Finance for Sustainable Development: Testing New Policy Approaches PDF
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United Nations Department of Economic and Social Affairs Division for Sustainable Development FINANCE for SUSTAINABLE DEVELOPMENT Testing New Policy Approaches Proceedings of the Fifth Expert Group Meeting on Finance for Sustainable Development, Nairobi, Kenya, 1-4 December 1999 United Nations New York, 2002 NOTE The Division for Sustainable Development of the Department of Economic and So- cial Affairs of the United Nations Secretariat serves as secretariat for the United Na- tions Commission on Sustainable Development. The term "country", as used in this publication, also refers, as appropriate, to terri- tories or areas; the designations employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. In addi- tion, the designations of country groups are intended solely for statistical or analytical convenience and do not necessarily express a judgement about the stage of develop- ment reached by a particular country or area in the development process. Reference to dollars ($) means United States dollars, unless otherwise indicated. Other curren- cies are referred to by their international symbols. The material contained in this publication may be freely quoted with appropriate acknowledgement. The opinions expressed by the authors contributing to this volume are personal and do not imply any opinion whatsoever on the part of their employers and organiza- tions, or on the part of the United Nations Secretariat. United Nations publication Sales No. E.02.II.A.2 ISBN 92-1-104512-6 Copyright © United Nations 2002 All rights reserved Litho in the United Nations ii PREFACE F INANCE plays a pivotal role in implement- academia, international and regional organizations, ing the environmental, social and economic NGOs and the private sector presented and debated policies needed to attain the objectives of the papers in this volume. The overall theme of the Agenda 21. It is also an area that presents papers is testing new policy approaches in financing immense challenges. These challenges are illus- sustainable development. The major areas of focus trated at the international level by the international are improving the policy framework for sustainable financial crisis of 1997-98 and the stagnant levels of development finance, new policy approaches in inter- official development assistance throughout the 1990s. national and domestic finance, and innovative At the domestic level, they are illustrated by the diffi- mechanisms in sector finance. There is an emphasis culties in removing environmentally damaging subsi- on Sub-Saharan Africa, with several papers address- dies and in raising domestic financial resources, par- ing specific issues related to finance for sustainable ticularly in developing countries where poverty and development in that region. unemployment are high, debt payments burdensome The Chairman's Summary of the Meeting and the and policy options limited. papers were presented to the Eighth Session of the Challenges such as these must be addressed and United Nations Commission on Sustainable Develop- overcome. Current policies must be continuously re- ment in May 2000. This publication will also serve as viewed and improved upon and, where necessary, an input to the International Conference on Financ- new policies must be tested and implemented. Dur- ing for Development to be held in 2002. ing this process, new policies must be debated among On behalf of the United Nations, I would like to experts and scholars, and information about the poli- express my gratitude to the Governments of The cies and their implementation must be disseminated. Netherlands, Ireland and Kenya for sponsoring the The purpose of Finance for Sustainable Develop- Fifth Expert Group Meeting and this publication. I ment: Testing New Policy Approaches is to contribute also express my sincere appreciation to the United to this process. It contains papers presented at the Nations Environment Programme for hosting the Fifth Expert Group Meeting on Finance for Sustain- Meeting. Finally, I would like to thank the United able Development, held in Nairobi, Kenya, 1-4 De- Nations Office in Nairobi for supporting us in the on- cember 1999. Experts from national governments, site organization of the Meeting.• Nitin Desai Under-Secretary-General Department of Economic and Social Affairs iii ACKNOWLEDGEMENTS Finance for Sustainable Development: Testing New Policy Approaches Edited by Juergen Hoist, Donald Lee and Eric Olson The Fifth Expert Group Meeting on Finance for Sustainable Development was sponsored by the Govern- ments of The Netherlands, Ireland and Kenya, hosted by the United Nations Environment Programme (UNEP) and organized by the United Nations Department of Economic and Social Affairs (UNDESA). The meeting was held at the United Nations Office in Nairobi (UNON) Gigiri Conference Centre from 1-4 Decem- ber, 1999. Experts from national governments, academia, international and regional organizations, non- governmental organizations (NGOs) and the private sector took part as authors, discussants and participants. Contributors to the Meeting and this volume are: The Honourable Chrisanthus Okemo, E.G.H., M.P., Nguyuru Lipumba, Civic United Front, Tanzania Minister for Finance, Kenya Anil Markandya, University of Bath, United King- J.G. Backhaus, Maastricht University, The Nether- dom lands John Norregaard, IMF Ashok Bhundia, Bank of Uganda R.Omotayo Olaniyan, Organisation for African Unity Nicholas Biekpe, University of Stellenbosch, South T.A. Oyejide, University of Ibadan, Nigeria Africa Jyoti Painuly, UNEP Collaborating Centre on Energy John Dilyard, St. Francis College, United States and Environment, Denmark JoAnne DiSano, UNDESA Theodore Panayotou, HIID, United States Donata Finck von Finckenstein, University College David Pearce, University College London, United London, United Kingdom Kingdom P. Francis, University of Bath, United Kingdom Grzegorz Peszko, OECD H. Peter Gray, Rutgers University, United States Valerie Reppelin-Hill, IMF Dympna Hayes, Permanent Mission of Ireland to the Kai Schlegelmilch, Federal Ministry for the Environ- United Nations ment, Nature Conservation and Nuclear Safety, Jorge Illueca, UNEP Germany Carlos Joly, Storebrand Investments, Norway Kazuo Takahashi, International Development Re- search Institute, Japan Louis Kasekende, Bank of Uganda Norbert Wohlgemuth, UNEP Collaborating Centre on Ron Lander, Ministry of Foreign Affairs, The Nether- Energy & Environment, Denmark lands Lin See-Yan, LIN Associates, Malaysia Those who took part as formal discussants at the Meeting are: Thomas Brewer, Eric Chatman, Andre de Moor, Marco Ferroni, Augustin Fosu, Carl Greenidge, Ron Lander, Geoffrey Mwau, Charles Okeahalam, R. Omotayo Olaniyan, Theodore Panayotou and Grzegorz Peszko. A complete list of those who participated in the Meeting is included in Annex II. The African Development Bank, the United Nations Economic Commission for Africa and the United Nations Development Programme, Kenya recommended several experts from Africa. The UNDESA staff member in charge of the Meeting's organization was Juergen Hoist, assisted by Donald Lee and Eric Olson. Administrative support was provided by Surinder Punj and Masachika Suzuki. Support for the on-site organization and administration of the Meeting was provided by UNEP and UNON, in particu- lar, Shafqat Kakakhel, Amadeo Buonajuti, Shahida Ali-Butt, Jessica Wanyama from UNEP and Alexandar Barabanov, Aidar Karatabanov, Gertrude Aguti, Galina Kahumbura, Alex Makomere, Nelson Kahiu, Peter Waweru and David Ojwan'g from UNON. On-site English-French interpretation of the Meeting was per- formed by J.P. Pama, Kebba Jarju, Maria-Lily Pavlidis and J.K. Muhindi. Editing support was provided by Surinder Punj, Alejandro Carpio, Masachika Suzuki and Madhavi Ron- gola; the layout was prepared by Donald Lee. iv TABLE OF CONTENTS PREFACE Nitin Desai iii INTRODUCTION Juergen Hoist, Donald Lee and Eric Olson 1 INTRODUCTORY STATEMENTS The Honourable Chrisanthus Okemo, E.G.H., M.P 5 Jorge Illueca 9 Ron Lander 11 Dympna Hayes 13 JoAnne DiSano 15 LinSee-Yan 17 CHAIRMAN'S SUMMARY AND RECOMMENDATIONS LinSee-Yan 19 PART ONE: IMPROVING THE POLICY FRAMEWORK FOR SUSTAINABLE DEVELOPMENT FINANCE Taking Stock of Sustainable Development Finance in Sub-Saharan Africa T. Ademola Oyejide 29 Integrating Public Environmental Expenditure Management and Public Finance in Transition Economies Grzegorz Peszko 41 PART TWO: NEW POLICY APPROACHES IN INTERNATIONAL FINANCE Reversing the Decline of ODA: How Effective Is the Current Policy Agenda? Kazuo Takahashi 69 Official Development Assistance (ODA) and Sustainable Development in Africa: Towards a New Strategy R. Omotayo Olaniyan 87 Debt Relief and Sustainable Development in Sub-Sahara Africa Nguyuru H. I. Lipumba 115 Increasing the Contribution of Foreign Investment to Sustainable Development: Domestic and International Policy Measures Peter Gray and John Dilyard 135 Attracting Capital Inflows to Africa: Essential Elements of a Policy Package Louis Kasekende and Ashok Bhundia 159 V vi TABLE OF CONTENTS The Impact of Rationalization in the African Capital Markets Sector and the Mobilization of Foreign Capital for Sustainable Development Nicholas Biekpe 171 PART THREE: NEW POLICY APPROACHES IN DOMESTIC FINANCE Advancing Subsidy Reform: Towards a Viable Policy Package David Pearce and Donata Finck von Finckenstein 181 Taxes and Tradable Permits as Policy Options for Controlling Pollution: Review of Country Experiences John Norregaard and Valerie Reppelin-Hill 193 Overview of Recent Experiences with Ecological Tax Reforms in Europe Kai Schlegelmilch 221 Increasing the Role of Environmental Taxes and Charges as a Policy Instrument in Developing Countries: Some Conceptual Considerations Jurgen Backhaus 247 Promoting Private Sector Participation in the Financing of Sustainable Development Anil Markandya with P. Francis 263 The Greening of Financial Markets Carlos Joly 283 PART FOUR: INNOVATIVE MECHANISMS IN SECTOR FINANCE Innovative Financial Mechanisms for Sustainable Sector Financing Theodore Panayotou 303 Promoting Private Sector Financing of Commercial Investments in Renewable Energy Technologies Norbert Wohlgemuth and Jyoti Painuly 319 ANNEXES I. Agenda 335 II. List of Participants 339 FFIINNAANNCCEE FFOORR SSUUSSTTAAIINNAABBLLEE DDEEVVEELLOOPPMMEENNTT:: TTEESSTTIINNGG NNEEWW PPOOLLIICCYY AAPPPPRROOAACCHHEESS IINNTTRROODDUUCCTTIIOONN JJuueerrggeenn HHooiisstt,, DDoonnaalldd LLeeee aanndd EErriicc OOllssoonn** TT HHEE PPrrooggrraammmmee ffoorr tthhee FFuurrtthheerr IImmpplleemmeenn-- CChhaaiirrmmaann''ss SSuummmmaarryy.. AA ddrraafftt ooff tthhiiss SSuummmmaarryy wwaass ttaattiioonn ooff AAggeennddaa 2211,, aaggrreeeedd uuppoonn aatt tthhee ddiissccuusssseedd dduurriinngg tthhee llaasstt ddaayy ooff tthhee MMeeeettiinngg,, aanndd iittss EEaarrtthh SSuummmmiitt++55 iinn 11999977,, ccoonnttaaiinneedd pprroo-- ffiinnaall vveerrssiioonn rreefflleeccttss tthhee ccoommmmeennttss aanndd ssuuggggeessttiioonnss ppoossaallss ffoorr nneeww ppoolliiccyy aapppprrooaacchheess iinn rreeggaarrdd mmaaddee bbyy tthhee eexxppeerrttss.. TThhee SSuummmmaarryy ccoonnttaaiinnss aann ttoo tthhee mmoobbiilliizzaattiioonn aanndd aallllooccaattiioonn ooff ffiinnaanncciiaall rree-- aannaallyyssiiss ooff mmaajjoorr pprroobblleemmss iinn mmoobbiilliizziinngg aanndd aallllooccaatt-- ssoouurrcceess ffoorr ssuussttaaiinnaabbllee ddeevveellooppmmeenntt.. TThhee FFiifftthh EExx-- iinngg ffiinnaanncciiaall rreessoouurrcceess ffoorr ssuussttaaiinnaabbllee ddeevveellooppmmeenntt ppeerrtt GGrroouupp MMeeeettiinngg oonn FFiinnaannccee ffoorr SSuussttaaiinnaabbllee DDee-- aanndd pprroovviiddeess kkeeyy ppoolliiccyy ooppttiioonnss ffoorr tthheeiirr ssoolluuttiioonn.. IItt iiss vveellooppmmeenntt ((NNaaiirroobbii,, KKeennyyaa,, 11——44 DDeecceemmbbeerr 11999999)) uunn-- ppaarrttiiccuullaarrllyy uusseeffuull ffoorr nnaattiioonnaall ppoolliiccyy mmaakkeerrss aanndd ddeerrttooookk aa rreevviieeww ooff tthhee tteessttiinngg ooff tthheessee aapppprrooaacchheess iinn pprraaccttiiccee.. ootthheerr rreeaaddeerrss pprreesssseedd ffoorr ttiimmee.. IInn rreevviieewwiinngg tthhee pprrooppoossaallss ooff tthhee EEaarrtthh SSuumm-- TThhee vvoolluummee tthheenn aaddddrreesssseess tthhee ffiirrsstt ppaarrtt ooff tthhee mmiitt++55,, tthhee EExxppeerrtt GGrroouupp pprroovviiddeess iinnppuuttss ttoo tthhee ddiiss-- MMeeeettiinngg aaggeennddaa,, tthhee ddiissccuussssiioonn ooff hhooww ttoo iimmpprroovvee tthhee ccuussssiioonn oonn ffiinnaannccee ffoorr ssuussttaaiinnaabbllee ddeevveellooppmmeenntt aatt tthhee ppoolliiccyy ffrraammeewwoorrkk ffoorr ssuussttaaiinnaabbllee ddeevveellooppmmeenntt ffii-- WWoorrlldd SSuummmmiitt oonn SSuussttaaiinnaabbllee DDeevveellooppmmeenntt wwhhiicchh nnaannccee.. TT.. AAddeemmoollaa OOyyeejjiiddee ooff tthhee UUnniivveerrssiittyy ooff wwiillll bbee ccoonnvveenneedd iinn JJoohhaannnneessbbuurrgg,, SSoouutthh AAffrriiccaa iinn IIbbaaddaann,, NNiiggeerriiaa,, aaddddrreesssseess tthhiiss iissssuuee bbyy aannaallyyzziinngg 22000022.. AAss ffiinnaanncciiaall rreessoouurrcceess aarree aa ccrruucciiaall eelleemmeenntt ffoorr rreecceenntt ddeevveellooppmmeennttss iinn ssuussttaaiinnaabbllee ddeevveellooppmmeenntt ffii-- tthhee iimmpplleemmeennttaattiioonn ooff AAggeennddaa 2211,, iitt ccaann bbee eexxppeecctteedd nnaannccee iinn SSuubb--SSaahhaarraann AAffrriiccaa.. TThhee aauutthhoorr aaddvvooccaatteess aa tthhaatt tthhee ddiissccuussssiioonn ooff ffiinnaanncciiaall mmeecchhaanniissmmss wwiillll bbee ppoolliiccyy ffrraammeewwoorrkk wwiitthh aa bbeetttteerr bbaallaannccee ooff ddoommeessttiicc oonnee ooff tthhee mmoosstt ddeebbaatteedd iissssuueess aatt tthhee ffoorrtthhccoommiinngg aanndd eexxtteerrnnaall rreessoouurrcceess ffoorr iinnvveessttmmeenntt ffiinnaannccee aanndd SSuummmmiitt.. IItt iiss aallssoo hhooppeedd tthhaatt tthhee rreevviieeww uunnddeerrttaakkeenn ddiissccuusssseess tthhee ppootteennttiiaall ddaannggeerr ooff vvoollaattiillee eexxtteerrnnaall rree-- bbyy tthhee EExxppeerrtt GGrroouupp wwiillll bbee aa uusseeffuull iinnppuutt ffoorr tthhee ssoouurrccee fflloowwss ffoorr eeccoonnoommiicc ggrroowwtthh.. AA mmoorree nnaarrrrooww bbuutt ffoorrtthhccoommiinngg IInntteerrnnaattiioonnaall CCoonnffeerreennccee oonn FFiinnaanncciinngg nneevveerrtthheelleessss iimmppoorrttaanntt iissssuuee ooff ppoolliiccyy ddeessiiggnn iiss aadd-- ffoorr DDeevveellooppmmeenntt iinn 22000022.. ddrreesssseedd bbyy GGrrzzeeggoorrzz PPeesszzkkoo ooff tthhee OOrrggaanniissaattiioonn ffoorr TThhiiss vvoolluummee ccoonnttaaiinnss tthhee pprroocceeeeddiinnggss ooff tthhee FFiifftthh EEccoonnoommiicc CCoo--ooppeerraattiioonn aanndd DDeevveellooppmmeenntt wwhhoo mmaakkeess EExxppeerrtt GGrroouupp MMeeeettiinngg oonn FFiinnaannccee ffoorr SSuussttaaiinnaabbllee aa ccoonnvviinncciinngg aarrgguummeenntt iinn ffaavvoorr ooff iinntteeggrraattiinngg ppuubblliicc DDeevveellooppmmeenntt11 wwhhiicchh wwaass aatttteennddeedd bbyy eexxppeerrttss ffrroomm eennvviirroonnmmeennttaall eexxppeennddiittuurree mmaannaaggeemmeenntt iinnttoo ggeenneerraall ggoovveerrnnmmeenntt,, iinntteerrnnaattiioonnaall aanndd nnoonn--ggoovveerrnnmmeennttaall oorr-- ppuubblliicc ffiinnaannccee.. BBaasseedd oonn tthhee eexxppeerriieennccee ooff eeccoonnoommiieess ggaanniizzaattiioonnss,, aaccaaddeemmiiaa aanndd tthhee pprriivvaattee sseeccttoorr.. iinn ttrraannssiittiioonn iinn CCeennttrraall aanndd EEaasstteerrnn EEuurrooppee,, hhee aarr-- TThhee vvoolluummee ssttaarrttss wwiitthh tthhee iinnttrroodduuccttoorryy ssttaattee-- gguueess tthhaatt ppuubblliicc iinnssttiittuuttiioonnss mmaannaaggiinngg eennvviirroonn-- mmeennttss ddeelliivveerreedd dduurriinngg tthhee ooppeenniinngg sseessssiioonn.. mmeennttaall eexxppeennddiittuurreess sshhoouulldd aaddhheerree ttoo aacckknnoowwlleeddggeedd TThhee iinnttrroodduuccttoorryy ssttaatteemmeennttss aarree ffoolllloowweedd bbyy tthhee ssttaannddaarrddss ooff ssoouunndd ppuubblliicc ffiinnaannccee aanndd ffooccuusseess iinn tthhiiss ccoonntteexxtt oonn aauuttoonnoommoouuss ppuubblliicc eennvviirroonnmmeennttaall ffuunnddss.. TThhee vvoolluummee tthheenn ttuurrnnss ttoo tthhee sseeccoonndd ppaarrtt ooff tthhee MMeeeettiinngg aaggeennddaa,, wwhhiicchh ddeeaallss wwiitthh nneeww ppoolliiccyy aapp-- pprrooaacchheess iinn iinntteerrnnaattiioonnaall ffiinnaannccee aanndd ffooccuusseess oonn nneeww ssttrraatteeggiieess ffoorr ooffffiicciiaall ddeevveellooppmmeenntt aassssiissttaannccee ((OODDAA)),, aa bbeetttteerr ddeessiiggnn ooff ppoolliicciieess ffoorr aattttrraaccttiinngg pprriivvaattee ffoorr-- ** JJuueerrggeenn HHooiisstt iiss CChhiieeff,, aanndd DDoonnaalldd LLeeee aanndd EErriicc OOllssoonn aarree eeiiggnn ccaappiittaall fflloowwss aanndd ppoolliiccyy aaccttiioonn ffoorr ffuurrtthheerr ddeebbtt ssttaaffff mmeemmbbeerrss,, ooff tthhee FFiinnaannccee,, IInndduussttrryy aanndd TTrraaddee UUnniitt,, DDiivviissiioonn rreelliieeff.. TThhee ccoonnttrriibbuuttiioonn ooff KKaazzuuoo TTaakkaahhaasshhii ooff tthhee IInn-- ffoorr SSuussttaaiinnaabbllee DDeevveellooppmmeenntt,, UUnniitteedd NNaattiioonnss DDeeppaarrttmmeenntt ooff EEccoo-- nnoommiicc aanndd SSoocciiaall AAffffaaiirrss.. tteerrnnaattiioonnaall RReesseeaarrcchh IInnssttiittuuttee iinn JJaappaann ttaakkeess aa ccrriittii-- 11 TThhee pprroocceeeeddiinnggss ooff tthhee TThhiirrdd aanndd FFoouurrtthh EExxppeerrtt GGrroouupp ccaall llooookk aatt tthhee ccuurrrreenntt ppoolliiccyy aaggeennddaa ffoorr iimmpprroovviinngg MMeeeettiinnggss wweerree ppuubblliisshheedd aass SSuussttaaiinnaabbllee DDeevveellooppmmeenntt FFiinnaannccee:: tthhee uunnssaattiissffaaccttoorryy ssiittuuaattiioonn iinn rreeggaarrdd ttoo OODDAA aanndd OOppppoorrttuunniittiieess aanndd OObbssttaacclleess ((UUnniitteedd NNaattiioonnss,, 11999966)) aanndd FFiinnaannccee mmaakkeess sseevveerraall pprrooppoossaallss ffoorr ppoolliiccyy cchhaannggeess.. FFoorr eexx-- ffoorr SSuussttaaiinnaabbllee DDeevveellooppmmeenntt:: TThhee RRooaadd AAhheeaadd,, eeddiitteedd bbyy JJuueerrggeenn aammppllee,, hhee ssuuggggeessttss ttoo rreessoollvvee tthhee iissssuuee ooff OODDAA iinn tthhee HHooiisstt,, PPeetteerr KKoouuddaall aanndd JJeeffffrreeyy VViinncceenntt ((UUnniitteedd NNaattiioonnss,, 11999977)),, rreessppeeccttiivveellyy.. ffrraammeewwoorrkk ooff aa wwiiddeerr ssttrraatteeggyy ddeeaalliinngg wwiitthh eeccoonnoommiicc 11 2 Finance for Sustainable Development: Testing New Policy Approaches and political globalization, develop differentiated Africa needs also to include a greater regionalization strategies toward different categories of aid recipi- of capital markets. Nicholas Biepke of the University ents and start conceptualizing a longer-term strategy of Stellenbosch in South Africa analyses the current for ODA in which global goods would play a central state of regionalization and makes a number of pro- role. Takahashi's conceptual discussion of global ODA posals to accelerate progress towards further region- issues is complemented by proposals for a reform alization. strategy for ODA in Africa by R. Omotayo Olaniyan The volume then turns to the third part of the of the Organization for African Unity. He emphasizes Meeting agenda, which addresses new policy ap- that the way forward should be a strategy that iden- proaches in domestic finance and focuses on subsidy tifies ways to strengthen the political will in donor reform, the role of environmental taxes and tradable countries for higher ODA commitments, outlines permits as well as ways and means of promoting a measures to disburse aid more efficiently to priority greater role of the private sector in financing sustain- areas in recipient countries, and recommends pres- able development. In view of the heavy burden of sub- sure on policy makers to abandon all forms of tied sidies for public finance, subsidy reforms will con- aid. tinue to play a central role in the discussion of fi- Nguyuru H.I. Lipumba of the Civic United Front nance for sustainable development. However, as in Tanzania argues that new strategies for ODA must David Pearce and Donata Finck von Finckenstein of be matched by strategies for dealing with the debt University College London, United Kingdom, point problem, in particular in Sub-Saharan Africa. In re- out in their article, subsidy reforms should not be gard to current debt relief strategies he argues that pursued as isolated policy measures but as a policy linking debt relief to implementing conditions im- package reflecting a wider program of macroeconomic posed by the International Monetary Fund and World and political reform. This gradualist approach has to Bank undermines the principle of policy ownership in consist of pre-announced policy measures and step- debtor countries. Instead, he emphasizes that it will by-step subsidy reductions combined with public be necessary to implement across-the-board debt can- awareness campaigns and efforts at increasing trans- cellation to facilitate poverty-reducing growth strate- parency and accountability. gies in debtor countries. "Green taxes" and tradable permits for controlling In addition to dealing with the problems of ODA pollution can make important contributions to reduc- and debt relief, it has become increasingly important ing the financial requirements for sustainable devel- for countries to attract foreign private capital inflows opment. Most countries have relied more on taxes for investment in sustainable development. Peter than on tradable permits to control pollution. John Gray of Rutgers University, USA, and John Dilyard Norregaard and Valerie Repellin-Hill of the Interna- of St Francis College, USA, focus in their article on tional Monetary Fund conclude that even though in foreign direct investment (FDI) and foreign portfolio theory neither instrument seems to be preferable to investment (FPI), which contribute to economic the other, in practice most countries have relied more growth and technology transfer, social development on taxes than on tradable permits. The authors ex- and environmental goals. The authors discuss the amine in their paper a number of lessons to be problems that developing countries may face if they learned from country experiences regarding the de- rely heavily on these capital flows and address vari- sign and implementation of both instruments and ous policies aimed at strengthening the necessary in- conclude that the willingness to experiment with stitutional infrastructure for FDI and FPL The con- tradable permits seems to be growing in view of the tribution of Louis Kasekende and Ashok Bhundia of Kyoto protocol emission targets. The overview article the Bank of Uganda discusses the issue of foreign by Norregaard and Repellin-Hill is complemented by capital inflows from the perspective of African coun- an in-depth evaluation of recent experiences with eco- tries and outlines essential elements of a policy pack- logical tax reform with a focus on Europe by Kai age. The authors analyze why Sub-Saharan Africa Schlegelmilch of the Federal Ministry for the Envi- has not been able to attract large inflows of foreign ronment, Nature Conservation and Nuclear Safety of capital in the 1990s and highlight negative investor Germany. The author concludes that these taxes perceptions and political risks. They propose policy have been effective and quotes as examples of par- options that could remove the impediments to larger ticularly successful taxes those on sulfur dioxide in capital inflows and emphasize institutional reform, Denmark and Sweden, on nitrogen oxides in Sweden, investment in human capital and infrastructure and on water pollution in the Netherlands, and the vari- ensuring macroeconomic stability. A strategy for en- ous tax differentiation schemes for fuels in most suring increased inflows of capital into Sub-Saharan European countries. In view of the many obstacles Introduction 3 that are still in the way of a more widespread use of seeing to some extent a virtuous circle of environ- environmental taxes worldwide, the article by J.G. mental legislation, corporate environmentalism and Backhaus of Maastricht University, The Nether- investor preferences in favor of environmentally and lands, on environmental taxes with its focus on vari- socially responsible corporations. ous conceptual considerations makes a useful contri- The volume then addresses the final part of the bution to advancing the policy debate. Meeting agenda, which deals with innovative finan- Much has been written on the proposition that the cial instruments and mechanisms in sector finance. private sector has a major role to play in the financ- The core paper was provided by Theodore Panayotou ing of sustainable development. A. Markandya and P. of the Harvard International Institute for Develop- Francis of the University of Bath, United Kingdom, ment, USA. The paper explores innovative financial give an overview of the debate and discuss briefly pri- mechanisms in energy, transportation, water, sanita- vatization and infrastructure investment as potential tion and forestry and identifies similarities and dif- sources of finance. In regard to private sources of fi- ferences between these mechanisms. The paper also nance for global environmental protection the au- discusses to what extent instruments and mecha- thors conclude that progress can be expected if the nisms that are successful in one sector can be repli- flexibility mechanisms of the Kyoto Protocol are im- cated in other sectors. In regard to replicating finan- plemented in the first decade of the millennium. As cial instruments and mechanisms the paper also ex- for investments related to the sustainable use of the plores to what extent instruments and mechanisms local environment, the authors emphasize that it is for sector finance that are successful in developed difficult to make an overall appraisal of investment countries can be replicated in developing countries trends. Positive developments are the increased use and economies in transition. The discussion of financ- of incentives for environmental protection through ing for the energy sector in Panayotou's paper is ex- the use of economic instruments, the reduction of en- tended by the article by Norbert Wohlgemuth and vironmentally damaging subsidies and higher stan- Jyoti Painuly of the United Nations Environment dards for investment appraisals. Another positive de- Programme Collaborating Centre on Energy and En- velopment is that some investors seek out and are vironment, Denmark, on the financing of renewable overweight in eco-efficient and socially-aware enter- energy technologies. The authors demonstrate the prises. This development is analyzed and evaluated importance of introducing innovative mechanisms for in a contribution by Carlos Joly of Storebrand ASA, the financing of these technologies and emphasize Norway, on the greening of financial markets. The that governments need to play a supportive role in author reports that the United States and Europe are this regard.
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