Environment and EU enlargement

Alistair Fulton, partner with consultancy ERM, explains the environmental, social and CSR implications of the Eastern European accession countries joining the EU

On 1 May 2004, the European Union will grow from 15 to 25 Member States. This is the culmination of a lengthy accession process, a key component of which has been the “approximation” of the ten new Member States legislation to EU requirements.

Environmental legislation and investment in environmental infrastructure and projects have been important components of this process. While a great deal of progress has been made on the statute book and on the ground, there is still unfinished business and investors and businesses with facilities in the new Member States or who are seeking to export environmental goods and services to the ten new members will need to be aware of general and country specific issues that will remain on the “to do” list even May.

The environmental dimension of EU accession

As far back as 1998 the Commission recognised that the process of “approximation” of the Accession Countries’ environmental legislation would be a complicated business: “In the forthcoming enlargement of the Union the
environmental dimension will present greater challenges than in any previous accession. This relates both to the sheer scale of past environmental liabilities and the gap in the level of environmental protection in Central and Eastern Europe compared with the situation in the EU.”

The European Commission recognised four key challenges: u in the area of approximation of environmental legislation:

  • transposition and implementation of the relevant legislation;
  • strengthening of administrative structures necessary for effective implementation and enforcement;
  • sector-specific challenges in areas such as air quality, waste management, water quality, industrial pollution control (IPPC) and industrial risks; and
  • financing of the investments necessary to meet the requirements of approximation to environmental legislation.

Transposition and implementation of legislation

Much of the work carried out by the accession countries and the Commission has focused on the transposition of EU directives into national legislation. This has been a time-consuming business involving large-scale drafting of new laws and standards and wholesale repeal of much pre-existing legislation. Both parties have managed to ascend a very steep learning curve and all of the new Member States have achieved compliance with the requirements of the
environmental chapter of the negotiations for joining the EU.

It would be wrong to assume, however, that the whole of the EU’s environmental legislation is now in force and being implemented in the soon-to-be Member States. Gaps remain, and will continue to remain for some time to come.
While transposition of legislation is essentially complete, implementation is rather less so. A number of countries have negotiated so-called “transition periods” for the
implementation of some directives. These grace periods reflect both the complexity and novelty of some items of legislation in comparison to existing laws and the technical and human resources required to effectively introduce some directives.
This means, for example, that some new Member States will have an additional 3-4 years to comply with the IPPC Directive in comparison with the EU 15. Similarly, compliance with the Urban Wastewater Treatment Directive, will occur several years after accession in a number of the new members.

Strengthening of structures

It has always been recognised that most of the accession countries would need to strengthen the capacity of their environmental administrations so as to be able to implement and enforce EU environmental legislation. The main conclusion of the Commission’s 2001 Strategy Paper on Enlargement was the “need to further strengthen
administrative, monitoring and enforcement capacity”

In general, the work of capacity within the new Member States has been a lower priority than the development of new legislation. Indeed, a report from the European Court of Auditors in 2003 notes that: “The problems described by the Commission partly reflect the limited scale of funding committed to institution building in the environment sector over the period 1995 to 2000.” The Court of Auditors also noted that “the Commission has not established objective and measurable criteria to define the level of ‘adequate’
administrative capacity in the environmental sector”. The Commission has placed greater emphasis on this over the past 3-4 years but a lot of work still needs to be done.

One of the tools which has been used to strengthen administrative capacity has been “twinning”. This involves the secondment of Member State officials to accession countries’ ministries and agencies to assist in the process of reviewing the administrative requirements of transporting, implementing and enforcing EU legislation. Member States like the UK, Germany and France have provided a large number of civil servants for twinning projects. These have largely focused on transposition issues and have predominantly worked with government ministries rather than regional or local authorities.

Twinning has had considerable impact in some cases. There are concerns, however, that not all twinning activities have delivered the results that were envisaged. A recent European Court of Auditors report, commenting on the environment sector notes that: “In the environment sector performance has often been below expectations. Sectoral implementation plans could not be established as planned and ‘guaranteed’ in the twinning covenants.”

The European Commission has acknowledged that: “Institution building is a particular challenge in the environment sector because ministries of environment are relatively new, while regional and local authorities as well as environmental agencies also require assistance to meet their responsibilities in relation to the acquis.”

It will be some time before the implementation and enforcement of environmental legislation reaches EU standards in the accession countries, especially at regional and local level. The change in culture between the “command and control” philosophy of much of the previous
environmental legislation and the more “engaged” style of EU legislation is a major challenge in terms of adapting ministries, agencies and authorities’ behaviour, not least in relation to the regulation of facilities and businesses.

The ability to discuss permitting conditions, technology performance, environmental management systems, self-monitoring programmes and other aspects of everyday contact with environmental authorities for businesses in the EU-15 are not the norm in many of the new Member States. Transparency over permitting requirements and willingness to discuss environmental performance issues varies considerably between countries and individual regional/local administrations. This is likely to continue for some time to come, as the cost of investment in training/awareness raising will be very high and is not a top agenda item for many ministries.

Sector-specific challenges

It has always been recognised that some areas of
environmental management, such as waste management, presented particularly significant challenges in terms of both legislative standards and infrastructure to the new Member States. The Commission has been clear that the investments required to comply with EU environmental legislation would be substantial. It has identified a series of “investment-heavy directives” which require considerable expenditure on infrastructure or administration/monitoring systems based on existing Member State experience and on an assessment of current conditions in the accession countries. Examples of estimated costs include e25bn for the Urban Wastewater Treatment Directive and E10-12bn for the Landfill Directive. A large number of these directives are of direct relevance to business and the upgrading of facilities to comply with these laws will require substantial private sector investments.
In terms of suppliers of environmental goods and services, there are clearly significant opportunities for companies to sell their goods and services in the new Member States and these opportunities are likely to remain for several years to come.

The cost of environmental compliance

The EU’s Phare and ISPA programmes, finance from the European Bank for Reconstruction and Development and other IFIs have all made considerable investments in
environmental infrastructure and administration. There is, however, still a lot of work to do. Original estimates of the costs for the Eastern European accession countries to comply with EU environmental regulations were estimated at e80-110bn. These estimates excluded operating and maintenance costs and also administrative costs.

At present approximately 20% of the e3bn of accession assistance every year is spent on environmental projects. Post 1 May, structural assistance to the new Member States will be around e22bn/year. Environmental investments have been predicted to increase threefold via the Cohesion Fund and Structural Funds, although experience with environmental investments from these funds in existing Member States raises questions as to how fast and how effective these investments will be.

The figure of 2-3% of GDP per annum is usually offered as the level of spending required by the new Member States to ensure full implementation of EU environmental legislation. Current investment ranges between 0.6 to 3%. Different countries also have different investment requirements with differentials of 2-10% of GDP. This is clearly a challenge, one that some of the states are having trouble grappling with. While things may have changed for the better in some areas the overall message is quite clear – it is going to be long haul.

Key issues

The key issues for businesses wishing to invest in the new Member States or to sell environment goods and services in them are quite clear. Knowledge and awareness of the requirements of EU legislation in terms of implementation and enforcement are still at a low level, especially as far as regional and local administrations are concerned.

EU 15 companies operating in the new Member States will have rather different relationships with the permitting authorities than they are used to – less open and probably requiring relationships with a number of organisations with little integration of permitting requirements.

Environmental management systems and other non-legislation based tools are not widely understood. There is a substantial market for environmental goods and services (as recognised by DTI, the EIC and others in the UK) which British companies should take advantage of.

Concerns have been raised about the creation of a “two speed” Europe in terms of environmental regulation and the effects this could have on businesses in the EU-15 and on the future development and implementation of EU
environmental and sustainable development policies.

The Commission is adamant that the new Member States will not be able to dump products produced under lower environmental standards. Existing Member States will be watching very carefully to see that this does not occur.

NGOs such as the European Environmental Bureau (EEB) have voiced concerns that the enlargement of the European Union will lead to a slowing down of EU environmental and sustainable development policies. The jury is still out on whether this will be the case. Even in the EU-15 the speed of adoption of environmental regulations varies enormously between Member States and the level of infringement proceedings for non-implementation of environmental legislation is very high. It is difficult to see that the EU 25 will be any less prone to such problems.

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