts should have been quantified as much as possible. The EMPwas conceptual innature, andmore details should havebeen provided. Cumulative effects should have been addressed. Based on the information provided inthe EIA, public participation does not appear to be adequate. 189 Table 8.7. Analysis of Case StudiesComparedto BestInternationalEIA Practice EIA Component Antamina Chilca Lote 64 Was EIA scoping conducted? Partial No No Was public participation involved InEIA scoping? Low No No Was EIA screening conducted? Yes Yes Yes Was an analysis o f alternatives conducted? Partial No No Was baseline data sufficient for predictiono f environmental impacts? Partial Yes Yes Were data gaps identified? No No No Was a quantitative evaluation o f project impacts conducted? 3 No No Was consideration given to the assessment o f cumulative effects or indirect project impacts? Yes Yes Yes Was an environmental management plan developed based on assessedproject impacts? Yes Yes Yes Was there implementation o fthe environmental management plan and development o f an Yes Partial No environmental management system? Was public consultation started at the earliest stage o f the project and continued throughout the life ofthe Partial Partial No project? Was there feedback in the consultationprocess to involve project-affected stakeholders inthe EIA Partial Partial No process? Were broad public hearingsheld? Partial No No Was an EIA monitoring and follow-up program developed bythe company to assessthe effectiveness Yes Partial Partial o f environmental and social management activities? DesigningEffectiveInstruments 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, it 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 inPeru consist o f reducingthe incidence o f waterborne diseases and illnesses caused by urbanand indoor air pollution, as well as minimizing vulnerability to natural disasters. EIA cannot address these problems. It is 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 inthe EIAprocess. Coupled with these deficiencies is 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 its intended function o f being a planning tool, it is expected to perform as an instrument for the management o f environmental problems and the preservation of environmental quality. For instance, EIA has become a defacto substitute for pollution-control regulations and effective land-use planning, whereas it should form part o f the land-use 190 planning process. Incountries with established EIA systems, managing environmental problems linked to market failures is done with environmental policy instruments that differ from EIA. Indeed, managing and solving such problems is 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 of biodiversity; (iv) land-usezoning and (v) conservation o f forest, water and other natural resources. 8.48 As explained, EIA is foremost a tool for environmental planning and not for environmental regulation or environmental management. Furthermore, EL4 is a tool for identifylng potential adverse environmental impacts prior to a project's implementation and proposing measuresto mitigate a project's environmental impacts. However, its usefulnessmay very well be underminedby 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 andland-use zoning are, at best, incipient inPeru. 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 is satisfactory; consequently, environmental problems persist. Clearly, if EIA is to be used as an environmental managementtool, it will be important to develop additional instruments andregulations targeted to Peru's specific environmental problems. Inother words, it is 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 regulationby government or "command-and-control" measures; (ii)economic and market-based instruments; and (iii) approaches such as administrative other procedures, legal actions, and formal negotiation (Shchez-Triana, 1992, 1998, 2001). These mechanismsare discussedinmore detail inthe following paragraphs. Outdoor and Indoor Air Pollution 8.50 InPeru, outdoor andindoor air pollutionresults frommarket andpolicy failures. EIAis not a tool that lends itself 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 highsulfur 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 systemo f enforcement andthe monitoring o f investments are key to enhancing the effectiveness o ftax 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 hels 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 institutinga new tax. Inaddition, 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 state- ownedrefineries to shift to producingcleaner fuel. Table 8.8. FuelType byLevelof Atmospheric Emissions Coal (low sulfur) H M M L Coal (highsulfur) H H M L Fuelwood H H H H Legend: L=low emissions, H=highconcentration of atmospheric emissions, blanks indicate no atmospheric emission, PM2.5 =particulate matter, SOX= sulfur oxides, NOx = nitrogenoxides, VOC volatile organic = compounds. 8.53 Command and control measures include ambient standards, emission standards, and technology- andperformance-based standards.InPeru, 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 reducingthe sulfur content in diesel to 500 ppm in the short term and to 15 ppminthe mediumterm. Other technological standards might include requiring retrofit particle control technology for diesel vehicles, andbanningthe importation o fusedcars. 8.54 To control indoor air pollution, the Government might consider adopting a gas-pricing policy aimed at fostering the use o f compressednatural gas and liquefied petroleum gas. This 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 implementationo f subsidies for improved stoves. These subsidies would target poor families andpeople most affectedbythe adversehealthimpacts of suchpollution. Inadequate Water Supply, Sanitation, and Hygiene 8.55 Reducing the incidence o f waterborne diseases could be achieved through measures such as these: (i) reducingregulatorybarriers to the construction of water supply and sanitation projects; (ii) increasing subsidies to education campaigns for handwashing 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. 192 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 DrinkingWater Consumer Confidence Reports required by USEPA since 1999. Underthis program, all drinking-water suppliersinthe country shouldprovide households with information on the quality o f their drinking water, including specified information regarding water sources and actual and potential contamination. InPeru, the Government might consider implementing similar regulations requiringwater utilities to publicly disclose environmental- health related parameters on monthly consumer water bills such as pathogenic quality and data on morbidity andmortality associatedwithwaterborne 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-basedrecreational andtourism 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 andlimitations arisingfrom bothhumanactivity andthe environment. 8.58 In developed counties, the most frequent market-based instrument used to reduce vulnerability to natural disasters is 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 thinmarkets for insuring risk. However, a number of potential risk-transfer mechanisms could be considered for Peru: catastrophe insurance or bonds, access to an internationalinsurance fund (such as that proposed by the UnitedNational Framework Conventionon 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 of deforestation and degradation of Peru's ecosystems. InPeru, manymarkets simply do not exist for many environmental services. Very high transaction costs, for instance, prevent the development of 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 rarelytranslate into private ones. Another example o f a market failure is the situation where private property rights are ill-defined or unprotected. Ths providesthe opportunity for overexploitationofnaturalresourcesandbiodiversity, because it is difficult to assess and distribute the costs and benefits of 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 consideredby 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 its 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 of approximately 9 million hectares. Consideration should be given to creating a secondary market, where forest concessions could be traded. This would attract private investment, forge alliances with internationalbuyers focusing on certified markets, and strengthenconcessionaires' capacity to become part o f a chain of production, andhence 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 of environmental agencies has been restricted to few activities, namely mining, energy, fishmeal, tanneries, breweries, cement, and pulp and paper. Effluent standards are the instruments inplace for water-pollution control. Typically, parameters for which limits (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 andindustry. 8.62 Efforts to regulate water pollution have been few and isolated, with mining and tanneries beingthe only sectors that regulate substances such as lead, copper, arsenic, cyanide, and chromium that have potentially adverse health impacts. Insome 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. Inthis case, appropriate options for mitigating pollution could include increasing the taxes on polluting inputs, suchas cyanide andmercury, that areusedingoldmining. Solid WasteDisposal 8.63 Inadequate waste disposal is 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 of municipal solid waste generated, less than 20 percent i s disposed o f in sanitary landfills, while 65 percent is placed in unsafe open dumpsites, in rivers and on beaches. The remaining 15 percent is 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 waste- management services and lack o f landfills, which has contributed to the proliferation o f unsafe disposal methods and sites. Only eight sanitary landfills, most inthe province o f Lima, operate in Peru. Typically, the most highlypopulated, 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 of two times per week; final disposal coverage is 42 percent; recycling i s 12 percent and coverage for other disposal services (to beaches and rivers) is 46 percent. An explanatory variable in the existing situation with collection and final disposal o f municipal solid waste in Peru is the lack o f precise regulations addressing the technical aspects of design and construction of waste-disposal facilities, typically landfills. Decree No. 057 o f 2004 provides regulations to implementthe General Solid Waste Law No. 27314 of 2002. However, the decree does not provide specific regulations in sufficient detail to ensure that landfills are adequately designed. 194 8.64 Undoubtedly, there is 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 neededregulations should provide techcal 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. It 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, andtanneries (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 is 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. It was reported that only 2 percent o f hazardous wastes receive any treatment or reach a secure disposal facility (Price, 2005). 8.66 GoP is preparingregulations 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 non- hazardous 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 usingsanctions for noncompliance by the officers inthose positions. Clearly, inPeru, hazardouswastemanagementis beyondtherealmofEIA. 8.67 Policy failure i s also one o f the main causes of hazardous-waste pollution. Explicit subsidiesfavor wasteful hazardous-wasteprecursors, or overuse of suchprecursors, 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 is not possible to achleve far-reaching improvements in environmental quality outcomes. In effect, in addition to EIA, Peru needs specific regulations and instrumentsthat address, among other aspects, appropriate pricing o f precursors of pollution and environmental degradation, and appropriate pricing of natural resources such as water. 195 Water Resources Management 8.68 Inthe water sector, an example of a policy failure is water subsidies that encourage inefficient water distribution and overconsumption by those with first access, while depriving the "tail-enders". InPeru, the MinistryofAgriculture sets water fees inirrigationschemes. Fees are pricedfar 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 low cost, together with low collection rates o f water tariffs, water is wasted and used inefficiently. Government interventions that subsidize irrigation districts' operation and maintenance costs contribute to environmental problems such as soil salinization inthe northern Pacific basin valleys o fPeru. In this context, EIA may prove useless intrying 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, andimprovedcollection ofwater tariffs. 8.69 The restrictions o f the 1969 law were only partially addressed in 1989 and 1990 legislation, andthe inalienable "right to water" continues to be apowerful impedimentto the use o fwater charges. To promote more efficient use o f water resourcesandassociatedland uses, the Government could revise the 1969, 1989, and 1990 Water Laws to authorize higher, broad- based fees for water use. Regulatory reforms allowing for water pricingwhere it does not yet exist, and for higher charges where it does exist, will help address massive water-use inefficiencies in the Coastal valleys, and will 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 land- management patterns that result, can be expected to address soil salinization through less overuse, especially for rice. Moreover, funds canbe generatedto investinmaintainingirrigation 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 is regulated by general permits that specify seasonal, but not volume, limits on a fishery. This policy creates an incentive to catch the maximum volume o f fish inthe shortest time possible. As a result, the fleet has become over- dimensioned 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 non- sustainable 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 of 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 andthe industry is more efficient. In Peru, tradable fishing quotas could be far more effective inpromoting the sustainability o f fishstock, andmitigating pollutionofwater bodies fromactivities inthe fishery industry. Sectoral Environmental Management 8.72 EIA is foremost a tool for environmental planningandnot for environmentalregulation or environmental regulation. Consequently, alternative environmental policy instruments should be considered for addressing the consequences o f policy failure in infrastructure construction 196 and maintenance that are evident inweak environmental planning and management. A case in point is 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 potentialurbanandregional development activities inducedbyhighway construction. Conclusionsand Recommendations 8.73 EIA is Peru's main tool for environmental planning. However, its effectiveness is undermined by the lack o f a uniform perspective, among governmental authorities, o f its purpose. Specifically, there exists an ambiguity among government authorities as to whether EIA's purpose is environmental planningor environmental management. T h ~ ambiguityhas led s to a situation in which neither environmental planning nor environmental management is satisfactory. As a result, environmental problems persist. There i s a clear need for the Government to clarify the purpose o f EIA. To make EIA an effective planningtool, it is crucial to recognize the need to strengthen screening and scoping procedures and to improve mechanisms for allowing representative public participation, includingindigenous communities. 8.74 The existing inconsistency in the approach, content, timing, and requirements of the legal and regulatoryprocess for EIA inPeru creates a lack o f standardization and uniformity in the project-planningand approval process. Inresponse, CONAM is 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'Seffectiveness, it is suggestedthat, 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 is currently used primarily for administrative purposes rather than for mitigating complex environmental and social issues, there is 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. This service should have a cost for the project proponent. Important projects that involve significant biodiversity issuesor protected areas mightbe 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. This 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 197 technical standards, enforcement capacity, and quality-control systems. CONAM 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 suchas 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 environmentalapprovals, which presently is only a token amount except for the Ministryo 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 of 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 andprocesses 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 inPeru couldbe developed to includethe following characteristics: Timing o fpublic consultation procedures from the onset o f the project through approval and implementation 0 Procedures for incorporatingthe results o f public consultation into the decision-making process 0 Consistent disclosure processes for information dissemination and accessibility (e.g., location andlanguage) for all stakeholders, including indigenous peoples Feedback o fthe 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 incentralized locations rather than inproject-affected areas. 8.80 IfEIAis to beusedas anenvironmental managementtool, it is important to recognize the EIA's limitations for this purpose, particularly where market andpolicy 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 andaligned with the country context and conditions; such measures include environmental standards for air pollution, PM2.5, and qualitystandardsfor drinkingwater. 198 CHAPTER 9 OPPORTUNITIESAND CHALLENGES FOR EFFECTIVE ENVIRONMENTALMANAGEMENT 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. Theseoptions include (i) implementing apriority-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 planningandmanagement. Amongthese efforts, the GoP has donethe 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 of the Council o f Ministers; (iii) developed sectoral- based environmental units in the Ministries of 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, andpublicparticipation. 9.2 The organizational structure in place for natural resources management and environmental protection has been effective in establishing a system of natural protected areas, encompassingmore than 12% o f Peru's territory and lowering deforestation rates incomparison to neighboringcountries (INRENA 2005). There has also beensignificant progress inwatershed management. 9.3 However, as discussedinthis 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 `OsThis chapter was preparedby Emesto Sinchez-Triana,William Reubenand CarolinaUrmtia. This chapter draws on background documents preparedby Manuel Glave and Rosa Morales (2006), Nelson Shack (2006) and Manuel Pulgar-Vidal(2006). 199 negative impacts o f environmental degradation on economic growth and social development, environmental planninghasnot 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 resourcesmanagement, as well as those incharge o f managing natural protected areas. Section sevenprovidesrecommendations. Planningand Priority Setting 9.5 The Peruvian system for environmental planning andenvironmentalpriority 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.'@' 9.6 Peru's historical levels of environmental expenditure are inadequate to respond to the country's environmental priorities. Between 1999 and 2005, annual environmental expenditure has averagedUS$85.39 million, an amount that represents 0.01% o f GDP (Shack, 2006). Thus, resources allocated for environmental protectionrepresent a small fraction o f the estimated costs o f environmental degradation, whch 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 is also low by international standards, particularly when compared to OECD countries, which typically spendbetween 0.05% and 0.07% of 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 nationalpublic 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 causedby the El Nifio phenomenon explain the former, while the latter shows a shift in the government's preferences to enhance the conservation agenda."' IO9According to CONAM, "the fluctuations, generally reductions, o f the amount o fresources that the State invests in the environmental sector are not the result o fproblems with the identification o fpriority environmental problems[. ..] Every two years, with the participation o f sectoral environmental authorities, a process is undertaken to update the National Environmental Agenda (Agenda Ambienfal Nacional), which is the basic document for planning the actions to be carried out by the organizations that integrate the SNGA. The problem is 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 on development, particularly as a result o f the actions o f those interested in fostering productive, commercial, andor subsistence activities withprofound environmental impacts." ( Bemal, 2006; p. 10) `I' According to CONAM, "it is important to indicatethat the investment levels [...] show a clear difference o f orders o f magnitude betweenthe amount investedinthe areas o fwater resource management and sanitation andthose 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 200 Figure 9.1. Evolution of NationalEnvironmental Expenditures inPeru 7.00% 400.000.000 5.00X 350,000,000 5.00% 300,000.000 Environmentalexpenditures as 250,000,000 a percentage of the total non- 4.00% finantial nationalpublic 200,000,000 expenditures +Total environmental 3 00% expenditures (in noninal US$) 150,000,000 2.00% 100,000,000 I .OO% 50,000,000 0.00% 0 1999 2000 2001 2002 2003 2004 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 of GDP also increased.Thus, observeddecreases ingovernmental environmental expenditure, both in monetary terms and as a percentage of total governmental spending, seem to indicate a relative loss o f importance o f environmental degradation and the unsustainable use of natural resourcesrelative to other social concerns. 9.9 Analysis of national government expenditures found that priority environmental problems such as control o f outdoor and indoor air pollution and of lead exposure, and reduction of 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) 201 Figure 9.2. Evolutionof PeruvianEnvironmentalSpendingfrom 1999to 2004 --tWaterResourcesManagement 4- Water Pollution Control Sanitation Air PollutionControl +Natural Disasters. Emergency Response and Relief -+- Soil Degradation Prevention & Control (Erosion & Salinization Control) i- Forestry ResourcesManagement (Deforestation Control) -Fishing ResourcesManagement (Overfishing Control) Waste Management ~ Rural Land Use UrbanEnvironmental Problems General Environmental Geographic Planning Biodiversity Protection Control o f Substances Reducing the Ozone Layer Climate Change Adaptation and Mitigation 202 9.10 There i s a strilungdivergence between the issues perceived as a priority by 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 in2004 confirmed these findings by identifyingair pollution as the mainpriority for the Lima-Calla0 area's population (GEA, 2004). Figure 9.3. Rate of Growth of Selected National Environmental Expenditures from 1999to 2004 I 100% 80% 60% 40% 20% 0% -20% -40% -60% Source: Shack (2006) 9.11 Several characteristics o f Peru's planningand decision-malung mechanism contributed to the observed dwonnect inpriority setting. The first o f these is the lack o f analytical work to support governmental decision making. This 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 is a formal mechanism for allocating financial andhumanresources according to key environmental priorities linked to poverty alleviation and social priorities. Besides increasing the effectiveness of environmental policies and management for poverty alleviation, the incorporation of these three elements would allow increased accountability in decision makmgand inpolicy design andimplementation. 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 is more effective and resource allocation that is more balanced (Table 9.2). This may be becauseallocating these diverse responsibilities to a single agencymay leadto unequal attention -and unequal budget allocation-to priority environmental problems. Studies conducted in different countries (World Bank, 2005a, 2006) indicate that international assistance is 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. 203 9.13 Another reason for specialized agencies to attend to biodiversity conservation, natural resourcemanagement, environmental healthprotection, 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 resourcemanagement depend on cooperation between agricultural and environmental sectors. 9.14 Institutional arrangementsdocumented as successful, such as inthe UnitedStates, 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. InstitutionalArrangements for EnvironmentalManagementin peru,lll,llZ,l13 2006 ;ency E z 3 I i; I Design o fnational environmental policy Responsibility I J I Enfomcment ofenvironmentalpolicies I I Coordination of national environmental I J Enforcemento fpollution control I measures l J 1 J J I J I managcmsnt. Allocatioii of watcr righffi J I J I J I EIA I Reduction of vulnerability to natural I disasters Conservation and protectedareas * According to CONAM, "The design of the National Environmental Policy and its coordination are exclusively the responsibility of CONAM and the PCM, not o f the sectors, which are responsible for the promulgation and verification ofcompliance withthe specific sector regulations." (Bernal, 2006; p. 9) According to CONAM, "INRENA is the entity that is responsible for the National System of Natural Protected Areas (SistemaNacional deAreas Naturales Protegidaspor el Estado- SINANPE)." (Bemal, 2006; p. 9) `I3According to CONAM, "INRENA shares responsibilities for biodiversity management in Peru with CONAM, which is the National Focal Point of the Convention o fBiological Diversity and with the Production Sector (through the Peruvian Sea Institute) in the area of hydrobiologic resources (fish, mollusks, crustaceans, algae, etc.)" (Bemal, 2006; p. 8) 204 Table9.2. InstitutionalArrangementsfor the EnvironmentalSector inBangladesh, Coiombia,HongKong, Mexico, andthe UnitedStates Institutions* Mexico IHongKong I Colombia I I U S A U S A Colombia U S A U S A Mexico USA Hong Colombia U S A HongKong Kong* * U S A Hong Colombia Hong Kong Kong** USA Mexico Colombia I I Mexico USA ***Practicesdocumentedas successful are h hlighted inbold. Although the Hong Kong Agriculture, sheries, and Conservation Department is under the Secretary for Health, Welfare, and Food, it is also responsible to 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 of 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 plannedactivities, 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 indifferent categoriesandtheir expectedincreasefor the nextyear. Thisbudgetingsystemleads 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 of environmental resources in part reflects differences in the negotiation capacities of Congress and MEF and the different environmental agencies and stakeholders such as DIGESA and INRENAandN o sthat represent other interests. 205 9.16 Nevertheless, other plausible explanations for the way in which resources have been allocated include the lack o freliable andcomplete 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 performtheir functions in a sustainable manner. Major problems associatedwith 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 Capacityof the EnvironmentalAgencies 9.17 Capacities for human resource management vary from agency to agency. INRENA has highly qualified personnel. The large number of 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 decreasedbecause o f the downsizing o f the public sector (Hanrahan et al., 1995;Figueroa, et al., 1996; World Bank2000,2005d).i15 Table 9.3. InstitutionalCapacity: Budget and Staff, 2006 CONAM INRENA" DIGESA Budget $13,197,290 $90,029,671 $16,000,000 Stafftotal 91 196 109 Officials 17 68 6 Professionals 29 58 39 Technical 32 60 34 Auxiliary 13 10 30 9.18 Environmental agencies face two main problems regarding fmancial sustainability. Some agencies lack the minimum funding to perform their hctions 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 (partidapresupuestaria) to ensure the fundingoftheir operations. National regulations mandate that GESTAs be funded on ~~ Several officials of environmental agencies have expressed concern about the wave of early retirement o f the most expenencedpersonnel s t e m n g from the downsizing o fthe public sector. 'I5 forthcoming A IADB analysis of enwonmental agencies' human capacities should detail the different agencies' opportunibes and challenges inhumanresource management 206 an annual basis. However, in practice, the GESTAs have not been successful in securing funding for program to control air pollutionand currently lack accessto any source offunding. Ths situation is causing the capacity and motivation of GESTA's members to deteriorate, as evidenced bythe fact that the most successful GESTA functioning inArequipa 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 encouragescompetent agenciesto concentratetheir efforts on responding to disastersrather than on trying to prevent disasters or minimize the impacts o fnon-preventable disasters. 9.20 In the late 199Os, environmental and natural resource projects (or environmental components o f projects) funded by nonrenewable international cooperation amounted to an estimated US$411 million. These funds supported 211 environmental projects, while concessional loans supported 10 additional projects, totaling US$735 million (Guinand and Chavez, 1997). Fundingby 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 of multilateral aid in 2005 were the World Bank, IADB,EU, WFP, UNDP, ITTO, FAO, andGEF. The GoP identified as a major problemwith external fkding its 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 needto be strengthened. Figure9.4. DonationsandTransfersbyEnvironmentalCategory Sanitation Control of .5% whqtanrw 1.9% Biodiversi y -i 0.2% Protection 67.4% Source: Shack (2006) I16Arequipa's GESTA-Air receives support from the Swiss Agency for Development and Cooperation (COSUDE). Guinand and Chavez (1997) show that recent initiatives to prepareinvestment projects (e.g., throughsector work) on the environment were never converted into loans (e.g., Institutional Environmental Strengthening 11, Mantaro Valley 11, and EnvironmentalManagement ofthe Rio Rimac Watershed11). 207 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 on 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 inter- sectoral and geographical coordination. However, the results o f these initiatives vary widely according to the complexity o f managing specific natural resources. This is the case for the Air and Water GESTAs, which were createdto involve private and public stakeholders indefining 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 2001. O f these, two have produced plans for air quality management that have been approved, and three are in various stages of the approval process. The remaining eight are still collecting the necessary data to draft plans (Glave andMorales, 2006). On the other hand, the GESTA-Water was establishedin 1999 by Presidential Decree and is divided into five working groups. Their proposals for ECA and LMPhave not yet beenapproved internally or by DIGESA and INRENA. 9.23 Major environmental issues still lack the minimumcoordination 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 affectedby these problems on CONAM's Board o f Directors. 9.24 CONAM has promotedthe 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 CAR or the environmental units within local governments are the entities responsible for GESTA implementation. In some cases, the regional government assumedthe presidency of the GESTA andthus became highlyinvolvedinimplementing action plans. However, in other cases, a lack of interest by some regional governments leads to suboptimal implementationo f actionplans.1187119 According to CONAM, "...[T]here are currently only six SERs, which cover multi-region areas: Cusco-Puno- Apurimac, 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 intheir mandate a function for enforcing environmental legislation." (Bernal, 2006; p. 10) 'I9According 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 (inthe specific case of the Pun0 Regon, there have been seven different Managers between early 2002 and mid-2006)." (Bemal, 2006; p. 10) 208 9.25 Such uncertainties, in addition to lack o f political will and accountability, have reduced the effectiveness of these decentralization initiatives. Local implementation of 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 processthat the social sectors are already experiencing. Organizational Learning 9.26 Management practices inPeru are beginningto incorporate the concept o f results-based management aimed at adopting formal mechanisms to promote organizational learning. Transparency with respectto results-basedperformance 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. This would allow corrections inprocessesof reforming and improvingtheir practices."' 9.27 Strengthening o f Peru's environmental management framework might also include systematic processeso f learning from experiencesthat can help guide actions inthe 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 of Peru, would be particularly important inthree respects: 1. Learningto adaut and adjust specific policies andinstitutions. One example of 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 andtechnology, as i s the case with understanding the causes of 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 managementmore 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 identifylngwhat works and what does not work inmonitoring and implementation. 3. Learning fiom good practices in environmental revenue generation at the local government level. An interesting issue regarding Peru's environmental management is the greater allocation of revenue for environmental management at the local levels compared to the nationallevel. According to CONAM, "One o fthe objectives o fthe National Environmental Agenda i s to define sectoral specific goals whose fulfillment or unhlfillment can be used to gauge progress in the implementation of environmental policies. Additionally, CONAM has been developing some instruments to measurethe achievementso fresults 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 conductiono f this process, which is not exempt fiom difficulties, has been one of the greater strengthsof CONAM throughout its stewardship. [. .] This process enables the Government . to reevaluateand adjust periodically its 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 it carries out and to transparently communicate achievementsand obstacles." (Bemal, 2006; p. 11) 209 Decentralization Process and Results 9.28 Several initiatives have promoted the decentralization o f environmental responsibilities in Peru. The Decentralization Law specifies the purpose of 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 of 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. EnvironmentalFunctionsDecentralizedto RegionalGovernments Sector Decentralizedfunctions Fishing Researchand information on technological services to preservethe environment. Control the application o ffishingnorms and enforcement o f sanctions for noncompliance. Mining Approve and supervise EIA and its adaptationto small and traditional mining. Controlthe application o fnorms for small andtraditional mining and enforce sanctions for noncompliance. Energy Evaluate and approve EIA for activities related to electricity on a small scale. Evaluate and approve the EIA o f gas providers. Tourism Verify the application o f norms for the preservation o f natural resources linked to tourist activities. Health Disseminate, adapt, and ensure compliance with national norms on environmental health and workplace health. Disseminate, control, and evaluate the application o f norms relatedto the management of public health services at the regional level. Identify,prioritize, andevaluate, incoordination 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 is largelydue to the inclusion o f expenditures related to solid waste management inthis category (Figure9.6). Waste-managementsystems have a positive impact on improvingthe population's living conditions, the value ofurbanreal estate, andbusiness opportunities like tourism. 210 Figure9.5. EnvironmentalExpendituresbyNational,Regional,and LocalGovernments, 1999-2004 (US$ MillioninCurrentDollars) 120 110 100 90 a0 (Qperatimo) 70 I RegionelGovl (OPe=tbnS) 60 50 (OPeraharS) NationalGovt 40 (Imesbnents) c RcgDnalGovl 30 (Invesbnents) 20 LOWlGQVt 10 0 1999 2000 2001 2002 2003 Year Source: Abugattas (2005) Accountability, Monitoring and EnforcementCapacity Accountability Mechanisms 9.30 There i s evidence o f a systemic bias inenvironmental agencies' attentionaway from the needs of 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. This bias contributes to perpetuating the historical inequality between the population's different segments. This situation contrasts with the fact that Peru, unlike many other countries in the region, has important elements in its 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 hdamental 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 is faulty andrequires 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 is 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 of 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 linkedto the en~ir0nment.l~~ According to CONAM, there is 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) 211 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 learningprocess, including pilot audits with the collaboration of international experts. In 1999, the Office of the Comptroller General performed 17 environmental audits and used this experience to publishthe Methodological Guide to Environmental Management Audits. In2002, the Office of the Comptroller General created a specific unit in charge of environmental protection and the preservation o f cultural assets (Gerencia de Medio Ambiente y Patrimonio Cultural - MAC). This unit has two responsibilities: (1) planning, organizing, implementing, and evaluating enforcement actions conducted by entities such as decentralized public institutions, decentralized agencies, andproject management units; and (2) conducting audits of environmental and cultural assets invulnerable geographic areas (e.g., watersheds). Despite this progress, it is important to recognize that the Comptroller's Office faces financial and technical limitations in fulfilling its responsibilities, forcing the agency to limit its role to highly critical areas. 9.33 Public accountability is dilutedby agencies' lack o f clear responsibilitiesand capacities to hold environmental institutions responsible and by the implementation o f environmental policy. Likewise, accountability on environmental issues between the state and citizens is hamperedby the lack of apparent channels for citizens to voice their concerns and complaints regardingthe protectionoftheir 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 andpublic institutions relatedto the environment have their own portals, which provide timely and useful information. The policies, approaches, and programs of 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 is 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 CONAM to establish and publicly disclose a "Registry o f Environmental Good Practices and Offenders." This 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 limits (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. Inaddition, the information made available through these portals usually lacks a clear indication of the environmental rights and the minimum standards that every citizen is entitled to expect from environmental services, expressedina simple and measurable way, allowing any citizen to monitor performance and to demand the fulfillment o f her or his rights. Finally, it is clear that most Peruvians lack access to the Internet or do not know how to use it to channel 212 their views andvoice. Peru's large network o f community radio stations (ANC) andlocalmedia has not beenadequately usedto 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, andrelevant 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 of 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 Fromthe demand side, the Peruvian conservation movement i s very strong andemerges 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, andthere is a strong andactive local NGO movement organized intwo 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 Indigenay Campesinadel 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 is 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 is 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 inenvironmental management and inthe 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 fNatural ProtectedAreas, andthe National HealthAnNetwork. 9.40 At the national level, CONAM has conducted six Eco-dialogues involving diverse stakeholders. These Eco-dialogues have provided important opportunities for the voicing of 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 Concertacidnpara la Lucha Contra la Pobreza, andrelevant participatory processessuch as the 213 formulation of Joint Development Plans (Planes Concertados de Desarrollo) and the Participatory Budget(Reubenand Belsky, 2006).'24 Monitoring Capacity 9.41 One major problem regardingmonitoring is the lack of reliable time series data on the state o f the environment and naturalresources. 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 inthe 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 generatedby these networks as an input to air pollution control strategies. This is 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 inequipment calibration, resultingininformation gaps. 9.42 A second major monitoring problem is the lack of a system of homogeneous, results- focused indicators o f environmental quality. Moreover, it is crucial that evaluation systems not be static but instead able to adjust to new developments inscience, 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 of 2.5 microns or less (PM2.5) appear to be the real culprits. This finding, inturn, 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 is being recognized. The government o f Lima is 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 techcal learning, but also for purposes o f democratic legitimacy and public confidence. This involves the use o fboth 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 of 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 is a major deficiency in the country's environmental institutional framework. Although the 2005 Law increases CONAM'S responsibility to enforce environmental policies, CONAM currently has no enforcement capacity. It 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 intheir respective ministrie~.'~~ lZ4According 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) 125CONAM 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) 214 9.45 Inmany 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 levy sanctions for noncompliance. Infact, the ministries have little incentive to complete this task, since CONAM andthe sectoral environmental unitshave littlenegotiatingpower withinandamong the sectors. Policy Options and Organizational Structure 9.46 As explained inprevious chapters, Peru faces several environmental challenges. These include poor outdoor air quality as a result of 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 of biodiversity. The institutional fiamework inplace has not been effective inreducing the cost o f environmental degradation associatedwith these challenges. 9.47 Analysis of the organizational structure o f Peru's environmental sector points to the need to undertake several reforms to improve its performance. There is 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. It 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 of the Council o f Ministers, MEF, CONAM, the Ministries o f Agriculture and Health, the Strategic Planning Center (CEPLAN), and representatives of 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 describedbelow. Addressing EnvironmentalHealth Problems 9.48 Study of the costs of environmental degradationin 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 buildcapacity inMEF, CONAM, the Ministryo f Energy and Mines, the Ministry o f Housing, and the Ministry o f Health for the design and implementation o fpolicies to address environmental healthproblems. 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 implementingenvironmental healthpolicies (includingthose relatedto the qualityo f drinkingwater) is urgent anda priority task. Strengthening DIGESA by increasing its 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, andto coordinate programs to control air pollutionandphaseout leadexposure. 9.50 Concurrently with strengthening DIGESA, it would be important to establish an Agency for EnvironmentalHealth (Institute de Salud Ambiental). This 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 regardingpollutants 215 that affect human health such as PM2.5, heavy metals, and hazardous wastes. It is 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 fpollutants hazardousto human health. 9.51 Designingand implementing policies for air pollutioncontrol requires a concerted effort accompanied by organizational strengthening. To tackle air pollution, it would be advisable to strengthen inter-institutional coordination on fuel pricing among CONAM and the Ministries o f Economy and Finance, and Mines and Energy. Similarly, under the leadershp o f DIGESAandCONAM, the Government could design andimplementPM2.5 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 standardsand air pollution emissions fiom mobile, stationary, anddiffuse sources. 9.52 The Ministries of Health, Housing, and CONAM could design and implement a strategy to reducethe cost of environmental degradation associated with inadequatewater supply, sanitation, and hygiene. Jointly, MEF, CONAM, andDIGESA could work together to design and implement policies aimed at reducing the burden o f waterborne diseases. The MinistryofHousingandDIGESA couldberesponsible for scaling up ongoingpilot 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 EnvironmentalHealth 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 city 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 pricingand promotion of efficient stoves, particularlyin community kitchens, couldbecomethe core of a strategy for control of indoor air pollution.The design and implementation of 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 implementinga program to promote efficient stoves at community lutchens and at the household level, the Ministries o f Energy, Health and Housing and CONAM could collaborate in establishing a technical unit to certify improved stoves marketed in the country, for bothfuel efficiency andreduced pollution. ReducingVulnerability to NaturalDisasters 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 its 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 216 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 reducingvulnerabilityto natural disasterscouldbe part of the establishment and funding of the new CEPLAN. This couldbe complementedby establishing a parallel office in the Ministry o f Housing, given the major impact o f natural disasters on housing. This approach would also help to promote policies for disaster prevention and risk assessment across the various ministries and functional areas, from development planning,to watershedmanagement, to public works projects.127 9.57 The proposed agency would have to work in close coordination with local and regionalgovernments,the CCLiR, and the Mesas de Concertacidnpara la Lucha Contra la Pobreza to make the disaster prevention plans a part of the local and regional Planes Concertados de Desarrollo. This 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 strengthentheir 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 PCM to enhance its 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 of interest, since the same agency has both regulatory andinvestment 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 secondoption 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 is responsible for addressing issues of 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 is interesting, although it could be better to create a special account in the National EnvironmentalFund (an entity similar to PROFONANPE) that is currently inoperation." (Bemal, 2006; p. 11) 127According to CONAM, "The creation of 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 of [such an] agency.. ., and those o f the National Civil Defense System. In this regard, it is necessary to indicate that the PCM is already working, in close coordination with CONAM, in the development o f actions for the incorporation o f risk management approachesinthe regional andlocalplanningprocesses." (Bernal, 2006; p. 11) 217 instruments to promote public investment in land conservation and monitoring capacity. Analytical work to be developed by the Ministryo f Agriculture could include the identification of 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 of soil degradation and the natural and social process of 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 Apculture should be given amandate-and the necessaryresources-to carry out these monitoringandevaluation tasks, which are neededparticularly for agriculture production. 9.61 Integrateandfurther decentralizewater management.Mucho fINRENA'sattention i s focused on the irrigated areas of the Coast where itjointly administers the irrigation districts with the ATDRs; ultimate authority for water storage release rests with the AACHs. INADE focuses on construction and engineering issues inthe 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 pullingwater 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 proposedbill, water managementwill requirean institutionalsetup that conveniently addresses the directive to decentralize management of water resources and the needto encourage managementof river basins and irrigationdistrictsby localcouncils 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 of stakeholders. Thus, it 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 awarenessabout water challenges.Itwould also have to involve citizens and civil society organizations indemand-sidemanagement. 9.63 Providegreater autonomy in the administration of natural protected areas. Peruis one of Latin America's most successful countries with respect to the creation o fprotected areas, and PROFONANPE is 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 its own financial resources, includingthe development o f fees for access to protected areas and the establishment o f a concession systemfor park and service management. 9.64 Establish co-management programs. To effectively decentralize protected areas, co- management programs might be established to fully integrate indigenous communities into the management o f protected areas, particularly in the Amazon Region. In areas with little 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 218 by the Ministries of Agriculture and Social Development or regional and provincial governments. These could include rural development programs in buffer areas, sustainable productive projects as permittedwithin other areas o f the park, and other activities designed to increasethe positive benefit accruing to local economies from the presenceo fprotected areas. 9.65 Strengthen fisheries resource management. Fisheries resource management in Peru still has an incomplete legal andinstitutional framework. Inspite of significant achievements by DYNAMO 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 restructuringthe sector's legal and regulatory framework by closing loopholes and eliminating exceptions inexisting laws andregulations. Recommendations for Institutional Strengthening 9.66 Although Peru has made progress in its environmental management framework, many challenges remain. l h s section suggestsways 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. SettingEnvironmental 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> Criteriafor Setting the impacts of environmental degradation on the 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 onthe poorandmostvulnerable (d) a cost-benefit analysis of environmental groups The most urgentneedsas perceivedby measures. Satisfactory implementation o f this the population mechanism requires a dual strategy that includes Environmentaldegradation's major influence in political processes and technical risks and coststo the overall society capacity that involves the establishment o f a strong Environmental measures' cost-benefit working alliance between MEF and CONAM. ratio Creating a group within MEF to conduct, in close collaboration with CONAM, analytical work to identifypriorities would provide analytically sound foundations for environmental priorities across sectors and budget allocation in response to those priorities. Onthe other hand, CONAM would benefit from this influence and focus on the coordinationo f environmental policy design and implementationamong the sectors. 9.68 Strengthen CONAM's consensus-building role. To incorporate the population's perceptions regarding the most urgent environmental issues, CONAM 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 CONAM with negotiating tools 219 before Congress, donors, and other stakeholders. For additional effectiveness, this process would benefit from the private sector's and civil 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 its close coordination with INEI and Peru's relatively strong academic institutions and think tanks to generate, collect, and disseminate environmental information-should be supported. It is necessary to strengthen SINIA's equipment and the skill o f its staffing to enable it to hlfillits 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 its requests for information. This authority i s generally built up through technical assistance and a set o f incentives that CONAM could provide to responsive agencies. An example worth examining i s the Instituto Nacional de Ecologia (INE) in Mexico. INE is 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. It operates in close coordination with private and public institutions, and it has significant credibility inthe private sector andamong national andinternationalstakeholders. 9.70 Information disclosure. It is crucial that a more systematic effort be made to raise awareness of 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 of 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 andplacing environmental issues on the national agenda. Mechanisms to disseminate information in a manner that is easily interpretable can allow communities to serve as informalregulators; suchmechanisms also promote accountability on the part of those beingregulated (World Bank,2005b) 9.71 Strengthen regional monitoring and priority setting. To address environmental issues at the regional level, each region should be responsible for incorporating its specific priorities into the national environmental agenda. The lack o f accountability for identifying these priorities leads to top-down priority settingand lack o f representation. For instance, on the country's Pacific Coast, current major environmental priorities (other thanthe 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 highlandcolonists, represents the "next frontier" and, in the absence of safeguards, this influx places forest andbiodiversity resourcesat risk. 9.72 Create the capacity to evaluate results and impacts and learn from experience. All the institutions inPeru's environmental systemwould benefit fromincorporatingthe evaluation o f results and impacts into their management routine. Without the capacity to evaluate, these entities will not be able to learn and buildininstitutional change. To achieve ths, 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 CONAM 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, researchinstitutions, anduniversities. 220 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 andhave been decreasing in absolute and relative terms since 2000. In absolute terms, they decreased from Soles 964 million to Soles 558 million; and inper capita terms from Soles .37 in2000 to Soles .20 in2004 (Shack, 2006). Therefore, the effectiveness o f environmental expenditures will 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 inplace. Therefore, it is suggestedthat CONAM, with the support of 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 PolicyNo 19 o f the National Agreement andthe 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 of 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 includekey environmentalaspectsinthe agendas of the Joint Development Plans (Planes ConcertadosdeDesarrollo) andthe Participatory Budget. The Poverty ReductionRoundtables (Mesasde Concertacidnpara la Lucha Contra la Pobreza) and the more recently established Regional and Local Coordination Councils could play a pivotalrole inthese regional andlocalprocesses.'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 MEFand CONAM to identify expenditure gaps and biases and propose corrective measures. It i s important to note that, for environmental expenditures to be adequately monitored, CONAM should be responsible for defining the expenditures that are eligible inthis category. 9.75 Improve Self-Financing of Environmental Agencies. Because current fiscal public resources are shnking, it i s important to establish incentives and mechanisms to improve the capacity o f public environmental agencies to generate their own resources. For example, inthe 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 inthe 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. This capacity also needsto be transferred to regional andlocal governments to improve their finances andproperly fundenvironmental priorities. 128 According to CONAM, "At the level of 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 andprioritized withinthe framework ofthe RegionalAgendas, as partofthe ConcertedDevelopment Plans andthe ParticipatoryBudgetsofeachofthose regions." (Bernal, 2006; p. 12) 22I StrengtheningInteragency Coordination 9.76 CONAM and MEF to play a joint coordination role. MEF and CONAM might explore new strateges for improving coordination among environmental authorities and building their management capacity. A necessary condition is 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 of 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 hlly open to the public and should be maintained and funded as a mechanism to foster coordination, learning, accountability, and transparency. MEF and CONAM could also explore new strateges for improving coordination between them and other ministries, DIGESA, INRENA and sub- national 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. It would be important for MEF to support Ecodidogo Nacional by allocatingspecific, additional budgetary resourceseachtime 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 is the signing o f results- based agreements with national agencies and sub-national governments. MEF and the leading sectoral agency4ONAM 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 budgetcycle 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 tiedto efforts requiringenvironmental units to set specific quantifiable goals in their actionplans, andto systematically monitor their progress toward those goals. Ideally, ths performance evaluation systemwould measuredirect impacts on environmental quality, such as reduction in waterborne diseases or in outdoor and indoor concentrations o f particulate matter less than2.5 microns insize (PM2.5). Fostering Decentralization 9.80 Peru has made important progress in its decentralization process. As discussed in previous sections o f this chapter, decentralization o f environmental competences i s limited and, inmost cases, itislimitedto theregionallevel. CONAM stated, "Ecodihlogo is a meeting that is held biannually with the goal of discussing emerging environmentalissues and, more specifically, (a) informingabout fulfillment of the EnvironmentalAgenda agreed to inthepreviousbiannualperiod,and(b) disclosingto thepublictheNationalEnvironmentalAgendafor the following biannualperiod" (Bemal, 2006; p. 12). 222 9.81 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 standardssuch as biochemical oxygen demand, total suspendedsolids, phosphorous, potassium, andtotal dissolved solids. Enforcement ofwildlife, forestry, andwaste management regulations, as well as forestry concessions, could also be considered among the responsibilities to decentralize. 9.82 Defininga decentralizationscheme. It is important that, inclose coordinationwith the National Decentralization Council andregional governments, CONAM andother environmental agencies define a decentralization scheme for the environmental hctions that are set for decentralization. This 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. It is 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 (Comitdsde Vigilancia Ciudadana). PromotingEnforcement and Accountability 9.83 Enforcement mechanisms should be strengthened. One o f the major limitations in the existing institutional framework is the lack of clarity regarding the enforcement of environmental laws and regulations, particularly regarding transparency in the environmental planning and management process. As of 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 of 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 hctioning OSINERG (as proposed by the Minister o f Energyand Mines). The Ministryo 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 cost- effe~tive.'~' 9.84 A centralizedenvironmentalregulatory body. Lessons from international experience suggestthat it wouldbe advisable to createa centralized environmental regulatorybody, 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 byproviding efficient, neutral, and unbiased enforcement while eliminating potential conflicts o f interest within sectors. This 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 its responsibilities on I 3 OAccording to CONAM, "... [A]centralized environmental regulatory body (Procurudunu Ambientul)...should necessarilybe linked to the NationalEnvironmentalAuthority" (Bemal, 2006; p. 9). 223 environmental priority problems, namelythose associatedwith environmentalhealth issues such as outdoor and indoor air pollution, and hazardouswaste 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 andperformance o f environmental agencies. However, due to financial and technical constraints, the unit limits itself to strategic interventions in critical areas. This unit has a great potential to enhance the environmental system's accountability. Therefore, it is suggested that this unit be supported with the necessary financial and techmcal capacity to expand its 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 CONAM and civil society organizations, could put inplace a simple but effective accountability mechanism that consists o f identifjmg a simple set o f standards to measurethe hlfillmento f basic environmentalrights, such as the rightto clean air andwater. Usingsimple 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 findremedies 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 regardingthe extent, severity, and significance o fkey problems andenvironmentalpriorities. In the absence of public pressure, there appears to be little likelihood that the government will assign the environmental sector the priority it warrants. Likewise, it is important to have legitimate representation by the groups most affected in the design and formulation of environmental policy. It i s clear that greater public awareness needs to be fostered among decision makers and the public at large to promote a significant change inpublic policy on the environment. Examples o f ways to improve public information and promote transparency, accountability, and awareness are the publication of data on important environmental indicators (includingpollution loads, concentration of priority pollutants, and health statistics); wider use o f public forums to air development initiatives; broader and more detailed review and discussion of ENS;and other environmental managementtools. 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 inLima participate inpolicy debates. However, the capacity o f civil society to participate in monitoring policy implementation and holding environmental institutions accountable is 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 of the technical capacity of 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 suggestedfor the Ombudsperson's Ofice inthe previous section. 9.88 Creating an enablingenvironmentfor social accountability.The public sector needs to meet two conditions to create an enabling environment for social accountability: (i)the 224 production, disclosure, and dissemination of reliable, timely, and relevant information; and (ii) the establishment ofinclusive channels ofvoice. Peruhas a wide rangeofparticipatory 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. Summaryof MainInstitutionalRecommendations Responsibility Recommendation Analytical work and environmental policy design Establishment o f a small group inMEF Coordinating environmental policy design and Strengthening CONAM implementation as well as negotiating with sectors and stakeholders Enforcement o fprimary standards and Strengthening the Environmental Health Institute to environmental health regulations act as a Procuraduria Cfiscalizacibn,vigilanciay control) Environmental Impact Assessment (EIA) for large- National Ministries with EMS certification scale projects EIA for localprojects Regions, departments, and municipalities Reduction o f vulnerability to natural disasters Separationfrom INDECIand incorporation into the Housing Ministryo f a specialized group Management o f national protected areas Strengthening and granting budgetary independence to National ProtectedAreas Department (Zntendencia) Management o f local protected areas Departments, municipalities, indigenous communities Enforcement, monitoring, and evaluation o f Regions and departments secondary standardsregulations, economic instrumentsfor water pollution control, charges, and fees. Enforcement o fwildlife, forestry, and waste Regions and departments management regulations Forestry concessions Regions and municipalities Analytical work andpolicy design for fisheries Strengthening IMARPE I sector I 225 Table9.6. InstitutionalArrangementsfor EnvironmentalManagement,2006 z Responsibility U $ I Designof nationalenvironmentalpolicy I # I Enforcementofenvironmentalpolicies I Coordination ofnational environmentalpolicy l v 4 I I I Designofpollurioncontrol masum I Enforcemento d fpollutioncontrolmeasures I I Enforcenient ofnatural resourcesmanagentair Allocationofwater rightsand forestry I Environmentalpermitting concessions I I EIA Reductionof vulncrdbihty to naturaldisasters I I Conservationand pro~ectcjarcas d 226 Table 9.7. ProposedInstitutional arrangement^'^' I II I l l I I I I I l l I II I I I Enforcement of pollution control measures I d d d d I l l I l IW Enforcement o fnatural resources management regulations t I I I I I I Enviironmmtaipcmitting d d c , I J ; , I I Reduction of 1 viilnerabilttyIO natural d G d d d d disasters II 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. It is 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. 10-11) 227 CHAPTER I O A WAY FORWARDi3' 10.1 Over the past two decades, Peruhas carried out numerous activities aimed at protecting its environment. These include restructuring its legal and regulatory frameworks, undertaking numerous policy initiatives, and expanding and strengthening its 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 spearheadedby 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; andmore recently, the enactment o f the Environment Law in October 2005. However, Peru still faces the serious challenge o f slowing andreversingenvironmental degradation. 10.2 This chapter summarizes the conclusions of the country environmental analysis (CEA) and provides recommendations to assist the Government of Peru inthe revision of 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 is needed on improving the quality o f life for the growing number o f poor people living inurban and rural areas. The goal of the recommendations presented in this chapter is to support the country's efforts to move toward more equitable and sustainable economic growth. 10.3 The analysis of the cost of environmental degradation done as part of 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 exposedto higher environmental health risks than the non-poor and lack the resources to mitigate those risks. It 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 of five bear a largepercentageof the total cost of environmental health damage. Most of these costs are borne by children from poor families, highlightingthe importance o f environmental degradation as a barrier to inequality reduction. The effects of environmental degradation associatedwith these principal causes are estimated to cost more than 3.9 percent o f GDP, mainly due to increased mortality and morbidity and decreasedproductivity. To identify alternatives aimed at abating the cost o f environmental degradation, this CEA examines institutional andpolicy issues inthe functioning o f the country's environmental management system and suggests some cost- effective 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 inColombia, an upper-middle-income country in Latin America, and several lower-middle-income countries inNorth Atiica and the Middle East show that the monetary value of increasedmorbidity and mortality typically lies below 2 percent o f GDP inthese countries. Incomparison, the value in Peruis 2.8 percent o f GDP. 13' This chapter was preparedby Emesto Sanchez-Triana and Santiago Enriquez. 228 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 solvedpromptly, and survey respondents identifiedwater and air pollution as the most pressing concerns, followed byurbanmanagemento fwastes andpublic areas. RevisitingEnvironmental Priorities for the Most Vulnerable Groups 10.6 As notedabove, a studywas conducted as part ofthe CEA to identifythe 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 in2003. As mentioned previously, the analysis shows that the most costly problems associated with environmental degradation are, indecreasingorder, inadequate water supply, sanitation, and hygiene; urbanair 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 incomparison to the former categories. 10.7 The burden of these costs falls most heavily on vulnerable groups. The poor, or low- income households, are often exposed to higher environmental risks than hgher 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 is more detrimental to the livelihoods o fthe poor than o fthe non-poor. 10.8 The impacts o f urban air pollutionrelative to income are more severe for the poor than for the non-poor. It is difficult to ascertainwhether health impacts from urbanair 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 1000people becausea 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 is possible that the age-specific death rate and/or respiratory incidence rate is higher among the poor, and these factors could result inhealth impacts beinghigher 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 onthis indicator, healthimpacts 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 inthe poor population, it is estimatedthat healthimpacts per 1,000 people are three times higher inthe poorpopulation thaninthe non-poor population. The difference is even greater whenimpacts relative to income are considered, with impacts inthe poor population estimated to be 10 times higher than for the non-poor. 10.10 The impacts of indoor air pollutionare highly concentrated among the poor. Around 10 percent o f the urbanpopulation and more than 85 percent o f the ruralpopulation 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. This share could be even higher in the plausible cases that poor households use more pollutingstoves andhave worse general health conditions. 10.11 The priorities identified by the cost analysis o f environmental degradation are roughly consistent withpublic perceptions. Water contamination and air pollution were identified as the environmental issues o f greatest concern ina 1997national survey on environmental awareness. At that time, 85 percent of survey respondents expressedthe view that environmental problems mustbe solvedpromptly (Instituto Cuanto, 1998). Ina different survey conductedin2004inthe Lima-Callao region, 80 percent o f respondents identified air pollution as the principal environmental probleminthe 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 of 5.85 billion soles. 10.13 In spite of 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 low income and education interact with lack o f access to basic services to generate a very highrisk 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 inrural areas and (d) drinking water disinfection at point-of-use. The analysis concluded that benefits would exceed the costs of each of these interventions and that, if implemented, they could reduce the cost of environmental health effects bymore than 360 million solesper 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 childrenunder age five, and chronic obstructive pulmonary disease (COPD) and lungcancer inadult females. IAP is most severe inpoor rural communities andpredominantlyaffects women and children, who spendmore time inclosed areas withhigh 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 substitutingimproved stovesfor unimproved ones inhouseholds 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 of substituting clean fuel (LPG) for improved stoves were found to be slightly smaller than the costs o f LPG at current market prices. Substitutingimproved stoves for unimprovedones inhouseholds, substitutingclean fuels for unimproved stoves and clean fuel in households, and the use o f clean fuel in community kitchens could reduce the cost of environmental healtheffects by 250 million soles per year 10.15 Urbanair pollutionis one o f the most widespread and serious problems inPeru's cities; it is 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, andlead. Both o f these 230 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 associatedwith 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 is most critical in the country's industrialcorridors, 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 inother LatinAmerican 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 fair pollutants, despite havinglarger industrial andtransportation sectors. 10.16 As part o f the preparatory work for the CEA, a study evaluated several interventions aimed at reducing urbanair pollution. These included the introduction o f low sulfur diesel; the use of 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 Environmentalhealth issues shouldbe Peru's first priority inthe short run.Based on the severity o f the healthimpacts o f environmental degradation, as well as their higher incidence in vulnerable groups, Peru should focus its 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 of solid fuels for cooking and heating, and reducing the incidence o fwaterborne diseases. 10.18 Environmental health problems could be more effectively addressedby 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 he1 quality. To deal with water contaminants that affect human health, this entity should enforce bacteriological quality, POPS,VOCs, andheavy 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 limitedrange o f activities andhave established legal limits 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 is a problem that should be urgently solved, becausewaterborne 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. It is further recommended that an autonomous Environmental Health Agency be created with responsibilities for enforcing health-related parameters. Parameters o f aesthetic, 231 ecological or productivity relevance should be regulated separately by INRENA or the proposed NationalWater Authority. NaturalDisasters 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 inone o f the planet's most seismically active areas andi s recurrently affected by the atmospheric and oceanic conditions caused by El Nifio. The most prevalent types of 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, others- notably flooding and landslides-are increasingly influencedby human activities that modify environmental conditions and create a greater predispositionto 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 ledto higher exposure to potential disasters inspecific areasthat concentratesocioeconomic activities. 10.20 Reducing vulnerability to natural disasters should constitute the GoP's second short- term priority. These events have resulted in a significant cost to the country's human and physical capital. It is estimated that more than 2 million people were affected by natural disasters during 2000-2004, at an annual cost of approximately US$325 million (Larsen and Strukova, 2006a). The poorest and most susceptible have paid the highest costs for these disasters indamages, 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 is cheap, frequently near river bottoms and on steep hllsides; the lack o f land-usecontrol inthese areas; poor quality construction; lack of basic mitigation measures; and the marginal livelihoods and limited capacity for economic resilience ofthese groups. 10.21 To address this problem, it is necessary to develop an integrated response to natural disasters that emphasizes prevention, vulnerability analysis and risk assessment. Inthis regard, the GoP should consider establishing an autonomous agency in charge o f non-structural measuresto prevent natural disasters. This new agency could function independentlyo f existing entities focusing on emergency relief and reaction. A crucial element o f the strategy would be the creation of a fund to provide incentives for local governments to advance the preparation and implementationo fpreventionplans. 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 of government, managing risks in land use and urban planning, and disseminating appropriate and safe construction technologies. NaturalResource Management Fisheries 10.22 Peru's fishing grounds are the richest in the world. Over 274 million h4T o f fish were harvested from Peruvianwaters between 1950 and 2001, with anchovies constituting over 75% o fthe total harvest duringthat period and currentlyrepresentingapproximately 10percent o fthe global annual marine catch. The importance o f the anchovies lies not only in its 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 essential to maintaining marine 232 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 secondlargest earner offoreign exchangeafter mining). 10.23 The sustainability o f Peru's fisheries is critically threatened by several factors. The overcapacity o fthe fishingfleet andthe occurrence o fEl Niiio have resultedinextreme resource volatility and overexploitation of 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 its 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 andinadequate oversight, manifested in the existence of legal loopholes and the grantingof "exceptions" that have allowed the sector's capacity to grow in spite o f existing regulations limiting such growth; (c) weak accountability and lack of transparency resulting from the influence o f a powerful lobby and the conflict of interests that stems from PRODUCE'Sdual role inenvironmental oversight andproduction; and (d) social and equity issues, including the need to develop a domestic market for direct consumption of speciesthat represent a potential protein source for the poor, and the dissipation and drain of 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 will most likely result in severe overexploitation o f fisheries and the waste of 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 inthe fishing sector; (b) establishing participatory mechanisms to involve key stakeholders in consensus buildingregarding a sustainablefisheries policy; (c) strengthening the sector's researchcapacity to support an ecosystems approach to management, including assessingthe 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 inexisting laws andregulations, as well as transferringenvironmental oversight and monitoring of environmental safeguards to an independent agency with authority to issue sanctions. Soil Degradation 10.25 Cultivable landi s a scarce commodity inPeru: 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 of the severity o f the problem. However, data from the 1970s indicated that moderate-to-severe erosion affected 18.9 million hectares inPeru, 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 is 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 still low compared to other countries where similar analyses have beendone. 233 10.26 Natural factors, includingtopographic variations and seasonal rains exacerbatedby the periodic occurrenceso fEl 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 of 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 abasis for adopting cost-effective conservation measures. WaterResources Management 10.27 Peru i s endowed with abundant water resources. It has a national average freshwater supply of almost 60,000 cubic meters per capita, a figure that is several orders of 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 inthe 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 low water efficiency of 35%. These factors have also contributed to drainage and salinizationproblems 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 nver- basinorganizations. Deforestation 10.28 With an estimated 68.74 million hectares o f natural forests covering roughly 35.5% of its 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 its forest cover o f mangroves and dry and sub-humid forests, and some 300,000 hectares of 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 andbuild 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 of as much as 70%, undervaluation of 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, includingthe lack o f recognition o f the needs o f indigenous populations, the granting of 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. 234 o f an exploitative relationship betweensmall loggers andthe timber industryand 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 transparentpublic bidding.Among the most important features o f the law are (a) requirements for sustainablemanagement 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 biddingprocess; 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 inadministrative processesthat make timelyharvestingdifficult; and inadequate monitoring o f illegal timber trade. One major factor limitingthe sector's development has been the concessionaires' general lack of 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 is 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 of comparative advantage for the development of commercial species, includingthe alpaca and vicuiia, Brazil nuts, tropical fish, the peccary (for meat and hide), orchds andmedicinalplants. 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 its 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 politicallevel. Specifically, there is a needto guaranteethe 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 it foster inter- agency coordination; the application of existingregulations andpolicies i s chronically deficient; there is limited capacity to properly managebiodiversity at the regonal and local levels; andthe country lacks a standardized monitoring systemto assess the status of, or changes in, biological diversity. To that end, the CEA recommends strengtheningthe institutional capacity o f key actors, clearly defining the roles and hctions o f CONAM, supporting national efforts to value biological diversity and environmental services, building on Peru's comparative advantage in biological diversity, andrefining coordinationmechanismsamong 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 is 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 andenforcing 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 235 assigned to users, as well as 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 fromPROFONANPE andwould be collectedthrough fees chargedfor 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. Underthis scheme, INRENAwould carry out its activities through watershed councils and be funded through stumpage fees andtaxes 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 of 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 left 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 andsocial learningmechanismswithin 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 Limits (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 of 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 freference 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 planningand approval process. Ministerial staff are largely inexperienced inEIA, 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 inthe former are legally impededfrom continuing with the latter. This 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 andresolving 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 236 regulations and institutional efforts. Specific recommendations in this area include the following: (a) Develop uniform standards and terms o f reference for EIA in Peru that are consistent with Peruvian law andinternational best practice. (b) Conduct an analysis o f the I d s between the EIA and the land-planningprocess. (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 timingo f public consultation from the project's onset through its approval andimplementation, incorporatingthe 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, andreimbursingstakeholder costs for attending consultations incentralized locations. InstitutionalAnalysis 10.37 The set of environmental and natural resource laws and regulations issued since the 1960shave givenplace to a complex and unique institutional framework for environmental and natural resourcemanagement inPeru. 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 ftheNational Systemo fEnvironmentalManagement. 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 is implemented by environmental units within sectoral ministries. To date, the Peruvian model has evidenced significant weaknesses, includingits lack o f capacity to function as an integrated system. In addition, the level of development o f environmental regulatory frameworks and institutional capacity range widely from one sector to another. Environmental planninghas not beenincorporated into the hghest policy-making level, despite the economy's evident reliance on naturalresourcesand the negative impacts of environmental degradation on economic growth and reduction of 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 andsocial circumstances. 10.39 Other institutional constraints include inadequate data on environmental quality and institutional performance; limited and uneven technical capacity inthe 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 is a weak legal and institutional framework to enforce regulations endowed with appropriate incentives and controls. This fiamework is even more fragile because o f the existence o f a scant systemo f accountability. Accountability institutions like the General Comptroller and the Ombudsperson lack the techcal and financial capacity to oversee the performance o f environmental institutions. Furthermore, gaps and potential conflicts o f interest affect reporting lines of public environmental agencies. Additionally, the absence o f timely and reliable informationflows, and of institutionalized spaces for dialogue, hampersthe ability o f civil society to provide oversight andchannelitsvoice. 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 237 heavy burden of 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 will 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. This 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 andinstitutional perfonnance could foster the capacity o f Peru's environmental system to learn from experience and could create feedback loops promoting institutional improvement andchange. 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 of 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 adoptedinthe short andmediumterm to support sustainabledevelopment 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 inthe current institutional structure to signal these changes are not yet in place. Improved monitoring and dissemination of information on environmental outcomes, assignation o f accountabilities for environmental actions and outcomes, and involvement of a broad range o f stakeholders are three important mechanisms to allow these signals to be pickedup. The report's mainrecommendations are summarized inTable 10.1. 238 Table 10.1. Main Recommendationsof the Report Designand implement a policy (through laws andregulations) to set environmentalpriorities at the national, regionaland local levels. This should be based on learning mechanisms to periodically review, and learn from, the experiences o fimplementation o fenvironmental policies. Need for strategic Install and implement systemsto monitor and evaluate environmental and systematic tools management andthe extent to which the objectives o f environmental priorities for settingpriorities are efficiently met. Periodically evaluate progress in implementingpolicies to tackle environmental priorities. This should be done with the support o fthe collection o f data, results and experiences achieved through intersectoral coordination andlearning. Establish leadershipand institutional arrangements and capacities to set priorities in environmental policy design and implementation. Align environmental expenditure with prioritiesand improve the financial sustainability of environmental agencies. Realign and streamline the institutional setup by filling ininstitutional gaps, avoiding overlaps, and creating regulatory and enforcement frameworks and Strengthening capacities. environmental Improve interagency coordination, and plan and buildcapacity to adequately institutions harnessdecentralization o f key environmental competencies. Strengthen institutional learning and buildthe necessary feedback loops to 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 feffluent standards so that pathogens, andtoxic and hazardous substances are regulated. Develop uniform standardsandterms o freference for EIA. Conduct an analysis o fthe linksbetween EIA and the land-planning process. Securethe necessaryresourcesto provide training courses and capacity Restructuring buildinginEIA. environmental Develop an EIA guide that incorporates a life-cycle approachto project assessment development with sustainability assessment considerations and long-term public engagement. Revise the current environm itoring and follow-up process and broaden enforcement respon Strengthen public participation. Introduce more rigorous approachesto testing vehicle emissions. Highcosts o f environmental degradation Control air-pollutant emissions with lead concentrations from stationary associatedwith lead sources. pollution Identify other sources o f leadpollution. 239 Establishnational ambient standards for PM2.5 and PMlO inpriority urban areas and strengthen technology-specific emission standards for P M and its precursors (particularly sulhr and nitrogen oxides). (Cost: Low) Reduce health bImplement a program to monitor air quality to keep track o f PM2.5, PMlO and risksassociated ozone inpriority urbanareas. (Cost: Modest) with ambient air Implement air pollution control interventions, including: (a) promoting pollution retrofittingo fdiesel-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 increasingclean imports o f diesel with low-sulfur content; and (d) emissions control from stationary, mobile and non-point sources. (Cost: Modest to high) Reduce health Promote handwashing programs that target childrenunder the age o f five. (Cost: risksassociated Low) with inadequate * Promote safewater programs that include disinfection o fdrinking water at point- water supply, of-use. (Cost: Low) sanitation and hygiene Promote the use o f cleaner fuels inareas that predominantly use fuelwood in an Morbidity and accessible, safe and cost-effective manner. premature deaths Implementa program to promote improved stoves. associatedwith Extend the coverage o f rural electrification programs. indoor air Include, inhousing subsidyprograms for rural low-income housing, requirements pollution for building codes and housing design inpoor communities to allow for improved ventilation and optimal chimney design. Establishthe reduction o fdisaster risk and vulnerability as a national priority. Promote disaster prevention and risk assessment through comprehensive incorporation o ftools at all levels o f government. Support disaster planning inthe context o f decentralization. Improve budgetary planning and devote greater financial resources for disaster Vulnerability to prevention and planning. natural disasters Incorporaterisk analysis inpublic investment projects. Foster greater participation indeveloping disaster plans. Establish a national framework for integratedwatershed management. Establish a policy on land-use planning. Manage risks inurban planningand development. Diffuse appropriate and safe construction technologies. Support the Bill of Water ResourcesManagement 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 policyto control water pollution. Need for Promote integrated land and water management. improved Set water fees equal to opportunity cost o f water. management o f Set water pollution fees for saline discharges. water resources Strengthen river-basin organizations. Strengthen water-users associations Strengthen inter-institutional coordination o fwater-resources management. Develop more secure infrastructure and disaster-management systems. Strengthen the decentralization process. Promote stakeholder participation. 240 Better position forest concessions for success. Improve INRENAthrough institutional strengthening. Improve mapping, zoning and forest inventories. Provide better control o f illegal logging. Support decentralization o f forest management. Promote more active participationo f stakeholders in forest management. Strengthen technical assistanceto the forestry sector. Strengthen international markets. Address landtenure andtitlingproblems inforestry concessions and surrounding areas. Strengthen participation o f indigenouspopulations. Strengthen institutional capacity o fkey actors. Increase resources (financial support andtechnical assistance) to create an adequate biodiversity monitoring system, including ago-biodiversity. BuildonPeru's `comparative advantage' inbiological diversity, includingago- Biodiversity biodiversity. conservation Speed up the process o f review and approval o f CONAM roles and functions. Strengthen GoP efforts to disseminatebiological technical knowledge and training. Support national efforts to value biological diversity and environmental services. Refine the coordination mechanismsamong donor agencies. Conduct new national inventories o f soil erosion and soil salinity. Revisethe 1969 Water Law to authorize flexible charges for water use. Soil degradation Strengthen institutional capacity to address soil degradation. Broaden responsibilities o f INADE. Conduct comprehensive feasibility analysis o f soil-conservation investments. Establishparticipatory mechanismsto involve key stakeholders inthe sector's decision making. Initiate a process inthe short runto consider options to reduce capacity and effort inthe fishingsector. Issue environmental quality standards and maximumpermissible limits Strengthen the sector's research capacity to assessthe impact o fElNiilo events on the anchoveta fishery. Initiate a system o f Marine ProtectedAreas. Rehabilitate the sector's legal andregulatory framework. Developpolicies to operate effective regionalwaste disposal sites. environmental Establish and enforce regulations to segregate and treat hazardous wastes. mana ement 241 ANNEX 1: TECHNICAL SUMMARY OF THE COST OF ENVIRONMENTAL DEGRADATION OutdoorAir Pollution andLeadExposure Particulate Matter Particulate matter (PM) is 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 is PMlO and PM2.5. Only Lima monitors PM. Annual average ambient concentrations are presented on Table Al.1 Table Al.l. Annual Average ConcentrationsofTSP andPM2.5 inLima-Calla0 (pg/m3) Source: DIGESA (2005) The total population o f other cities with more than 100thousand inhabitants i s about 4.5 million. None o f these cities has P M monitoring data. However, excluding them from estimating the healthimpacts o f urbanoutdoor air pollutionwould represent a serious omission. Therefore, annual average P M levels were assigned to these cities based on World Bank modelingo f annual average PMlO concentrations (Table A l.2).13' The riskratios or dose response coefficients from Pope et al. (2002) are likely the best available evidence o f the mortality effects of ambient particulate pollution (PM2.5) inthe 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 morethan 1million 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 estimatemortality from PM2.5 inPeru. 134DataonPMlO were not officiallypresentedby DIGESA. 13'www.worldbank.org/nipr/Atriudmapping.html.url 242 TableA1.2. PMlOEstimatesand PopulationinMajor Cities inPeru I I Average annual PMlO concentration, pg/m3 I Population, 2002 I Arequipa 96 680 Ayacucho 66 119 Cajamarca 61 119 Chiclavo 54 494 Chimbote 45 253 cuzco 77 305 Huancayo 68 322 Ica 64 206 Iauitos 40 215 Juliaca 81 190 Piura 69 .. 355 ~~~ Pucallpa 58 233 Sullana 64 191 Tacna 77 234 Trujillo 55 620 Adjusted RelativeRiskRatios (RR) Cause of Mortality 1979-1983 1999-2000 Average All-cause 1.04 1.06 1.06 Cardiopulmonary 1.06 1.08 1.09 Lungcancer 1.08 1.13 1.14 All other causes 1.01 1.01 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 lungcancer mortality are basedon Gonzales (2004) andPAHO (2002), as presentedinTable Al.4. The highrate in Centro results from the large number o f elderly inthls section o f the city. The overall estimated crude mortality rate for Lima-Calla0 is 4.0, and the cardiopulmonary and lung cancer share i s 35 percent. The data inTable Al.4 may represent an underestimate o f mortality in some sections due to underreporting. For other cities, a crude urban mortality rate of 5.5 per 1,000 was applied (Peru en numeros, 2003), along with an average cardiopulmonary andlungcancer mortality rate o f 30 percent o ftotal deaths. TableA1.4. CrudeDeathRateand CardiopulmonaryMortalityinLima-Callao I Monitoringsites 1 Este I Sur I Norte ICentro ICallaoI Cardiopulmonary (CP) andLung Cancer (LC) mortality(per 1,000 population) ,o 1.1 1.1 2.6 1.1 There is 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 CB cases from P M pollution, using a dose-response coefficient from Abbey (1995), i.e., a 0.9 percent increase inCB per 1pg/m3increase inPMlO. Other morbidityhealthendpoints considered are hospital admissions o fpatients withrespiratory problems, emergency room visits (or hospital outpatient visits), restricted activity days, lower- respiratory infections inchildren 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 expressedas casesper 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 onthe percentageofthe population that are asthmatic andon the frequency of asthmaattacks, which i s not readily available for Peru. The health effects of air pollution can be converted to disability adjusted life years (DALYs) to facilitate a comparison to health effects from other environmental risk factors. DALYsper 10thousand casesofvarious healthendpoints are presentedinTable A1.5. HealthEffect DALYslostper 10,000 cases Mortality 75,000 Chronic Bronchitis (adults) 22,000 Respiratoryhospital admissions 160 EmergencyRoom visits 45 Restrictedactivity days (adults) 3 Lower respiratoryillness inchildren 65 Respiratory symptoms(adults) 0.75 Table A1.6 presentsthe disability weights andaverage 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 USNationalInstitutes ofHealth.'36 Disabilityweights for the other morbidityendpoints arenot 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 age- ~ ~ specific CB 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 beendiscounted at 3 percent per year. Average duration o f illness for the other health endpoints is from Larsen(2004a). Mortality 1.o (7.5 years lost) LowerrespiratoryIllness-Children 0.28 10days RespiratorySymptoms-Adults 0.05 0.5 days RestrictedActivity Days-Adults 0.10 1day & 0.30 5 days Hospital Admissions 0.40 14 days* Chronic Bronchitis 0.20 20 years Table A1.7 provides the baseline data used to estimate the cost per case of illness and total cost of outdoor air pollution (PM). Some o f these data require explanation. The value o f time for adults is based on urban wages. Economists commonly apply a range of 50-100 percent o f wage rates to reflect the value o f time. The rate o f 30 soles per day is an average urbanwage inPeru. Seventy-five percent of this rate has beenapplied for both income-earning and non-income-earning individuals. There are two reasons for applying the rate to non- 13' See: httr,://www.fic.nih.gov/dcvv/weiahts.xls 13' The disabilityweight for mortalityis 1.O. 244 income-earning individuals. First, most non-income-earning adult individuals provide a household function that has a value. Second, there is an opportunity cost to the time o f non- income-earning individuals, becausethey could choosetojoin the paid labor force.'38 There is very little information about the frequency of doctor visits, emergency visits, and hospitalization for CB patients in any country in the world. Schulman et al. (2001) and Niedermanet al. (1999)provide some information on this from the UnitedStates andEurope.'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 neededfor recovery from illness. To estimatethe cost ofanewcase ofCB, the medical cost andvalue of time losseshave been discounted over a 20-year duration o f illness. An annual real increase o f two 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 are discounted at three percent per year, a rate commonly applied by WHO for healtheffects. TableA1.7. BaselineDatafor Cost Estimation I Baseline 1Source Cost Datafor All HealthEndpoints Cost o f hospitalization (soles per day) 300 Per consultationswithmedical Cost o femergency visit (soles) - urban 150 service providersand health Cost o fdoctor visit (soles) (mainly private doctors) - authorities Value o f time lost to illness (soles per day) 22.5 75% ofurbanwages inPeru Chronic Bronchitis(CB) Average duration of Illness (years) 20 Based on Shibuya et al. (2001) Percent of CB patientsbeing hospitalized per year 1.5% From Schulman et al. (2001) Average length o f hospitalization (days) 10 andNiederman et al. (1999) Average number o f doctor visits per CB patient per 1 vear Percent o f CB patientswith an emergency 15% doctorkospital outpatient visit per year Estimated lost work days (including household work 2.6 Estimated based on frequency days) per year per CB patient o f doctor visits, emergency visits and hospitalization Annual real increases ineconomic cost o f health 2% Estimate services and value oftime (real wages) Annual discount rate 3yo Applied byWHO for health effects HospitalAdmissions Average length o f hospitalization (days) 6 Estimates Average number o f days lost to illness (after 4 hospitalization) EmergencyRoomVisits Average number o f days lost to illness 2 RestrictedActivity Days Averagenumber ofdays ofillness (per 10cases) 2.5 Lower RespiratoryIllnessin Children Number of doctor visits 1 Total time of care giving by adult (days) 1 Estimated at 1-2 hours per day 13' Some may arguethat the value oftime basedonwage ratesshouldbe adjustedby the unemploymentrateto reflect the probability o fobtainingpaidwork. '39 CB is a majorcomponentof COPD, which is the focus ofthe referencedstudies. 245 Lead Exposure A significant amount of leadwas found ingasoline inPeru inthe 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 inthe air inLima 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 Al.8 presents lead concentration in Lima-Calla0 for the period 2000-2004. Although lead concentrations in the air are now quite low, health effects of lead exposure can still be quite substantial. Leadhas accumulated insoil and water, andlead exposure can come from multiple sources suchas industry,water, paint, and food. TableA1.8. Ambient Lead(Pb) ConcentrationsinLima-Callao(pg/m3) Year I Calla0 I South I North I East I Center I 2000 0.089 0.100 0.290 0.187 0.281 2001 II 0.072 II 0.116 II 0.279 II 0.170 II 0.324 II 2002 --- 0.090 0.192 0.186 --- 2003 0.193 0.184 _-- 0.242 0.214 2004 I 0.180 1 0.182 I 0.213 I 0.208 I 0.362 1 Average 0.13 0.13 0.24 0.20 0.30 Three major studies have analyzed blood lead levels (BLLs) in Peru. A study o f more than2,000 children andnearly900 women inLima-Callao was conducted in 1998 (Espinoza et al., 2003). A study o f BLLs in 360 adults inthe cities o f Lima, Huancayo, L a Oroya, and Yaupi was conducted in 1994-1995 (Ramirez et al., 1997). Inaddition, a study o f 40 children inLima 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, andit is 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 pddlinchildrenand 3.3 pddlinadults.'40 The three studies of BLL inPeru are all from urban areas. Therefore, the estimation of health effects presentedinthis report i s limited to cities with a population o f over 100 thousand inhabitants. The total population inthese cities is almost 12.5milli~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 literatureto observedlevels o f BLL.The estimatedpopulation BLLis presentedinTable A1.lO, based on adjustment o f -40 percent to BLL from Espinoza et al. (2003) to reflect declining Pb air pollution, a low and hgh standard deviation, and a lognormal distribution o f BLL.'42The low andhighcases correspond to the low andhighstandarddeviation. 140Samples from some highly contaminated areas are not included for calculation o f average BLLinorder to provide a more representative picture o fthe urbanpopulation. 14' The estimated health effects of particulate matter (PM) are also limited to these cities. This makes it possible to compare the cost o flead and particulate pollution. 14* A low and high standard deviation was estimated based on the standard deviation reported in Espinoza et al. 246 Table A1.9. BloodLeadLevelsinChildrenandWomen inLima-Callao in 1998 Sample Size Average BLL (pg/dl) Sample StandardDeviation Children 40 5.29 6.94 44 5.54 2.89 60 10.54 7.43 72 5.80 2.89 75 7.54 4.26 84 5.91 1.82 103 6.24 2.56 119 6.64 2.66 138 9.39 3.89 166 8.68 4.44 185 6.72 4.27 200 6.37 4.14 206 6.64 6.99 213 8.44 5.56 203 3.77 2.03 202 4.13 2.85 Table A1.10 EstimatedPopulationwith ElevatedBloodLeadLevels Total Age groups Low Case population* 0 to 4 5 to 14 15+ Population(1,000s) 12,500 1,250 2,561 8,689 %inthis age group 100% 10% 20% 70% MeanBLL 4.3 4.3 2.0 Standarddeviation 2.48 2.48 1.33 Potwlationshare with BLL 5-1 0 uddl 0.26 0.26 0.00 Populationsharewith BLL 10-15 pddl 0.09 0.09 0.00 Populationshare with BLL 15-20 pgldl 0.04 0.04 0.00 Population share with BLL 270 pgldl 0.001 0.001 Population share with BLL 180 pgldl 0.001 0.001 TOTAL PoDulationshare with BLL >5 uddl 0.44 0.44 0.00 (2003) and the adjustmentinBLLto reflect lower Pb air pollution now than at the time of the Espinoza et al. study in 1998. 247 Age groups High Case Oto4 I 5to14 I 15+ I Population(1,000s) 12,500 1,250 2,561 8,689 % inthis age group 100% 10% 20% 70% MeanBLL 4.3 4.3 2.0 Standard deviation 4.06 4.06 2.17 Pomlation share with BLL 5-10 uddl 0.18 0.18 0.10 Populationshare with BLL 10-15 pgldl 0.09 0.09 0.01 Populationshare with BLL 15-20 addl 0.05 0.05 0.00 Populationshare with BLL > 20 pgldl 0.14 0.14 0.00 Populationshare with BLL 160pgldl 0.03 0.03 0.00 Populationshare with BLL 270 pgldl 0.02 0.02 0.00 Populationsharewith BLL 280 addl 0.02 0.02 0.00 TOTAL Populationsharewith BLL>5 pg/dl 0.46 0.46 0.11 With the population BLLs in Table A1.lo, reduced intelligence in children is 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 pgldlBLL 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 of about 3.5 IQ points for BLL > 20 ~ g / d l ) . 'For ~ ~ some children, an IQ loss will cause mild mentalretardation (MMR), occurring at an I Q o f 50-70 points. Thus, children with an IQ 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 IQ inthe population, it is 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). FigureAl.l. MildMentalRetardation(MMR)from LeadInducedIQ Loss ISource: Fewtrellet al. (2003) Table Al.ll. Children at RiskofMMR IQ Interval Percentof Children inIQ Interval I(1): 70-70.65 0.24% I(2): 70-71.95 0.80% I(3): 70-73.25 1.45% I(4): 70-73.50 1.59% 143 Fewtrell et al. (2003) apply a linear relationship through the midpoint of each 5 pg/di BLL interval, with a maximumloss of3.5 IQ points. 248 *IQ(i)*P/5 i=l where Pi is 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 IQ (1) to 3.5 points for IQ(4), andP is the population o f children underthe age of five years.'44 The number o f children developing MMR each year from lead exposure is estimated as follows: ;=A * I ( i ) * A / 5 i=l where Pi is the population share o f children with an IQ loss o f IQ(i) per child, I(i)percent o f i s children inIQ interval i=l,. ..,4 inTable Al.ll, andA is a regional adjustment factor of 2.6 for the WHO regionofAMRO Dto which Perube10ngs.I~~ Water, Sanitation,andHygiene Table A2.1 presents key data that were usedto 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 is 0.119 for chldren under five and 0.086 for the rest of the population, andthe duration o f illness is assumedto be the same (i.e., 3-4 days). However, the DALYsper 100,000 cases o f diarrheal illness are much higher for the population over five years o f age. This is becauseDALY 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 is based on national average wages. Economists commonly apply a range o f 50-100 percent o f average urbanandrural 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 of the average weighted wage inPeru.'47 These rates for value of 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 choosetojoin the paidlabor force.'48 144Since this reportprovidesestimatesof annual health effects, the populationof children i s dividedby 5 (see notes inTable3.2.2). 145The adjustment factor reflects regionalprevalence of diseases that inducecognitiveimpairment. Therefore, cases of MMR ftom exposureto leadare likely to behigher inthe regions with highprevalenceofthese diseases(Fewtrell et al., 2003). 14'It should be noted that some researchers elect not to use age weighting, or report DALYswith and without age weighting. 14'This correspondsto a dailyurbanaveragewagerateofabout 30 soles andruralwage rateof 20 soles. 14'Somemay arguethat the value oftimebasedonwage ratesshouldbeadjustedby the unemploymentrateto reflect theprobabilityofobtainingpaidwork. 249 Table A2.1. Datafor EstimatingHealthImpacts I-- I Data I Source Under-5 child mortality rate in2003 34 MinistryofHealth andWHO Diarrheal mortality in children under 5 years (% o f child 4.613% Ministry o f Health, mortality) GBD2002 (WHO) Total annual diarrheal mortality in childrenunder 5 940-265 0 Diarrheal 2-week prevalence inchildren under 5 years* 15.4% Peru DHS 2000 Estimated annual diarrheal cases per child under 5 years 3.2 Estimated from Peru DHS 2000 Estimatedannual diarrheal cases per person (> 5 years) 0.46-0.63 EstimatedfYoma combinationof PeruDHS2000 and Colombia I N S Hospitalization rate (%o fall diarrheal cases) -children under 0.075% MinistryofHealth 5 years Hospitalization rate (% o f all diarrheal cases) -population over 0.05% 5 years Percent of diarrheal cases attributable to inadequate water 90% WHO (2002b) supply, sanitation and hygiene DALYs per 100,000 cases o f diarrhea in children under 5 30-40 DALYs per 100,000 cases of diarrhea inpersons > 5 years 100-130 Estimated from WHO tables DALYsper case o f diarrheal mortality in children under 5 34 2004 inthis report. Diarrheal prevalenceaccordingto the DHS2004 was 15.1%, which is very similar to the prevalenceratereportedinthe DHS2000. Table A2.2. Datafor Cost EstimationofDiarrhealIllness Data Source Percent o fdiarrheal cases treated at medical facilities 38% DHS2000 (children < 5 years) and with medicines Percent o f diarrheal cases treated with ORS (children < 5 21% DHS2000 years) Percent o f diarrheal cases treated at medical facilities 27% 1 combinationof (population > 5 years) and with medicines I Estimated from a Colombiadata andPeru DHS LUUU Average cost o f doctor visits (urban and rural) - S/. 85 Per consultations with Average cost o f medicines for treatment o f diarrhea- S/. 50 pharmacies, medical service Average cost o f ORS per diarrheal case inchildren (S/.) 3 providers andhealth authorities Average duration o f diarrheal illness in days (children and 3-4 Assumption Hours per day o f caregiving per case o f diarrhea inchildren 2 Assumption Hours per day lost to illness per case o f diarrhea in adults 2 Assumption Value o ftime for adults (care givingand illadults) - 2.6 Based on urban and rural soleshour wages inPeru Hospitalization rate (% o f all diarrheal cases) - children 0.075% Based on data on intestinal under 5 years diseasehospitalization from Hospitalization rate (% o f all diarrheal cases) -population 0.05% the Ministryof Health nver 5 vears - .-- - -__- Average length o fhospitalization (days) 2 Adjusted from Larsen (2004a) Time spent on visitation(hours per day) 4 Assumption Average cost of hospitalization (soles per day) 300 Per consultations with hospitals Percent o f diarrheal cases attributable to water, sanitation 90% (WHO, 2002b) and hygiene 250 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 drinkingwater. It i s assumedthat the average daily consumption of drinkingwater per person is 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 is for electric, natural gas, andkerosene. TableA2.3 Datafor CostEstimationof BoilingofDrinkingWater Indoor Air Pollution Table A3.1 presents key data that were usedto 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 is the same for children and adults (i.e., 0.28), and the duration o f illness is assumed to be the same (i.e., 7 days). However, DALYs per 100,000 cases o f ARI is much higher for adults. This is because DALY calculations involve age weighting that attaches a low weight to young children, and a higher weight to adults, corresponding to physical andmental development stages.'49 For ARI child mortality, the number o f DALYs lost is 34. This reflects an annual discount rate o f 3 percent o f life years lost. DALYslost per case of COPD morbidity andmortality i s based on life tables and age-specific incidence of onset o f COPD reported by Shibuya et al. (2001) for the AMRO Dregion. A disability weight o f 0.2 has been applied to COPD morbidity, which is for the regiono f LatinAmerica as published by the USNational Institutes ofHealth.'" A discount rate o f 3 percent i s applied to both COPD morbidity andmortality. '49It 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 251 Table A3.1. Datafor EstimatingHealthImpacts I I Data 1 Source I Urban Rural Female COPD mortality rate (% of total 2% WHO (2002a) and Shibuya et al. female deaths) (2001) FemaleCOPD incidencerate (per 100,000) 33 ARI 2-week prevalence in children under 5 19.8% 20.6% DHS2000* years Estimatedannual cases of ARI per child under 3.4 3.6 Estimatedfrom DHS2000 5 years Estimated annual cases of ARI per adult 0.6 0.7 Estimatedfrom a combinationof female (>30 years) Columbiadata andPeruDHS2000 ARI mortalitv in childrenunder 5 years (% of 12-18% (2002a) and Ministry of child mortalify) I WHO Health, Peru ' under 5 DALYs per 100,000 cases of ARI in female 700 700 Estimatedfrom WHO tables I adults(>30) DALYs per case of ARI mortality in children 34 34 under 5 DALYs per case of COPD morbidity in adult 2.25 2.25 females DALYs per case of COPD mortality in adult 6 6 females 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: is baseline cases o f illness or mortality, i(estimated from the data inTable A3.1), and PAR i s given by: PAR= PP*(OR-l)/(PP*(OR-1)+1) (2) where PP is the percentage of population exposed to solid fuel smoke (10 percent of the urban and87 percent ofrural population), andOR is the oddsratios (or relativerisk ratio^).'^' Data used to estimatethe cost of morbidity are presentedinTable A3.2. Treatment cost representsprivate sector healthcare services, as these are likely to better reflect economic cost. Cost of mortality is discussed inthe last section of this Annex. Percent of ARI cases in the age group older than five years treated at medical facilities is estimated from the percent of treated cases among children (DHS, 2000) and the ratio of treated cases among children under five to treated cases among the population above five years o f age. The value of time for adults is 75 percent of urbanandrural averagehourly wages, which are 3.8 S/. and2.5 S/., respectively. The rationale for valuation o f time was discussed in the section on water, sanitation, and hygiene, andinthe urbanair pollutionsection. The differencebetweenrelative riskratios and odds ratios is minimalwhen diseaseincidencei s relativelylow. 252 Table A3.2. Datafor CostEstimation Baseline Source Urban Rural Percent of ARI cases treated at medical facilities (children < 5 years) 63.6 51.2 PeruDHS2000 Cost of medicines for treatment of acute respiratory Per consultationswith illness (population < 5 years) 30 30 pharmacies Percent o f ARI cases treated at medical facilities Estimatedfrom acombination (females > 30 years) 49 46 of Colombiadata andPeruDHS 2000 Per consultationswith pharmacies Assumption basedon Schulman et al. (2001) andNiederman et al. (1999) Estimatedbased on frequency o f doctor visits, Estimated lost workdays (including household emergency visits, and hospitalization Per consultations with pharmacies, medical service providers and health authorities Assumption Assumption Assumption 75% of urban and rural wages inPeru Larsen (2004b) Agricultural LandDegradation 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 is a general perception that the Sierra region is overexploited due to difficulties o f agricultural production on the mountain slopes and improper landuse practices, and that major salinity problems occur inthe 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 inPeru. No systematic and comprehensive studies have recently been undertaken o f soil salinity levels inthe 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 departmentsofPiura, Lambayeque, andIca. Inthe absence ofprecise data, it is assumedinthis report that one-third of 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 ofthe economic returnto cultivated land. On the remainingtwo-thirds o f salinity-affectedlands, it is assumedthat crop yields are reducedby 10- 253 25 percent for cotton and by 15-30 percent for rice due to ~alinity."~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 inPeru Source: http://www.minag.gob.pe/ Land Area Affected by Erosion As major studies indicate, the Sierra region is 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 is the abandonment of agricultural terraces. Table A4.1 presents different types of landuse inSierra (Peru Statistical Yearbook 2003). Table A4.1. Land Use in Sierra TotalArea Arable Land Permanent Pastures Forest Protected Crops Land Million % Million % M i l l i o n % Million % Million % Million % Hectares Hectares Hectares Hectares Hectares Hectares 39.2 100 1.3 3 0.02 0 10.6 27 2.1 5 25.2 64 Inthe absence of data about the share of land area that is eroded due to agricultural activity, it i s assumed that 60 percent o f agricultural cropland i s eroded in Sierra (CONAM, 2001). It i s also assumed that only 45 percent o f cultivated land i s used annually, which corresponds to the share of 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 540% for potato and corn, which are the major crops inSierra. 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 TableA4.2. CropYieldsinTerracedandNon-TerracedFields Table 9 Average Yields (Kgt'ha) ofMain Crops mTerraced andNon-Terraced Fields in I Icuzccl IN m - w I terraced IMinistryi AorSc. fields (b) I %her fields crop tb I (el) 8312 1020r 21.92 8894 Maize 3038 3212 573 1950 ria n a For Cajamai-ca. 1986 From Treacey (1994) Source: Valdiva (2002) Overfishing The Peru Fishery Strategy 2003 presents estimates o f total fish catch andfishingfleet 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 of fishing fleet (CPUF) are presented in Table A5.1.'53 The fishing fleet declined by 60 percent from 1970 to the mid-1980s, increased through the 199Os, and is now close to the peak level o f the early 1970s. Over the same period, CPUF reached a low inthe early 1970s, then a hghinthe late 1980s. Insome o f the most recent years, it has been close to the low inthe 1970s. 153A conventional measure is catch per unit o f fishing effort, which better reflects fishing fleet utilization and fleet composition. However, reliable data on fishing effort is not available. Therefore, fishing fleet inmetric tons (MT) is used as an indication o f fishing effort. 255 Table A5.1. Fishery Sector Baseline Data * The fish catch in metric tons (MT) presented here is a weighting of species, basedon relativeprices of "other species" and anchovy. Therefore, the figures are higher than actual tons o f catch, especially in years of low catch of anchovy and highcatch o f "other species." Source: Fishery Strategy Sector Note, Republic of Peru, June 2003 The Gordon-Schaefer model (Gordon, 1953; Schaefer, 1954, 1957) is appliedinthis 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. To account for effects o fEl Niiio, a dummyvariable, X, was introduced for El Niiio years. The resultingmodelfollows: Fishcatch (Y) is fkom Table A5.1,withweighting offishspecies usingrelativeprices of anchovies and other species. Inthe absence o freliable data on level o f effort (E), fishing fleet in Table A5.1 was applied inequation (2). Estimated parameters are presented inTable A5.2. 256 TableA5.2. BaseCaseAnalysis of FishCatchper UnitofFishingFleet RegressionStatistics R' 0.59 AdiustedR2 0.56 I StandardError 1 18.01 I Observations 34 Coefficients Standard t-Stat p-Value Lower 95% Upper 95% Error a 106.17 9.14 11.62 0.00 87.54 124.80 b -0.0003 0.0001 -6.15 0.0000 -0.0005 -0.0002 C -12.11 3.67 -3.30 0.00 -19.59 -4.64 The analysis was repeated for various periods to check the hypothesis o f regime change o f the Peru fish The period 1986 to 2004 demonstrated the best fit. Table A5.3 shows the estimatedparameters o fthe regression. Table A5.3. Best-FitCaseAnalysisof FishCatchper Unit ofFishingFleet RegressionStatistics AdjustedR StandardError 11.27 Observations Coefficients SE t-Stat p-Value Lower 95% Upper 95% a 123.94 7.77 15.95 0.00 107.46 140.41 b -0.0004 0.0001 -7.1 0.00 -0.0005 -0.0003 C -11.48 3.22 -3.56 0.00 -18.31 -4.65 The next step is to estimate total revenue and total cost in the fishery sector. Estimates from 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 inTables A5.2-A5.3, and equation (1) are applied to estimate the maximumsustainable, maximumeconomic, 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 is the level o f fleet that gives the lughest economic profit or economic rent, and the open access point is the level o f fleet at which economic rent is zero. Natural Disasters Unitcosts of disaster impacts are presented inTable A6.1. These estimates are derived from the cost estimates o f the El Niio presented by Bambaren Alatrista (2002) and Larsen (2004b). However, it should be recognized that there is uncertainty as to 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 inmaximum sustainable yield (MSY), maximumeconomic yield (MEY) and open access yield (OAY). Is'Priceof fish catch as raw materialfor fishmeal productionin2004 (personalcommunicationwith consultantLuz Pisua). 257 Table A6.1. Unit CostsApplied to FrequentlyOccurringDisasters EstimatedUnit Cost (Thousand Soles) Homes destroyed 40 Homesaffected 20 Hectares destroyed 3 Roads destroyed, affected 160 Railroadsdestroyed, affected 1,150 J 1,600 Valuation of Mortality Two distinct methods o f valuation of 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 of statistical life (VSL). The first method was dominant in the past. However, the VSL approachhas increasinglyreplaced the HCA methodinthe last couple o f decades. Inthis report, the HCAhasbeen appliedas alower boundandVSL as a higherbound inestimating the cost of adult mortality. For childmortality, the HCA has been applied. Human CapitalApproach According to the HCA, the social cost of 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 is applied to calculate the social cost o f death. The presentvalue o f lost future income is expressedas follows: i=n PV,(I)=CI,(l+g)'/(l+r)' (1) i=k where PVo(I)present value of income (I)year 0 (year o f death), g i s annual growth inreal is in income, and r i s the discount rate (rate of time preference). As can be seen from (l), the equation allows for income to start fiom year k, and end inyear n. Inthe 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. Inthis report, an annual growth o f real income of two percent and a discount rate of three percent have been applied to Peru. The estimated cost o fmortality inPeru, basedon 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). TableA7.1. Cost of Mortality (per Death) UsingHCA 1 Average Number ofYears Lost 1 ThousandSI. Adults Mortality from Urban Air Pollution 7.5 58 Mortality from Indoor Air Pollution 6 47 Mortality from Lead Exposure 10 78 Mortality from Natural Disasters* 40 260 Children Mortality from Indoor Air Pollution 65 241 Mortality from Diarrheal Illness 65 241 258 Valueof Statistical Life While the HCA 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. It 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 of fatal accident, individualsmay purchase safety equipment to reduce the risk of death, and/or individualsand families may be willing to pay a premium or higher rent for properties (land and buildings) ina cleaner andless pollutedneighborhood or city. Through the observation o f individuals' choices and willingness to pay for reducing mortality risk (or minimumamounts that individuals require to accept a highermortalityrisk), 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. This means that one individual dies every year (on average) for every 10,000 individuals. If each individual on average is 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. This amount is the VSL. Mathematically, it can be expressedas follows: where WTPAv, is the average willingness-to-pay (soles per year) per individualfor a mortality riskreductionofmagnitude R. Inthe illustrationabove, R=1/10,000 (or R=O.OOOl) andWTPA,, = 10 soles. Thus, if 10individuals die eachyear from the healthrisk illustratedabove, the cost to society is 10* VSL = 10*100,000 soles = 1million soles. Mrozek andTaylor (2002) provide a meta-analysis o f VSL 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 VSL o f US$1.5-2.5 million can be reasonably inferredfrom labor market studies when "best-practice" assumptions are invoked. The VSL range inferredby Mrozek and Taylor is substantially lower than average VSL estimated in other meta-analyses. Some o f these studies identify a meanVSL 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 associatedwith mortality risk. Beneft Transfer There are no studies o f VSL conducted in Peru. This implies that values have to be transferred from studies in other countries. The overwhelming majority of VSL studies have been conducted in countries with substantially higher income levels than Peru. Therefore, VSL estimates from these countries mustbe adjusted to Peru. One commonly used approach in benefit transfer is 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 of VSL studies. However, the range in income elasticity is influenced by three unusually high estimates of VSL that are based on labor market data fkom one state in India. Leaving out these three studies provides anincome elasticity o f about 0.80. The most appropriate income elasticity to apply to middle-income countries, such as Peru, remains uncertain. This is becausethe income level in Peru falls far outside the range o f income inthe sample o f countries from which the income elasticities o f VSL i s estimated inthe The income elasticity is the percentage change inVSL per percentage change inincome. 259 empiricalliterature. A prudent approachmightbe to apply an elasticity o f 1.O inorder to reduce the risk o f overstating the cost o fmortality inPeru. 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 of 1.0. These figures are substantiallyhigher than the ones from the HCA, especially for adult mortality from urban air pollution, indoor air pollutionandlead exposure. A comparison is presentedinTable A7.3. TableA7.2. EstimatedValue of StatisticalLife inPeru High I Low I Source AverageVSL inhigh-income countries(million US$) 2.5 1.5 Mrozek andTaylor (2002) AverageGDPkapita inhigh-income countries (US$) 30 000 30 000 World Bank* GDP per capitainPeru(US$in2003) 2226 2226 httv:Nwww.inei.gob.ve Incomeelasticity 1.o 1.o EstimatedVSL inPeru (thousandsoles)** 650 390 Benefittransfer Table A7.3. Comparisonof HCA andVSL EstimatesApplied to Peru Ratio of VSL/HCA* Adults Mortality from UrbanAir Pollution 8.9 Mortality from Indoor Air Pollution 11 Mortality from LeadExposure 6.7 Mortality from Natural Disasters 2 Mortality from Indoor Air Pollution 2.15 Mortality from Diarrheal Illness 2.15 260 ANNEX 2: TECHNICAL SUMMARY OF THE COST-BENEFIT ANALYSIS'57 Water Supply, Sanitation, and Hygiene Prusset al. (2002) provide a framework for estimating the burden of disease from water, sanitation, and hygiene (Table A2.1). Pruss et al. applied this framework to estimate the global burden o f diarrheal disease, but it can also conveniently be adapted to estimate the benefits and costs o f improvedwater supply and sanitation. Table A2.1. SelectedExposure Scenarios I Ideal situation, correspondingto the absence of transmissionof diarrheal Low diseasethrough water, sanitation, andhygiene 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 is roughly in line with Esrey et al. (1991)?* The single most effective hygiene intervention i s handwashing after defecation, before preparing meals andbefore eating. The healthbenefit o f handwashing found by Fewtrell and Colford is similar to the finding by Curtis and Cairncross (2003). The studies o f source- water treatment reviewed by Fewtrell and Colford are not conclusive, suggesting a mean reduction in diarrheal illness o f 11 percent, but with no statistical significance. In contrast, point-of-use drinkingwater treatment (i.e., household drinking water treatment) is found to be very effective in reducing diarrheal illness. The results from Fewtrell and Colford are used to evaluate the costs and benefits o f water, sanitation, and hygiene interventions in this report. Components o f costs andbenefits are presentedinTable A2.3. 15' This annex is basedon the reportby Larsen andStrukova (2006). 15* Improved water supply refers to house connection, standpipes, boreholes, protected wells, or springs, and collected rainwater.Unimprovedwater supply includes unprotectedwells or springs, open surface water andrivers, and water providedby vendor or tanker trucks. Improvedsanitationrefers to facilities for safe andhygienic removal o f excreta, such as flush toilets, pour-flushlatrines, ventilated improved pit latrines (VIP) and simple pit latrines. Unimprovedsanitationis openpit latrines, public latrines, service or bucket latrines, andthe absenceof any facilities. 261 TableA2.2. EffectivenessofInterventionsto ReduceDiarrhealIllness Source: Summarizedfrom FewtrellandColford (2004) TableA2.3. Componentsof Costs and Benefits Interventions costs Benefits Improvedwater supply and Construction (capitalcost), Reduced diarrheal disease and improvedsanitation operation, andmaintenance householdtimesavings Handwashingpromotion Promotionprogram, Reduceddiarrheal disease program(protectionof child soap, andwater healthand adult health) Drinkingwater disinfection Promotionprogram and Reduceddiarrheal disease promotionprogram energy for boiling water Water and Sanitation Infrastructure Programs In rural areas of Peru, half of the population does not have improved sanitation facilities, and40 percent rely on open water sources (Table A2.4). Estimated diarrheal incidence inthe rural population is presented inTable A2.5 for five categories of households, using an adaptation o f Pruss et al. (2002). This is 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 inhouseholdswithout improved water supply and sanitation than in households with piped water supply and improved sanitation that practice point-of-use disinfection such as boilingo f drinkingwater. TableA2.4. Water Supply and SanitationinPeru(Percentageof Households) Urban Rural No sanitation 8 51 Pit toilevlatrine 16 41 Flushtoilet 76 8 Pipedwater supply 88 46 Well water 4 12 Surface water (river, open spring) 1 40 Tanker truck 4 1 Other 3 1 15' Annual incidence of diarrheal illness in children under 5 years of age is derived from the Peru DHS 2000 householdsurvey.Annual incidence for the populationover 5 years of age is derived frominternational evidence of the ratio of incidencein children under 5 and populationover 5 years of age. No survey is available for Peruthat providesdiarrhealprevalenceor incidencefor thepopulationover 5 years ofage. 262 Table A 2 5 EstimatedAnnualCasesof DiarrhealIllnessper PersoninRuralPeru DiarrhealIncidenceper HouseholdWater Supply and SanitationSituation Without With Disinfection Disinfection** (1) Unimprovedwater supply and unimprovedsanitation 1.98 1.05 (2) Improvedwater supplybut unimprovedsanitation 1.48 0.78 (3) Improvedsanitationbut unimprovedwater supply 1.34 0.71 (4) Improvedsanitation andwater supply pipedto household(no 1.21 0.64 sourcetreatment) (5) Improvedsanitationandwater supplypipedto household 1.08 0.64 (source treatment) Hygiene Programs Hygiene refers to a procedure or system of 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, particularlyfor mothers or caretakerso f young chlldren, and is 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 handwashingpromotion. A behavioral study of handwashing practices was carried out in Peru in 2004 inperi- urban and ruralhouseholds 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 presentedinTable A2.6, suggesting there i s substantial scope for improvement inhandwashing 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 is 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). This is likely dependent on several dimensions and will vary from country to country. It will also depend on the design, duration, and overall magnitude o fthe handwashingprogram. Table A2.6. HandwashingBehavior in Select HouseholdsinPeru Source: Reproducedfrom Florez(2005) 263 Table A2.7. Key Parameters and Outcomes in aBenefit-CostAnalysis of Handwashing Key Parameters Outcomes Program cost Overall cost o f handwashing program Program effectiveness Percent o ftarget populationthat improves or starts regular handwashing Program sustainability The lasting effect of the program Private cost Costs o f handwashing inthe group with behavioral change (increased water and soap expenditures) Program benefits Percent reduction indiarrheal illness from handwashingin group with behavioral change, and monetized benefits o freduced diarrheal illness Three handwashing programs that provide program costs and behavioral change are presented inTable 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 US $28 per household with behavior change. While 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 is behavioral change in a large percentage o f targeted households. Therefore, this issue may have a major impact on the overall cost of hygene programs that aim to achieve substantial reductions inthe overall number of cases of diarrheal illness ina country. Table A2.8. A ReviewofCosts andEffectivenessofHandwashingPrograms I Guatemala I Thailand IBurkinoFasoI With With Source: Derived from Saade et al. (2001), Pinfold and Horan (1996), and Borghi et al. (2002) 264 Data andAssumptions Key data andassumptions usedinthe benefit-cost analysis are presented inTable 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 is 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 is also included as a benefit for adults. Economists commonly value time benefits in the range o f 50-100 percent o fwages. A rate of 75 percent is used. Table A2.9. Data andAssumptions for the Benefit-Cost Analysis Rural Urban Notes Areas 13.6% Peru DHS 2000 2.3% Peru DHS 2000 plus international evidence on week) inpopulationover 5 I Diarrheal case fatality rate 1 ratio o fincidence between children and adults 0.028% 0.017% Basedon rural and urban child mortality rate o f (children under 5) 57 and 26 per 1000, respectively; diarrheal child mortality o f 9% o ftotal child mortality; and diarrheal incidence derived fiom Peru DHS 2000 75 soles Treatment cost: 40 soles inrural and 100 soles in o fdiarrheal illness averted urbanareas, medicines: 50 soles, treatmentrate: inchildren under 5 38% o fcases, value o ftimesavings for adult caretaker: 2 hours per day for 3.5 days at 2 soles per hour inrural and 2.8 soles inurban areas (75% o fwages), and DALYs valued at GDP per Average benefit per case 48 soles 65 soles Treatment cost: 40 soles inrural and 100soles in o f diarrheal illness averted urban areas, medicines: 50 soles, treatment rate: inpopulation over 5 27% o f cases, value o ftimesavings for adults: 2 hours per day for 3.5 days at 2 soles per hour in rural and 2.8 soles inurban areas (75% o fwages), and DALYsvalued at GDP per capita Benefit per case o f 240,000* 240,000* Cost per child death (humancapital value): The diarrheal mortality averted soles soles present value o f lifetime earnings, discounted at an annual rate o f 3 percent Annualized cost o f 28 soles Ventilated improvedpit latrine (VIP) or flush improved sanitation per latrine at US$50 per capita investment cost (20- capita year useful life, 10%annual discount rate) plus sewage cost and maintenance cost Annualized cost o f 25 soles Borehole or protected well at US$55 per capita improvedwater supply per (20- year useful life, 10% annual discount rate) capita plusmaintenance cost Time savings from 20 Estimated from Peru DHS 2000 based on distance improved water supplyper minutes to water source household per day Time savings from 5 Assumption improved sanitation minutes facilities per personper day Value o ftime savings per 2 soles 2.8 soles 75% o faverage rural and urbanwages hour Cost o f hygiene products 36 soles 36 soles Two soaps per person per month at 1.5 soles per per person soao * Valuation o f mortality is discussed in1:Annexto( .apter3. 265 Time benefits from improvedwater supply andsanitation (e.g., reducedwater collection time) is also valued at this rate. According to the Peru DHS 2000, about 15 percent of 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 is 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 averagehousehold collection time o f 20 minutes per day. IndoorAir PollutionfromSolidFuels 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 inreducing overall community exposure to indoor air pollution. It is 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 of solid fuels and high burden o f health effects. Components o f costs and benefits are summarized inTable A2.10. Interventions costs Benefits Improvedstoves Promotionprogram, ReducedARI and COPD, improvedstove reducedfuelwoodconsumption Clean fuels (e.g., Promotionprogram, ReducedARI and COPD, LPG) gas stove and fuel cylinder, reducedfuelwoodconsumption fuel (LPG) Communitykitchens Promotionprogram, gas ReducedARI and COPD, with clean fuels stove and fuel cylinder, reducedfuelwoodconsumption, (e.g., LPG) fuel (LPG) timesavings from reducedcookingtime, reducedfuel (LPG) consumptionfrom scale and ~ To estimate the health benefits o f improved stoves and clean fuels, it is necessary to establish the relative risks of health effects for five household fuel use situations, ranging from use o f unimproved stove or open fire, to use o f only LPG (Table A2.11). Three parameters are needed to estimate the relative risks: (i) average relative risk for households using solid the fuels, (ii) number o f households with each fuel-use situation, and (iii) risk reduction the health resulting from using improved instead o f unimproved stove and from using LPG instead of improved stove. The averagerelative riskis 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 of rural households using solid fuels, i.e., somewhat more than 85 percent (Peru DHS 2000). Some o f these households may use a combination of clean fuels (e.g., LPG) and solid fuels. This could be approximately 10percent of rural households, based on data from Guatemala (Ahmed et al., 2005). It i s assumed that these households are split evenly between unimproved and improved I 6 OThe methodologiesandmodelsusedinthis report are the same as inLarsen(2005a) for Colombia. 266 stoves in combination with LPG. Households using only solid fuels are also split evenly betweenunimprovedandimprovedstoves. The following set o f equations was used to establish the relative risks (RRs) presented inTable A2.11: RRI = 1+ (RRu- 1) (1-r) Sumu+S I ~ + SULRRUL+ SILRRIL = SSFWF I mUL1+(mu-1)L' RRL= 1+(RR'- 1) L' = where S i s population share andRRi s the relative risko fusingunimproved 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 is the total population share using solid fuels (with or without a combination with LPG), and WFis the (weighted) average relative risk o f illness in these households. Inequation (2), r is the "excess" risk reduction from usingimproved stoves relative to unimproved stoves. L is the share o f energy derived from LPG inhouseholds using LPG and unimprovedstove (U),andinhouseholds usingLPGand improve stove (I). Table A2.11. Estimated Relative Risks of Health Effects Risk reductions (r in equation (2)) from usingimproved 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 inacute respiratory illness (AR)inchildren under five, and a 25 percent ARI reduction inthe 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). This suggests that, on average, improved stoves can reduce ARI by 50 percent. Inturn, LPGcan eliminate the remaining health risk from solid fuels. These reductions were applied to estimate the relativerisks o f ARI inTable 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 is not free from fine particulate exposure, and studieshave 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 usingimprovedvs. unimproved stove. Ina 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 of (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 inprevalence inindividuals with longer life-exposure to solid fuel pollution(Perez-Padilla et al., 1996). InTable A2.11,a 50 percent risk reduction in COPD i s applied for switching from unimproved stove to an improved stove with chimney. 267 Open Fire/ Improved LPG Traditional Stove Stove 24-hour PM3.5 1930 330 Guatemala.Albalak et al. (2001) 24-hour PMlO 1210 520 140 ReferencedinAlbalak et al. (2001) 24-hour PM2.5 520 88 45 Adapted from Naeher et al. (2000) 24-hour PM2.5 868 152 PMlO 600-1,000 300 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 fVSL fiom high income countries becauseno studies are available from Peru. The value applied to Peru i s likely to be conservative, reflected inthe method o fbenefit transfer with an income elasticity o f 1.O at market GDP per capita differential between Peru andhigh-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 needsto be emphasizedbypromotion programs inorder to stimulate demand. Health benefits dominate in the benefit-cost ratio for some o f the interventions. This is particularlythe case for substitution o f improved wood stoves, handwashing for child health protection, and household disinfection o f drinkingwater. Consequently, health benefits need to be emphasized and properly communicated in the promotion of these interventions. For other interventions, suchas clean fuels and improved water supply andsanitation, bothhealthbenefits and timesavings are important. Therefore, a better understandingo f how households value their time could be important. 268 Table A2.14. DataandAssumptionsfor the Benefit-CostAnalysis I Rural I Notes ARI prevalence(2-week) Peru DHS 2000 inchildrenunder 5 20.6% ARI prevalence(2-week) Peru DHS 2000 plus international evidence on ratio o f incidence inadult females 3.6% between children and adults Based on rural child mortality rate o f 57 per 1000, ARI child ARI case fatalityrate in mortality o f 15% o f total child mortality, and ARI incidence derived children under 5 0.05% from Peru DHS 2000 Treatment cost: 40 soles, medicines: 40 soles, treatment rate: 5 1% Average benefit per case o f o fcases, value oftimesavings for adult caretaker: 2 hours per day ARI avertedinchildren for 7 days at 2 soles per hour (75% o frural wages), and DALYs under 5 80 soles valued at GDP per capita Treatment cost: 40 soles, medicines: 40 soles, treatment rate: 46% Average benefit per case o f o fcases, value o ftimesavings for adults: 3 hours per day for 7 days AM avertedinadult at 2 soles per hour (75% o frural wages), and DALYs valued at Benefit per case o f ARI I Cost per child death (human capital value): the present value o f mortality averted in 240,000* lifetime earnings, discounted at an annual rate o f 3 percent children under 5 soles COPD incidence rate in adult females 33 I Per 1OO,OOO females (WHO AMRO Dregion) imesavings are valued at 2 soles per hour * Valuation o fmortality is discussed inthe Annex 1. 269 Figure A2.1. Benefit-Cost Ratios of Interventions Improved stoves m m Clean fuel in community kitchens (from unimprovedstoves) I Clean fuel incommunity ldtchens (from improved stoves) Clean fuel (from unimprovedstoves) Clean fuel (from mix o f unimproved stove and clean fuel) Clean fuel (from mix o fimproved 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) Improvedwater supply Safe sanitation facilities Urbandrinking water disinfection (point-of-use) Handwashing(adult healthprotection) 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 270 REFERENCES Abbey, D. et a1 (1995). Long-Term Ambient Concentrations of Particulates and Oxidants and Development of Chronic Disease in a Cohort of Nonsmolung California Residents. Inhalation Toxicology, Vol7: 19-34 Abbugatas Javier (2004). El Gasto Medio Ambiental en Peni: Exploracih Inicial. Serie Medioambientey Desarrollono. 103. Proyecto CEPAL-PNUD. Santiago de Chile. AchutaRao, K., K.R. Sperber and the CMIP Modelling Groups (no date). I'Simulation of the El Niiio Southern Oscillation: Results from the Coupled Model IntercomparisonProject," Program for Climate Model Diagnosis and Intercomparison, Lawrence Livermore National Laboratory, Livermore CA. Aguero, M. 1987. A bioeconomic model of the anchoveta fishery. InPauly, D. and Tsukayama, I. (Eds.). The Peruvian Anchoveta and its Upwelling Ecosystem: Three Decades of Change. IMARPE, Peru. Ahmed K, Awe Y, Barnes, D, Cropper M, and Kojima M. (2005). Environmental Health and Traditional Fuels Use inGuatemala. DirectionsinDevelopment. ESMAP. World Bank. Albalak, R., Bruce, N.,McCracken, J., Smith, K., and De Gallard, T. (2001). Indoor Respirable ParticulateMatter Concentrations from an Open Fire, Improved Cook Stove, and LPG/OpenFire Combinationina RuralGuatemalan Community. Environmental Sciences and Technology. Vol. 35, No. 13. Albalak, R., Frisancho, AR., and Keeler, GJ. (1999). Domestic biomass fuel combustion and chronic bronchtisintwo rural Bolivianvillages. Thorax. Vol. 54. Alcalde, M. "Diagn6stico de la Deforestacih en el Peni." (2002) Working Paper, USAID- INRENA- BIOFOR Activity. Lima, Peru. Alfaro Moreno, J. Consewacibn de Suelos y Desarrolla Rural en 10s Andes Peruanos (1984). Lima, Peru. Alonso, L., A. Alonson, T. Schulenberg and F. Dallmeier eds. (2001) Biological and Social Assessments of the Cordillera Vilcabamba, Perri. RAP Working Papers 12 and S W Series 6. Washington, D.C.: ConservationInternacional. Andersen, L., Granger, C., Reis, E., Weinhold, D., Wunder, S. (2002) The Dynamics of Deforestationand Economic Growth inthe BrazilianAmazon. CambridgeUniversity Press. Angulo, L. "Reducci6n de la Vulnerabilidad a 10s Desastres en Peru." (2005) Backgroundpaper prepared for World Bank Country EnvironmentalAnalysis, World Bank, Lima, Peru, December, 2005 Aprovechamiento y Comercio Ilicito de Productos Forestales Maderables en el Peru, (2005). Working paper. Lima. Peru. Arica, Yanggen, Kroschel, Forbes & Saint Pere (2005) (Centro International de la Papa) PlaguicidasOrgimicosPersistentesy AltamenteT6xicos en Peni. Bambaren Alatrista, C. V. (2002) Valuation of the El Nino damage. Universidad Nacional de Ingenieria-CISMID. Lima. Peru. 271 Baquero Haeberlin, I. a1(2003). Cuentas Ambientales del Suelo. Draft Paper. Corpoica. et Baranzini, A. and Goldenberg, J. (1996). Desertification, energy consumption, and liquefied petroleum gas use, with an emphasis on Africa. Energy for Sustainable Development. Vol. 11, No. 5. January 1996. Barde, J-P and D.W. Pearce (eds.) (1991). Benefits Estimates and Environmental Decision-Making, Earthscan, London. Beanlands, G.E. and P.N. Duiker. 1983. An ecological framework for environmental impact assessment in Canada. Institute for Resource and Environmental Studies Dalhousie University Halifax, Nova Scotia. Published by Institute for Resource and Environmental Studies Dalhousie University and Federal Environmental Assessment Review Office. Available electronically from: httu://www.collectionscanada.ca/electroniccollection/OO3008-2OO-e.ht~ Bedoya, E., and A. Bedoya, (2005) El Trabajo Forzoso en la Extraccidn de la Madera en la Amazonia Peruana InternationalLabor Organization, Geneva, Switzerland, March,. Begazo, A. (2004). Estimaci6nDe L aValoraci6n Econ6micade 10s Impactos de la Contaminacibn Atmosfkrica por Pts y PmlO en la salud de la Poblaci6nDe Lima Metropolitana. Finalreport Borghi, J., Guinness, L, Ouedraogo, J., and Curtis, V. (2002). I s Hygiene Promotion Cost- Effective? A Case Study in Burkina Faso. Tropical Medicine and International Health, Vol 7 No11. November 2002. Bernales, M.E. (2006), LetterNo2635-CONAM/PCD, Lima, Peru, December, 2006. Boy, E., Bruce, N., Smith, K., and Hernandez, R. (2000). Fuel efficiency o f an improved wood- burningstove inruralGuatemala: Implications for health, environment anddevelopment. Energy for SustainableDevelopment. Vol. IV, No. 2. August 2000. Boyla, K. and A. Estrada. (2005) Areas Importantespara la Conservacidn de las Aves en 10s Andes Tropicales. Sitios Prioritarios para la conservacidnde la biodiversidad. BirdlifeConservation Series No14.Quito: BirdlifeInternationalandConservationInternational.. Brack Egg, A (sd). "Economiay Conservacidn de la Diversidad Bioldgica." Mimeo. Brack Egg, A. (1997) "Comunidades Nativas como Centros de Conocimientos Tradicionales". In: GEF/PNUD/UNOPS. Amazonia Peruana. Comunidades Indigenas, Conocimientos y Tierras Tituladas. Atlas y Base deDatos. Brown, M.S. (2005), "Environmental Impact Assessment and Licensing in Peru: A Review o f Current Practice and Effectiveness". Buendia, B. (1999) Valoracidn Econbmica del Parque Nacional Tingo Maria - Cueva de las Lechuzas a partir del Mbrodo de Valoracidn Contingente. Thesis, Master o f Science in Conservation and SustainableDevelopment. Lima: Universidad Agraria L a Molina.. Butler, R. "Deforestation in the Amazon", htto://www.monnabav.com/brazil.html ; http://www.mongabav. comi20ecuador.htm Cal/EPA (2005): ARE3 bicycle awareness program 2005: Bicycle Fact Sheet Canadian Association o f Petroleum Producers. 2003. Guide for Effective Public Involvement. Calgary, Alberta. www.capp.ca. 272 Castro, Mariano (2005) Gasto e Inversion Ambiental en Peru, presented at Seminar for Fiscal Policy, CEPAL, Santiagode Chile, February, 2005 Chambi, P. (2002) "Valoraci6n Econ6mica de la Captura de Carbon0 mediante Simulaci6n Aplicado a lazona boscosadel rio Inambari y Madre de Dios". In:M.Glave and R.Pizarro (eds). Valoracibn Econbmica de la Diversidad Bioldgica y Servicios Ambientales en el Ped. Lima: Instituto Nacionalde RecursosNaturales, InternationalResourcesGroupand USAID. CharvCriat, C. (2000) Natural Disasters in Latin America and the Caribbean: An Overview of Risk, Inter-AmericanDevelopmentBank, Washington, D.C. October, I Center for International Forestry Research (CIFOR, 2003) Review of Forest Rehabilitation Initiatives: LessonsJFomthe Past: Peru Brie$ December 5,. Clean Air Initiative (2005): Clean Air Initiative in Latin American Cities. Clean Technologies InformationPool.www.cleanairnet.org Cleaner Vehicles Task Force (2000): The Report of the Alternative Fuels Group of the Cleaner Vehicles Task Force. An assessment of the Emissions Performance of Alternative and ConventionalFuels. DTIAutomotive Directorate,London. Comunicaci6nNacional del PERU a la Convenci6nde Naciones Unidas sobre Cambio Climatico, (2001). Lima. Peru. Consejo Nacional del Ambiente (CONAM, 2005): Legislaci6nAmbiental del Recurso Aire. Serie NonnasAmbientales, Septiembre 2005. ConsejoNacionaldel Ambiente (CONAM, 2001) Estado del Ambiente 2001. Lima. Peru. Consejo Nacional del Ambiente andNational Biologcal Diversity Commission. (CONAM, 1998) Diversidad Bioldgicay Desarrollo en el Ped. Mirneo. Consejo Nacional del Ambiente and Instituto Nacional de Recursos Naturales (CONAM- INRENA, 2005) (National Environmental Council and Program on National Capacity Strengthening for Managing the Impact of Climate Change and Air Contamination, National Institute of Natural Resources, Office for Transectoral Environmental Management and Natural Resources Evaluation and Information) ("PROCLIM") Mapa de Deforestacibn de la Amazonia Peruana - 2000. Memoria Descriptiva. IM-03-02. Volumen I - Tato. Lima: CONAM and INRENA. ConservationDataCenter ofthe UniversidadNacionalAgraria LaMolina (CDC, 2004). Andlisisy Modelacidn Espacio-Temporal del Paisaje en las Areas de Intervencidn del PDA. Report submitted to the USAID World Wildlife Fund Project on "Environmental Management and Sustainable Use of Forest andNatural Resourcesinthe Alternative Development Program(ADP) InterventionAreas", Lima, Peru. Conservation International (1997) The Cordillera del C6ndor Region of Ecuador and Peru: A Biological Assessment.RAP WorkingPapers 7.. Conservation Internacional (2004) The TamboData-Candamo Reserved Zone of Southeastern Ped: A Biological Assessment. RAP WorkingPapers 6. Contreras-Hermosilla, A. (2002) Law Compliance in the Forestry Sector. An Overview. WashingtonD.C.: The World BankInstitute.. 273 Corporacih Andino de Foment0 (CAF, 2000). Las Lecciones de El Niio: Peru, Caracas, Venezuela. October. Cropper, M. and Oates, W. (1992). Environmental Economics: A Survey. Journal o f Economic Literature. Vol. XXX, pp. 675-740. Csirke J. (2005). B15. Southeast Pacific. Review o f the State o f the World Fishery Resources. FA0FisheryTechnical PaperN457. Rome Curtis, V. and Cairncross, S. (2003). Effect o f Washing Hands with Soap on Diarrhoea Risk in the Community: A Systematic Review. Lancet InfectiousDiseases. Vol3. De la Puente, Lorenzo. 2005. L a evaluacion ambiental previa: consideraciones en torno de 10s proyectos mineros y de hidrocarburos. Revista de Derecho Minero y Petrolero Instituto de Derecho de Mineria, Petroleo y Energia Afio LI2004 -2005 N o 60. Dennis, R., Maldonado, D., N o m , S., Baena, E., and Martinez, G. (1996). Woodsmoke Exposure andRisk for Obstructive Airway DiseaseAmong Women. Chest 109: 115-119. 1996. Desai MA, Mehta S, and Smith K. (2004). Indoor Smoke from Solid Fuels: Assessing the Environmental Burden o f Disease at National and Local Levels. Environmental Burden o f DiseaseSeries, No. 4. World HealthOrganization. D E S W E N T A R Natural Disaster Data Base, ITDGNetwork. www.desinventar.org Diez, C. (2002) "Aproximacih a la Valoracih Econ6mica de la Reserva Nacional Pacaya Samiria". In:M. Glave and R. Pizarro (eds). ValoracidnEcondmica de la Diversidad Bioldgica y Sewicios Ambientales en el Ped. Lima: Instituto Nacional de Recursos Naturales, International ResourcesGroup andUSAID.. Direccih General de Salud Ambiental (DIGESA, 2005). Information on Air Quality in Lima- Callao for PISA-2005-2010, ComitC de Gesti6n de la Iniciativa de A r e Limpio para Lima y Callao. Direcci6n General de Salud Ambiental (DIGESA, 2001) Informe de monitoreo de 18 puntos de muestreo.Lima Peru2001 Dockery D.W., Pope C.A. 111, Xu X, et a1 (1993). An association between air pollution and mortality insix US cities. New EnglandJournalo fMedicine, 329: 1753-1759. Economic Commission for Latin America and the Caribbean and Inter-American Development Bank (ECLAC-IADB, 2000) "Una cuestidn de desarrollo: La reduccidn de la vulnerabilidad estructural j?ente a 10s desastres naturales." Paper presented at the Conference "Confronting Natural Disasters: A Matter o f Development" New Orleans, U.S. March,. ECONAnalysis (2005). UrbanAir Pollution Control inPed, Draft Report to the World Bank. ElgegrenJ. (2005). Deforestation inPeru. Working Paper. Espinoza R., et al, (2003). Determinants o f blood-lead levels in children in Callao and Lima metropolitan area. Salud Publica de Mexico, Vol. 45, Suppl. 2., S209-S219. Esrey, S.A. (1996). Water, Waste and Well-being: A Multicountry Study. American Journal o f Epidemiology, Vol. 143, No. 6. 274 Esrey, S.A., and Habicht, J-P. (1988). Maternal literacy modifies the effect of toilets and piped water on infant survival inMalaysia. AmericanJournal ofEpidemiology, 127(5): 1079-1087. Ezzati, M.and Kammen,D. (2002). The HealthImpactsofExposureto Indoor An Pollution from Solid Fuels inDeveloping Countries: Knowledge, Gaps, and DataNeeds. DiscussionPaper No. 02-24. Resources For the Future. WashingtonDC. Esrey, SA., Potash, J.B., Roberts, L.,and Shiff, C. (1991). Effects ofImprovedWater Supply and Sanitation on Ascariasis, Diarrhoea, Dracunculiasis, Hookworm infection, Schstosomiasis, and Trachoma. WHO Bulletin, Vol. 69, No. 5: 609 - 621 Fewtrell F., Priiss A, Kaufmann R. (2003). Guide for assessment of EBD at national and local level: Lead. WHO, Geneva Fewtrell, L.and J. Colford Jr. (2004). Water, Sanitation and Hygiene: Interventionsand Diarrhea -Asystematicreviewandmeta-analysis. HNPDiscussionPaper. WorldBank Fjeldsb, J., and M.Kessler. (1996) Conserving the Biological Diversity of Polylepis Woodlands of Peru and Bolivia: A Contribution to Sustainable Natural Resource Management in the Andes. Copenhagen:Nordic Foundationfor DevelopmentandEcology.. Florez, R. (2005). Peru Handwashing Public Private Initiative - 2005 Highlights. Water and SanitationProgram. World Bank. Fondo de Contravalor Peru-Switzerland (FCPS, 2003). Sistematizacidn de Manejo de Recursos Naturales agua suelo y cobertura vegetal. Edit. Termil. Lima, Ped. FoodandAgriculture Organizationofthe UnitedNations (FAO, 2005). AQUASTAT data. Food and Agriculture Organization of the United (FAO, 2005) Information Portal. www.fao.org/ag/anl/swlwDnr/reuortsly l d z ue/ue.htm. December, 2005 Food and Agriculture Organizationof the United (FAO, 2003). Fishery country profile. Republic ofPeru. Food and Apculture Organization of the United Nations (FAO, 2002).The State of Food and Agriculture, 2002. Rome, Italy. Food and Agriculture Organization of the United Nations (FAO, 1998). FA0 Irrigation and DrainagePaper 56. Preparedby Allen, R. et a1 FoodandAgricultureOrganizationof the UnitedNations and the Center for International Forestry Research(FA0-CIFOR, 2005). Forests and Floods: Drowning in Fiction or Thriving on Facts? RAP Publication2005103, Forest Perspectives 2. Food and Agriculture Organization of the United Nations and Instituto Nacional de Recusos Naturales. (FAO-INRENA, 2005). Actualizacih de la Evaluacih de 10s Recursos Forestales Mundialesa2005. Ped. Informe Final.Lima: INRENA. Freeman, P.K., M. Keen, and M. Mani. (2003)"Being Prepared Natural disasters are becoming more frequent, more destructive, and deadlier, and poor countries are being hit the hardest."Finance and Development 40(2003): 4245. 275 Furst (2005), Personal communicationto Miles Scott-Brownby Dr.Thomas Furst, Environmental Scientist, Vector Peru S.A.C., Lima, Peru Galarza, L. (2001) Descentralizacidn, Organizacidn Econdmica del Territorio y Potencial de Recursos.Reportpreparedfor UnitedNations DevelopmentProgram. Lima, Peru. Gamarra, L. (1945)"La Erosi6n de Suelos - un ProblemaNacional." Revista Agronomia Vol. 47: 5-12. Gamica, L. (2001). La Deforestacidn por la Actividad de Coca en el P e d CONTRADROGAS, Unidadde Monitoreo y Evaluacih. Lima, Peru. GEA (2004). NOS irnporta el medio ambiente? Encuesta de percepcidn ciudadana de 10s problemas ambientales deLimay Callao. Lima, Ped. Glave, M. and R. Morales (2006). "Analisis Institucional Ambiental en el Peru", Background Paper for PeruCountryEnvironmentalAnalysis, Lima, Peru,. Global Environment Facility (2003) Peru: Participatory Management of Protected Areas. Project AppraisalDocument, GEF-World Bank,January 30. Gonzales Olarte, E., and C. Trivelli (1999) Andenesy desarrollo sustentable. Instituto de Estudios Peruanos (IEP) and Consorcio para el Desarrollo sostenible de la Ecoregon Andina (CONDESAN). 219. Lima, Ped. Gonzalez Del Valle Begazo, A. M. (2004) Estimacih De La Valoraci6n Econ6mica De Los Impictos De L a Contaminacih Atmosfkrica Por Pts Y PmlO En La Salud De La Poblaci6nDe LimaMetropolitana.Lima. Peru. Gordon, H.(1953). The Economic Theory of CommonPropertyResource: The Fishery.Journal of Political Economy.Vol. 62, pp. 124-142. Gram, S. (2001) Economic Valuation of Special Forest Products: An Assessment of MethodologicalShortcomings, Ecological Economics, 36, 109-117. Hannesson R. (2002). The Development of Economic Institutions in the World Fishery.WDR 2003. BackgroundPaper. Hartwick, J., Olewiler, N. (1998). The Economics of Natural Resource Use. Addison-Wesley EducationalPublishers. Hegmann, G., C. Cocklin, R. Creasey, S. Dupuis, A. Kennedy, L.Kingsley, W. Ross, H. Spaling and D. Stalker. 1999. Cumulative Effects Assessment Practitioners Guide. Prepared by AXYS Environmental Consulting Ltd. and the CEA Worlung Group for the Canadian Environmental Assessment Agency, Hull, Quebec. htt~:llwww.ceaa-acee.nc.cdOl2/newnuidance e.htm. Holden, W., Garcia, P. and D. Thompson. 2005. Improving EIA Processes in Developing Countries: Case Study ofthe PeruvianHardrockMining Industry.University of Calgary. Holmes, T.P., G.M. Blate, J.C. Zweede, R. Pereira, Jr., P. Barreto, F. Boltz and R. Bauch (no date). "Financial Costs and Benefits of Reduced-Impact Logging Relative to Conventional Loggng in the Eastern Amazon". Southern Research Station, USDA Forest Service, Research Triangle Park, No. Carolina. Horton B., et al. (2002). Evaluating Non-Users Willingness to Pay for the Implementation of a 276 proponed National Parks Program in Amazonia. A WItalian Contingent Valuation Study by CSERGE WP ECM02-01 http://www.indeci.gob.pe Huttly, S., Morris, S. and Pisani, V. (1997). Prevention of Diarrhoea in Young Children in DevelopingCountries. WHO Bulletin. Vol. 75, No. 2. IFH (2001). Recommendations for Selection of Suitable Hygiene Procedures for the Use in the Domestic Environment. InternationalScientific Forumon HomeHygiene. Inbar, M., and C.A. Llerena (2000). "Erosion Processes in High Altitude Mountain Terraces in Peru", MountainResearchandDevelopment,Vol. 20,72-79. Instituto Nacional de Defensa Civil (INDECI, 2004). Plan Nacional de Prevencidn y Atencidn de Desastres.Lima, Peru. Instituto Nacional de Defensa Civil (MDECI, 1989). Impact0 Socio-Econdmico de 10sDesastres en el Peni. Lima, Peru. Infi-as (2002): PISA LimdCallao: EMODICMAP. Assumptions and Results. Worlung paper, L i d e r n e 31. July 2002. Instituto Nacional de Recursos Naturales (INRENA, 2005) General Directorate of Biodiversity Conservation: http:/lwww.inrena.gob.peliffs/biodivlcatego fauna amenazada.pdf; and p://www.inrena.gob.pe/iffs/iffs-biodiv-catego-flora-silv. htm Instituto Nacional de Recursos Naturales (INRENA., 1996). Monitoreo de la Deforestaci6nen la Amazonia Peruana. Lima, Peru Instituto Nacional de Recursos Naturales - Centro de Informaci6n Forestal (INRENA CIF, - 2004), Peni Forestal en Numeros A i o 2003. http:l/www.inrena.gob.peliffslciflinf estadANUARI0 PERU FORESTAL 2003.pdf Instituto Cuanto (2003) Pet4 en numeros,Anuario Estadistico, Lima, Peru, http:l/www.cuanto.orq Instituto Cuhnto (1998), Encuesta Nacional del Medio Ambiente, Study funded by USAID, Lima, Peni. Instituto Nacional de Estadistica e Informaci6n (INEI, 2004). Condiciones de Vida en 10s Departamentosdel Peni. Lima, Peru. Instituto Nacional de Estadistica e Informaci6n (INEI, 1999). Peru: Compendio de Estadisticas Sociodemogrbjkas: 1998-99.Lim, Peru. International Association for Impact Assessment (IAIA, 1999). Principles of Environmental ImpactAssessment Best Practice. w. Inter-American DevelopmentBank (IADB, 2001). Programa de Titulacidny Registro de Tierras -SegundaEtapa(PTRT2).IDB-Peru.February7,2001. Inter-American Development Bank (IADB, ZOOO), Facing the Challenge of Natural Disasters in Latin America and the Caribbean: An IDB Action Plan, Washington, D.C. March,2000. Israel, D., Banzon C. (1995) Over fishing in the Philippine Marine Fisheries Sector. The InternationalDevelopmentResearchCenter. Canada. Document 66. 277 Jacoby E. (1998). Environmental Lead I s a Problem in Lima, Peru. Environmental Health Perspectives 1998,Vo1.106, No4, pA170-171. Jordan: METAP (2000). Note: Kojima (2001): Breathing Clean. Considering the Switch to Natural Gas Buses. World Bank Technical PaperNo. 516, WashingtonD.C. Kotuby-Amacher, J., R. Koenig, and B.Kitchen, Salt and Plant Tolerance, UtahStateUniversity, Logan, Utah, PublicationAG-SO-03, July, 1997. Lampietti, J., Dixon J. (1994). To See the Forest for the Trees: A Guide to Non-Timber Forest Benefits. WorldBank. Larsen, B. (2003). Hygiene and Health in Developing Countries: Defining Priorities through Cost-Benefit Assessments. InternationalJournal of Environmental HealthResearch. Vol 13: S37- S46 Larsen, B. (2004a). Cost of EnvironmentalDegradation: A Socio-Economic and Environmental HealthAssessment inDamietta, Egypt. Preparedfor SEAM 11, Cairo, Egypt. Larsen, B. (2004b). Cost of Environmental Damage in Colombia: A Socio-Economic and Environmental Health Risk Assessment. Preparedfor the Ministry of Environment, Housing and LandDevelopmentof Republic of Colombia. Larsen, B. (2005a). Cost-Benefit Analysis of Environmental Protection in Colombia: Socio- Economic and EnvironmentalHealthBenefitsofInterventions. Preparedfor MAVDT, Colombia. Larsen, B. (2005b). Cost of Environmental Damage: Analysis by Department. Prepared for MAVDT, Colombia. Larsen, B., and E. Strukova (2006a). Peru: Cost of Environmental Damage: A Socio-Economic and Environmental Health Risk Assessment. Background Report for Country Environmental Assessment, World Bank, Washngton, D.C. October, 2005. Larsen, B and Strukova, E(2006b). A Cost-Benefit Analysis ofEnvironmentalProtectioninPeru. Report prepared as a backgrounddocument for the PeruCountry EnvironmentalAnalysis. World Bank. Lery, J., Prado, J., Tietze, U. (1999). Economic Viability of Marine Capture Fisheries Findings - ofa Global Study and an InterregionalWorkshop. FAO. Fisheries technicalpaper 377. Rome. Lovei M. (1998). Phasing out lead fiom gasoline. Worldwide experience and Policy implications. World Bank Technical PaperNo 397. The World Bank.Washington DC. Low, F. (1966). "Estimating PotentialErosion inDeveloping Countries." Water Conservation 22: 147- 148. Luo, 2.andHulscher, W. (1999). Woodfuel Emissions. RWEDP, Bangkok. May 1999. Majluf, P., Barandiarin, A., and Sueiro, J.C. (2005). Evaluacion Ambiental del Sector Pesquero en el Peru. inWorld BankCountryEnvironmentalAnilisis for Peru. Malca, G. (2002). "Estimaci6n de la Capacidad de Captura de C02 en Bosques Secundarios del Tr6pico Amaz6nico como Indicador de Valoraci6n Econ6mica. Loreto, Peni." In: M. Glave and 278 R. Pizarro (eds). ValoracibnEcondmica de la Diversidad Biolbgicay Sewicios Ambientales en el P e d Lima: Instituto Nacional de Recursos Naturales, International Resources Group and USAID. MargulisS. (2004). Causes ofDeforestation of the Brazilian Amazon. World Bank workmg paper N o 22. The World Bank.Washington D.C. McCracken, J. and Smith, K. (1998). Emissions and Efficiency o f Improved Woodbuming Cookstoves inHighlandGuatemala. Environment International. Vol. 24, No. 7. Mead, P. et a1 (1999). Food-Related Illness and Death in the United States. Emerg Infect Dis. Vol. 5, No. 5. Mecham, J. Causes and consequences of deforestation in Ecuador (2001). Centro de Investigacionde 10s BosquesTropicales (CIBT), Ecuador, May 2001. Mediterranean Environmental Technical Assistance Program (METAF', 2000), Costs of Environmental Degradation: Jordan Country Profile. Ministbre de 1'Amknagement du Territoire et de 1'Environnement (2002), Plan National d 'Actions pour I'Environnement et leDkeloppement Durable, Algiers, Algeria. Ministry of Sustainable Development and Environment (Bolivia). Memoria explicativa, Mapa Forestal. LaPaz, Bolivia: Secretariade Medio Ambiente, 1995. Mrozek, J. and Taylor, L. (2002). What Determines the Value o f Life? A Meta Analysis Journal o fPolicy Analysis andManagement. Vol21 (2): 253-270 Muck, P. 1989. Anchoveta consumption o f Peruvian hake: a distribution andfeeding model. EnD. Pauly, P. MUCK, J. MEND0 and I.TSUKAYAMA (eds.) The Peruvian Upwelling Ecosystem: Dynamics andinteractions. ICLARMConf. hoc. 18: 306-320. Naeher LP, Leaderer BP, Smith KR. (2000). Particulate matter and carbon monoxide inhighland Guatemala: indoor and outdoor levels fiom traditional and improved wood stoves and gas stoves. Indoor Air. Vol. 10, No. 3. Nepstad, D., Moreira, A., Alencar, A. (1999). Flames in the rain forest: origins, impacts and alternatives to Amazonian fire. The Pilot Programto Conserbe the Brazilian RainForest. Brazilia. Brazil. Niederman, M. et al. (1999). Treatment Cost o f Acute Exacerbations of Chronic Bronchitis ClinicalTherapy, 21(3): 576-91. OFDAKRED. (1999). EM-DAT: International Disaster Database. UniversitC Catholique de Louvain, Brussels, Belgium. www.md.ucl.ac.be/CRED Oficina Nacional de Evaluacih de Recursos Naturales (ONERN, 1985). La erosibn en el P e d Presentation by C. Robles at IV International Conference on Soil Conservation, Maracay, Venezuela. Oficina Nacional de Evaluaci6nde Recursos Naturales (ONERN, 1973). Inventario, Evaluacibn y Us0Racional de10s RecursosNaturales dela Costa: Cuencasde10s Rios Viruy Chao. 1973. Organization for Economic Cooperation and DeveloDment OECD, AGR/FI(2004)4/Revl: Further Examination o f Economic Aspects Relatingto the Transition to SustainableFisheries. 279 Ostro, B. (1994). Estimatingthe Health Effects of Air Pollution: A Method with an Application to Jakarta. Policy ResearchWorking Paper, WorldBank. Othman, J.(2002) HouseholdPreferences for Solid Waste Management inMalaysia, Economy and Environment Programfor Southeast Asia(EEPSEA) Research Report No. 2002-RR8, International DevelopmentResearchCentre. Padilla, P. (2004) Resultados de la Aplicacidn de la Matriz deMonitoreo de la Gesti6n de las Areas Naturales Protegidas del SlNAiVPE (2001 -2003). Muneo. May, 2004. Pan American Health Organization (PAHO, 2002). Situaci6n de Salud en Peru. Organizaci6n Panamericanode la Saludhttp://www.per.ops-oms.org. Pearce, D., Putz F., Vanclay J. (1999). A Sustainable Forest Future? CSERGE Working Paper GEC 99-15. London. Perez D. and Yamasato E. (2002). Aproximaci6n a la pobreza de la ciudad de Lima. Informe de consultoriaBanco Mundial. Perez-Padilla, R. et a1(1996). Exposureto biomass smoke and chronic airway disease inMexican women: A case-control study. Am. J. Respir.Crit. CareMed. Vol. 154, No. 3. PeruDemographicand Health Survey (DHS,2000). www.measuredhs.com PeruDemographicand Health Survey (DHS, 1996). www.rneasuredhs.com Peru Statistical Yearbook (2003), could be Instituto Cuanto (2003), Peru en N6meros, Anuario Estadistico. Programa Nacional de Manejo de Cuencas Hidrograficas y Conservaci6n de Suelos (PRONAMACHCS, 1988). 5 Afios de Consewacidn de Suelos con 10s Campesinos de 10s Andes Peruanos. MinistryofAgriculture, Lima, Peru. Proyecto Integral de Desarrollo Agropecuario de la Encaiiada (PIDAE, 1995). La Encafiada: Caminos hacia la sostenibilidad. Lima, Peru. 1995. Pinfold, J. and Horan, N. (1996). Measuringthe Effect of a Hygiene Behaviour Intervention by Indicators of Behaviour and Diarrhoeal Disease. Transactions of the Royal Society of Tropical Medicine andHygiene, Vol90. PISA-2005-2010. (2004). El Comit6 de Gesti6n de la Iniciativa de A r e Limpio para Lima y Callao.. Peru Pope CA 111, Burnett RT, Thun MJ, et a1 (2002). Lung cancer, Cardiopulmonarymortality, and Long-term exposure to Fine particulate air pollution. Journal of the American Medical Association, 287: 1132-1141. Pope CA 111, Burnett RT, Thun MJ, et a1(2002): Lung cancer, Cardiopulmonarymortality, and Long-term exposure to Fine particulate air pollution. Journal of the American Medical Association, 287: 1132-1141. Pope CA 111, Thun MJ, Nambudiri MM, et a1 (1995). Particulate air pollution as a predictor of mortality in a prospectivestudy of US adults. American Journal of Respiratoryand Critical Care Medicine, 151: 669-674. 280 Porter, G.(2005). Reportto the IDBon Fisheries IssuesinLatinAmerica Portilla, A. "Amenazas a la diversidadbiol6gica." (1998). InAlegre, M.et al. ElMedioAmbiente en el Ped. Afio 2001. Lima: Instituto Cuhnto and USAID, 2001; or Consejo Nacional del Ambiente, Comisi6nNacionalde Biodiversidad.BiodiversidadY Desarrollo. Portilla, A. (2002). "Valoraci6n Econ6mica del Bosque de Protecci6nCordillera Escalera - San Martin". In:M. Glave and R. Pizarro (eds). Valoracidn Econdmica de la Diversidad Bioldgica y ServiciosAmbientales en el Peh. Lima: Instituto Nacional de Recursos Naturales, International ResourcesGroup andUSAID. PortlandCement Association(2005): EnvironmentandEnergy: CleanAir. www.bipac.net Posthumus, H.(2005) Adoption of Terraces in the Peruvian Andes. Tropical Resource Management PaperNo. 72, Wageningen University, The Netherlands, November 2005. Prisma (2004) Behavioral Study of Handwashng with Soap in Peri-urban and Rural Areas of Peru. EnvironmentalHealthProject. USAID. WashingtonDC. Pruss-Ustin,A., Fewtrell F., LandriganP. (2004). Lead Exposure. In"Comparative quantification ofhealthrisks" ed. by Ezzatiet al. WHO. Geneva. Pruss, A., Kay, D., Fewtrell, L., and Bartram, J. (2002). Estimating the Burden of Disease from Water, Sanitationand Hygieneat the Global Level. EnvironmentalHealthPerspectives. Vol 110, No. 5. Pruss, A., Kay, D., Fewtrell, L., and Bartram, J. (2002). Estimating the Burden of Disease from Water, Sanitationand Hygieneat the Global Level. Environmental Health Perspectives. Vol 110, No. 5. Priiss-Ustiin A, Mathers C., Corvaliin C, Woodward A. (2003). Introduction and methods: assessing the environmental burden of disease at national and local levels. WHO Environmental Burdenof Disease Series, No. l,Geneva, WHO, 2003. Pulgar-Vidal, M., and I.Calle (2006) LQuidn Manda a Quie`n?Historia de la GestidnAmbiental en el Peni de 1990 a 2005 Background paper prepared for the World Bank Country EnvironmentalAnalysis, World Bank, Lima, Peru, January, 2006 Pulgar-Vidal, M.,and I. Calle (2003,2004) .Manual de LegislacidnAmbiental. PeruvianSociety for EnvironmentalRIghts, Commision of the Environment and Ecology (Peruvian Congress), and USAID. 2003,2004. Quick, R.E. et a1 (1999). Diarrhoea Prevention in Bolivia through Point-of-use Treatment and Safe Storage: A PromisingNew Strategy. Epidemiol Infect. Vol. 122. Rabl, A. (2000): Criteria for limits on the emission of dust from cement kilns that burn waste as fuel. Centre D'Energetique, Paris. Radich (2005): Article 15 - Biodiesel production methods, costs and available capacity. Anthony Radich, EIA. Ram`rez, A., Paucar J., and MedinaJ.(1997). Blood leadlevels inthe inhabitantsof four Peruvian localities. PanAm J Public Health, 1(5):344-348 Reiitegui, F.(1996)Monitoreo continuode losprocesosde deforestacidn en la Amazonia Peruana. 281 Lima: UniversidadNacionalAgraria, LaMolina. Mimeo. 1996. Resources Science Centre (1997). Irrigation water quality - Salinity and soil structure stability, Preparedby R. DeHayr,N.Diatloff, andI. Gordon. ISSN 1327-5364. Australia Roca, W., C. Espinoza, and A. Panta(2004). "Agricultural Applications of Biotechnology and the Potentialfor Biodiversity Valorization inLatinAmerica and the Caribbean", AgBioForum 7(1-2): 13-22. Rockhill B, Newman B, Weinberg C. (1998). Use and Misuse of Population Attributable Fractions.Am J Public Health 88: 15-19. Roger, J. and R. Roberts (1999). Deforestacidn: Bosques Tropicales en disminucidn. Red de Asesores Forestales de laACDI (RAFA).Mimeo. Romero, M. (2005). Andisis del Proceso de Concesiones Forestales Maderables para lograr su Consolidacidn en el Departamento de Loreto. Consulting Report of FOCAL-Bosque Project. Mimeo. Rowe, R., N. Sharma and J. Browder (1992). "Deforestation: Problems, Causes and Concerns." In: N.P. Sharma, (ed.). Managing the World`s Forests: Looking for Balance between Conservation and Development. Iowa: KendalVHuntPublishingCo. Rutstein, S.O. (2000). FactorsAssociated with Trends inInfant and Child Mortality inDeveloping Countriesduringthe 1990s. Bulletinofthe World Health Organization.Vol. 78(10): 1256-1270. Saade, C., Bateman, M., and Bendahmane, D. (2001). The Story of A Successful Public-Private Partnership in Central America: Handwashing for Diarrheal Disease Prevention. Publishedby BASICS 11, EHP, Unicef, USAID,andWorld Bank. Saatkamp, B., Masera, O., and Kammen, D. (2000). Energy and health transitions in development: Fuel use, stove technology, and morbidity in Jaracuaro, Mexico. Energy for Sustainable Development. Vol. IV, No 2. August 2000. Salkever DS. (1995). Updatedestimates of earnings benefits fromreducedexposure of children to environmentallead. EnvironmentalResearch. 70: 1-6 Sarraf, Maria, Bjorn Larsen, and Marwan Owaygen(2004), Costs of Environmental Degradation- The Case of Lebanon and Tunisia, The World Bank, Environmental Economic Series, Paper No. 97. Sarraf, Maria, KatherineBolt, andBjornLarsen(2004), Syrian Arab Republic, CostAssessment of Environmental Degradation, The World Bank and METAP. Shchez Hudn, S., I.Lapeiia, C. Ipenza Peralta, and M. Ruiz Muller (2005). Pefll Sobre Diversidad Boldgica. Informe Final. Proyecto Autoevaluacidn de CapcidadesNacionales para el Cumplimiento deAcuerdos Globales. Lima: PNUD and CONAM. 2005. Sanchez-Triana, E. and Yewande A. (2005). Environmental Degradation, Disease and Death: A Pleafor a StrengthenedEnvironmentalHealth Policy inPed, World BankDraft. Scarborough J, Clinton N, Gong P (2002). Creating a Statewide Spatially and Temporally Allocated Apcultural Burning EmissionsInventory Using Consistent EmissionFactors.Prepared for the Ax Resources Board, California EPA Schaefer, M.B. (1954). Some Aspects of the Dynamics of Populations Important to the 282 Management ofthe CommercialMarine Fisheries. Inter. Amer. Trop. Tuna Comm. Bull. 1(2), pp. 27-56. Schaefer, M.B.(1957). Some Considerations of PopulationDynamics and Economics inRelation to the Management of Commercial Marine Fisheries. Journal of Fisheries Research Board of Canada, 14(5), pp. 669-681. Schneider ,R., Arima E., Verissimo A., Souza Jr. C., Barreto. P. (2002). Sustainable Amazon. Limitations and Opportunities for Rural Development. World Bank technical Paper No. 515. Environmentalseries. WashingtonDC. Schulman,Roncaand Bucuvalas, Inc. (2001). Confronting COPD inNorthAmerica and Europe: A Survey ofPatients andDoctorsinEightCountries. Schwartz J. (1994). Societalbenefits of reducinglead exposure. Environmental Research 66:105- 12 Seneca Creek Associates and Wood Resources International.Illegal Logging and Global Wood Markets: The Competitive Impacts of the US. Wood Products Industry. Report prepared for American Forest and Paper Association, November, 2004. www.afandpa.org/Content/NavipationMenu/News RoodPavers Reports1iAFPAIlleg.alLo~ging ReportFINAL2.pdf Seroa da Motto, R.S. (2002). Estimativa do Custo Economico do Desmatamento na Amazonia. Working paper. www.bankomundia1.org.br Shack, N. (2006). Avanzando hacia la Cuantificaci6n del Gasto Nblico Medioambiental de las Entidadesdel GobiernoNacional, Worlung Paper. Shi, A. (1999). The Impact ofAccess to UrbanPotable Water and Sewerage Connection on Child Mortality: City LevelEvidence, 1993. Economists' Forum, Vol. 1, World Bank 1999 Shibuya, K., Mathers, C., and Lopez, A. (2001). Chronic Obstructive Pulmonary Disease (COPD): Consistent Estimates of Incidence, Prevalence, and Mortality by WHO Region. Global ProgrammeonEvidencefor HealthPolicy. World HealthOrganization. November2001 Sierra Research (2000): A ComparativeAnalysis of the Feasibility and Cost of Compliance with PotentialFutureEmissionStandards for Heavy-Duty Vehicles UsingDiesel or Natural Gas. Sierra ResearchInc., Sacramento, California. Smith K, Mehta S, and Few M. (2004). Indoor Air Pollution from HouseholdUse of Solid Fuels. In: Ezzati M, Rodgers AD, Lopez AD, and Murray CJL (eds): Comparative Quantification of HealthRisks: Global and RegionalBurdenof Disease due to SelectedMajor RiskFactors. World HealthOrganization,V01.2. Smith, J., et al. (1999). Willingness to Pay for Environmental Services among Slash and Bum Farmers in the Peruvian Amazon: Implications for Deforestation and Global Environmental Markets.CSERGE. London.Mimeo. Sobin, R. (2004): Fact Sheet on Power Plant Emissions of Mercury in Virgmia. Office of Air Permit Programs, Virginia DEQ. Strukova, E. (2004). Opportunity Cost Of DeforestationIn The Brazilian Amazon: Aggregated EstimatePer Ton OfAvoided CarbonEmission.Worlung Paper.WashingtonDC. Sueiro, J. (2005). The Status ofPeruvianFisheries. Working Paper. 283 Szabolcs, I.Salt-Afected Soils. Boca Raton, Fla.: CRC Press. 1989. Toniazzo, T. (2006). "A Study o f the Sensitivity o f ENS0 to the Mean Climate," Advances in Geosciences,Vol. 6, pp. 111-118. Torras M. (2000). The total economic value o f Amazonian deforestation, 1978-1993. Ecological Economics 33, pp. 283-297 Treacy, J. (1989) M.TheFields of Coporaque: Agricultural Terracing and WaterManagement in the Colca Valley,Arequipa, Peru. Ann Arbor: UniversityMicrofilms. 1989. Trenberth, K.E., and T.J. Hoar (1996). "The 1990-1995 El Niiio Southern Oscillation Event: Longest on Record," Geophysical ResearchLetters, Vo. 23(1):57-60. Umali, D.(1993). Irrigation-induced salinity: a growing problem for development and the environment. World Bank.Working paper N.215. UnitedNations Development Program (UNDP, 2004). Reducing Disaster Risk: A Challengefor Development. New York. 2004. UnitedNations Environment Program (UNEP, 2005). "Environmental Management and Disaster Reduction", Session Concept Paper for World Conference on Disaster Reduction, Kobe, Japan, January 2005. United Nations Environment Program (UNEP, 2004), Global Environment Outlook Year Book 2004-5, New York. US Department o f Energy (2005), Peru: Country Analysis Brief. Energy Information Adrmnistration. USEnvironmentalProtection Agency (2002), A Comprehensive Analysis ofBiodieselImpacts on Exhaust Emissions, Draft Technical Report, Washington, D.C. us National Environmental Policy Act WEPA, 1969), http:llwww.nepa.govlnepa/regslnepa/nepaeqia.htm Valdiva, R. (2002). The economics o f terraces in the Peruvian Andes: An application of sensitivityanalysis inanintegrated assessmentmodel. Montana StateUniversity. Varley, Tarvid and Chao. 1998. A reassessment of the cost-efectiveness of water and sanitation interventions in programmes for controlling childhood diarrhoea. Bulletin o f the World Health Organization, 76(6):617-63 1. Vigo, V.(2005) "Valoraci6n Econ6mica para la Gesti6n del Parque Turistico Nacional Quistococha (PTNQ): Zona Reservada Allpahuayo-Mishana". In: Loyola, R. and E. Gargia. Valoraci6n 2005. Viscusi, W.K. and Aldi, J.E. (2002). The Value o f a Statistical Life: A critical review o f market estimates throughout the world. Discussion Paper No. 392. HarvardLaw School. Cambridge, MA. UnitedStates. Willink, P., B. Chernoff, and J. McCullough (2005). A Rapid Biological Assessment of the Aquatic Ecosystems o f the Pastaza Rwer Basin, Ecuador and Peru, RAP Bulletino f Biological Assessments 33. Washmgton D.C.: Conservation International. 2005. 284 Winrock International (2005). Reduction in Exposure to Indoor An Pollution through Improvements in HouseholdEnergy and Behavior in Families from the High-Andean District of Inkawasi, Peru. SummaryofMonitoringResults by Swisscontact. Woodrow Wilson School of Public and International Affairs (WWS, 1999): Particulate Matter. Section4: EconomicAnalysis. www.wws.princeton.edu/step/ch4.pdf World Health Organization (WHO, 2002a). Global Burden of Disease 2002. The World Health Organization. World Health Organization (WHO, 2002b). The World Health Report 2002. The World Health Organization. World Health Organization (WHO, 2001). Global Burden of Disease 2001. The World Health Organization. World Health Organization and United Nations Children's Fund (WHO-Unicef, 2000). Global Water Supply and SanitationAssessment 2000 Report. World Bank (2005a), Republic of Colombia: Mitigating Environmental Degradation to Foster Growth and ReduceInequality.WashingtonD.C. World Bank (2005b), Integrating Environmental Considerations in Policy Formulation: Lessons frompolicy-BasedSEA Experience, Reportno. 32783, World Bank,WashingtonD.C. World Bank (2005~).World DevelopmentIndicators2005. Washngton D.C. World Bank (2005e), hqueza y Sostenibilidad: Dimensiones Sociales y Ambientales de la Mineria en el Peni, ReportNo. 33545, World Bank, WashingtonD.C. World Bank (2004a) SavingFish and Fishers, Towards Sustainable and Equitable Governance of the Global Fishing Sector. Report29090 GLB World Bank (2004b). World DevelopmentIndicators2004. WashingtonDC. World Bank (2004~).Study on the Environmental and Social Dimensionsof the Mining Sector in Peru World Bank (2003a). Kmgdom of Morocco Cost Assessment of Environmental Degradation. ReportNo. 25992MOR. WashingtonDC. World Bank(2003b). PeruFisheryStrategy SectorNote. World Bank (2002a). Egypt Cost Assessment of EnvironmentalDegradation. Report No. 25175- EGT. WashingtonDC. World Bank (2002b). Country Assistance Strategy for the Republic of Peru. Latin America and the CaribbeanRegion. World Food Programme (2000), Promoci6n de Desarrollo Sustentable de Microcuencas Altoandinas, WFP/EB.2/2000/6-A/2/Add.1, Lima, Peru, May www.indeci.gob.pe www.who.int/evidence/nbd 285 Zilbeman, D. "Biodiversity, Biotechnology and Intellectual Property Rights", Department of AgriculturalandResourceEconomics, University ofCalifornia-Berkeley, 2002. 286 287