China - Environmental Technical Assistance Project

Docoumst of The World Bank FOR OFFmCIAL USE ONLY RepWt No. P-6056-CHA MEMORADUMI AlMD RECOMENTION OF THE PRESIDENT OF THE InTERNTIONAL DEVOPMNT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 35.3 MILLION TO THE PEOPLE'S REPUBLIC OF CHIN FOR AN ENVIRONMENTAL TECaNICAL ASSISTANCE PROJECT MAY 26, 1993 MICROFICHE COPY Report No.:P- 6056-CHA Type: (PR) Title: ENVIRONMENTAL TECHNICAL ASSIST. Author: ANDERSON, N. Ext. :84077 Room:A 7007 Dept.:EA2EH This document has a restricted distribution and may be used b recipients only in the performance of their officisl duties. Its contents may not otherwise be disclosed without World Blank authorization.  CURRENCY NOUIVALENTS (As of March 1, 1993) Currency Name: Renminbi Currency Unit: Yuan (Y) USl.OO - Y !.75 Y I 5 US$ O.17 WEIGHTS AND MEASURES Metric System ABBREVIATIONS ADB - Asian Development Bank BRIM - Biodiversity Research and Information Nanagement CAS - Chinese Academy of Sciences CERN - Chinese Ecosystem Research Network EA - Environmental Assessment EIC - Environmental Information Center EPB - Environmental Protection Bureau (provincial or local) GEMS - Global Environmental Monitoring System JGF - Japan Grant Facility LTER - Long Term Ecological Research MOY - Ministry of Finance NEPA - National Environmental Protection Agency SPC - State Planning Commission TNA - Training Needs Assessment UNDP - Unied Nations Development Program UNEP - United Nations Environment Program WHO - World Health Organization FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY CHINA ENVIRONMENTAL TECHNICAL ASSISTANCE PROJECT Credit and Pro{ect Summarv Borrower: People's Republic of China Beneficiaries: National Environmental Protection Agency (NEPA) and Chinese Academy of Sciences (CAS) Amount: SDR 35.3 million (US$50.0 million equivalent) Terms: Standard IDA terms, with 35 years' maturity, including a 10-year grace period Financing Plan: Local Foreign Total -US$ million --------- NEPA 9.4 7.2 16.6 CAS 9.0 0.4 9.4 IDA 5.4 44. 50.0 TOTAL 52.2 76.0 Economic Rate of Return : Not applicable Staff Avpraisal Regort : Not applicable This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be discloser without World Bank authorization.  MEMORANDUN AND RECOMMENDATION OF THE PRESIDENT OF THE INTIRNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF CHINA FOR AN ENVIRONMENTAL TECHNICAL ASSISTANCE PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to China for SDR 35.3 million (equivalent to US$50 million), on standard IDA terms with a maturity of 35 years, to hell finance an Environmental Technical Assistance Project. The proceeds of the Development Credit would be onlent to the National Environmental Protection Agency (NEPA) and the Chinese Academy of Sciences (CAS) for 20 years, including a 5-year grace period, at a fixed annual interest rate of one percent. NEPA would in turn relend SDR 4.0 million (equivalent to US$S.6 million) to the industrial enterprises participating in the cleaner production pilot demonstration subproject at 7 percent per annum, for maturities up to 10 years and grace periods up to 3 years. The enterprises would bear the foreign exchange risk 2. Background. China's population of over 1.1 billion renders per capita holdings of farmland, grassland, forest and water well below world average figures. At present, environmental pollution and ecological degradation are serious. Water pollution from untreated municipal wastewater and industrial effluents, coupled with severe water shortages in northern China, pose the most severe problem and the one that most directly affects human health. Most wastewater is discharged into rivers, lakes and oceans without any treatment. A great number of large and medium-sized cities are in urgent need of improved water supplies. Excessive exploitation of groundwater has led to an aggravation of water shortages. Heavy air pollution from airborne particulates and sulfur dioxide has been found in most large and medium-sized cities. Few countries are so dependent on coal, and atmospheric emissions in China are largely due to coal burning, primarily in the industrial sector. Most urban domestic garbage and industrial solid wastes receive no treatment. Soil erosion, soil salinization, deforestation, desertification, damage to wetlands and grasslands, and diminishing wildlife habitats have resulted, in a trend covering many centuries, in a severe and serious decrease in China's natural ecosystems. 3. Although China had made notable accomplishments in public sanitation and flood control, its overall record in environmental management before 1978 was very weak. During the last ten years, however, China has made significant progress in environmental protection policies and programs. It has set up an institutional and policy framework for environmental protection, established comprehensive and strict pollution guidelines (including a system of pollution levies and effluent fees) and, since 1984, required environmental assessments for most public investments. The National Environmental Protection Agency (NEPA), established in 1982, is the institution primarily responsible for setting national policies, standards, and regulatory overview. Implementation and enforcement are mainly the responsibility of the vast network of provincial, municipal and local environmental protection bureaus (EPBs). Every line ministry also has an environmental department. In addition, the Chinese Academy of Sciences (CAS) has a large network of research institutes, of which more than a dozen now focus on environment and ecology. As a result of these measures, there are indications that China has made progress in addressing  -2 - its environmental problems and in reducing the rate of environmental degradation in some regions of the country; however, as in most countries, the implementation of environmental policies and standards has not been uniform, and the impacts of economic policies and very rapid growth have not always been conducive to sound environmeutal management. 4. Lessons from Previous Bank/tDA Involvement. While this is the first technical assistance project in China focused on the environment, the Bank Group has financed technical assistance and projRct preparation activities in other sectors. Lessons learned from the slower-than- projected disbursement of earlier multi-purpose technical assistance projects have been incorporated into the design of the present project. An important feature of this project is that most of the sub-projects have been fully prepared and appraised before the expected approval of the IDA credit. This has been possible due to the high level of commitment by NEPA and CAS during project preparation and the substantial foreign expertise obtained during project preparation, especially from the Danish Environmental Protection Agency, the Industry and Environment Program Activity Center of the United Nations Environment Program (UNEP), and the U.S. National Academy of Sciences' LTER (Long Term Ecological Research) Program (most of which has been financed from consultant trust funds provided by the governments of Canada, Denmar'k, Japan, the Netherlands and Norway). Project management arrangements in NEPA have benefitted from the experience that NEPA has gained through a small technical assistance program financed under the Japan Grant Facility and CAS has gained similar experience under the Bank-assisted Key Studies Project (Credit 2210-CHA). 5. Rationale for IDA Involvement. The Bank's Environmental Strategy Paper (Report No. 9669-CHA) and China's draft Environmental Action Plan have provided the basis for joint Government and Bank action on: (a) the formulation of long-term environmental protection and natural resource conservation policies and k~rograms; and (b) immediate investments that would cause improvement in the short term. A planned multiyear program of World Bank environmental assistance is proposed to include: (a) environmental sector studies to provide the analyses necessary for formulating policy, regulatory and institutional action plans, and investment programs for specific problems; (b) technical assistance to strengthen those institutions in China dealing with environmental and ecological matters; and (c) an environmental investment lending program (two t; three projects per year) to support appropriate investments, primarily at the provincial and municipal level, to further these objectives and to produce measurable (and monitorable) results in improving the efficiency of resource use and in reducing pollution and degradation of natural resources. Among the environmental projects envisaged for the next thres years, in addition to the project described below, are: several aimed at comprehensive management of urban pollution, a forestry project, several provincial projects on agricultural development of marginal lands and management of watersheds, and industrial projects to phase out the use of substances that deplete the ozone layer and to help reduce greenhouse gas emissions. 6. Proiect Objectives. The proposed project is designed to support agreed environmental objectives through the provision of technical assist- ance to strengthen the capacities and selected policies and programs of two institutions of national importance in China's environment sector, NEPA and  - 3 - CAS. More specifically, it addresses identified needs that emerged from the Environmental Strategy Paper and its review with the Government. Those needs are: (a) to improve coordination of environmental monitoring and ecological research; (b) to promote cleaner industrial production, pollution prevention and waste minimization technologies; (c) to enhance economic policy instruments for pollution control, especially the pollution levy system; and (d) to strengthen the Chinese system of environmental assessments (EA). Another objective is to improve interagency and interministerial coordination for improved environmental management (component (b)(iv) described below). 7. Project DescriRtion. The project would consist of three main components (figures in parenthesis represent respective IDA credit resource allocations): (a) CAS Ecological Research and Monitoring (USS20 million) (i) CAS began in 1980 to design a Chinese Ecosystem Research Network (CERN) to strengthen long-term ecological research in China and to generate scientifically-valid ecological information that could be used for sustainable natural resource management and agricultural development. CERN would link and upgrade existing selected ecological r.search field stations and institutes. The sub-project for the support of CERN (US$15.5 million) will provide specialized scientific instruments and computer hardware and software to upgrade research capacity and facilitate data collection, analyses, and exchange of information. It will also provide technical assistance in the design and management of the network (especially in the areas of scientific database and information management) and training of staff at the various CAS field stations and research institutes. An inter-agency data management committee would also be set up, inter-alia, to review and recommend policies and protocols to facilitate the transmission and sharing of CERN data within CAS and with other agencies and ministries. (ii) CAS has also recently set up a Biodiversity Research and Information Management (BRIM) program, to promote and strengthen research and generate better information on China's rich biological resources. The sub-project for BRIM (US$4.5 million) would, through provision of technical assistance, training, equipment, and facilities, assist in establishing a biodiversity information data network to facilitate exchange of information between various CAS research institutes and field stations; strengthen technical capabilities to conduct field surveys and inventories; enhance capacity for ex-situ propagation and maintenance of genetic materials; and facilitate analysis and dissemination of research results to scientists and decision makers. (b) NEPA Technical Assistance Program (USS25 million) (i) Two subprojects (US$1.8 million) would provide technical assistance, training and equipment to strengthen management capabilities of NEPA and its provincial network and associated  - 4 - research institutes, including a subproject focusing on the recently created Environment and Economic Policy Research Center. A training unit has been set up and periodic training needs assessments will be carried out within NEPA. A third subproject (US$1.7 million) would provide technical assistance to China's university level envirormental education sytem, including a study which will review and make recommendations for strengthening graduate and post-graduate environmental degree programs. (ii) Three subprojects (US$8.7 million) providing technical assistance, training and equipment to: (a) improve and expand NEPA's computerized environmental monitoring and information gystems at the provincial and municipal level (including preparation of a strategic environmental information resources management plan); (b) expand and upgrade China's global environmental monitoring system (GEMS) which is a part of the WHO/UNEP global network; and (c) upgrade the national enmvironmental analysis and measurement standards (reference material standards). Steering committees will be set up to review the functions and operations of the systems and to make changes as needed during the implementation of the project, particularly in regard to management capacity and utilization -f the networks. (iii) Waste minimization and cleaner production grograms for industry (USS6.3 million). This subproject would support the nascent cleaner production efforts underway in China. Its goal is capacity and capability building to develop and expand Chinese cleaner production expertise. The subproject would have four major parts: (a) institution building (NEPA, industrial ministries and industrial design institutes); (b) training; (c) pilot demonstration projects (US$5.6 million); and (d) a policy review (including a post-evaluation of the demonstration projects). The work under this subprojact would also build Chinese capacity to assist in the preparation of cleaner production components under Bank-financed industry and urban environment projects in China over the next three to five years. UNEP assisted in preparing and will be involved in supervising the subproject through its Industry and Environment Program Activity Center. (iv) A line of credit to undertake specific environMental and ecological studies (USS6.5 million). Studies already pre- identified would address agreed prio-.ity areas, including environmentally sound agriculture, rural industry pollution control, strengthening China's pollution levy system, motor vehicle pollution control, hazardous and toxic waste m