Financing Environmental Protection in Economies in Transition: The Role of Environmental Funds

Abstract

Most countries with economies in transition in Central and Eastern Europe and the New Independent States of the former Soviet Union use earmarked, environmental funds to channel subsidised finance for environmental protection. In some Central and Eastern European countries in particular, the funds are major financiers of environmental investments. The funds are typically governmental institutions capitalised by various revenue sources, including environmental charges and fines. They generally provide grants or soft loans for a wide range of environmental protection activities. Although a number of circumstances in economies in transition may justify the provision of subsidised finance for environmental investments, and though funds have been endorsed as potentially effective transitional mechanisms, a number of concerns remain as regards their role vis-à-vis other environmental policy tools, their effectiveness and efficiency, and their impact on the development of more market-based financing mechanisms. In this paper I will review development trends among the funds, examine issues critical to their role and operation, and identify institutional strengthening needs.

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