Cleaning up Eastern Europe

Cleaning Up Eastern Europe Contrary to doom and gloom scenarios, environmental conditions can be greatly improved with sensible policies and modest investments Gordon Hughes a"ur image of Eastern Europe these days has been greatly influ- This erroneous picture of Eastern Europe matters because problems enced by graphic reports of the environmental damage caused by big that seem overwhelming tend to lead to inertia. Indeed, some ob- heavy industrial plants. Stories of steel mills, chemical plants, and servers—noting the grave economic problems that these countries power stations—especially in the so-called "Black Triangle" covering must face as they undertake stabilization programs and market-ori- Saxony, Upper Silesia, and northern Bohemia—belching fumes into ented reforms—dismiss cleaning up the region as a luxury that cannot the air, or noxious chemicals into rivers, sound reminiscent of be afforded. Others argue that tackling the environment is a priority, England's "dark satanic mills" of the late 1800s. Gone unnoticed in the and that vast sums of foreign assistance will be needed. Neither side is rush to conclude that the entire region is an ecological disaster zone is right. Both fail to identify a set of environmental priorities that can be the fact that there are large areas of relatively untouched forest, lakes, addressed at reasonable cost through sensible policy reforms and and wetlands. modest investments. To map the way forward, four ques- Chart 1 tions must be answered: (1) How bad are East or West, poor cities have the worst air quality (Mean annual concentrations in micrograms per cubic meter) environmental conditions relative to countries with similar incomes and industrial bases? (2) How much will the transition to market structures help? (3) What environmental policies should be adopted? and (4) What are the key investments required? Only then can we begin to develop an agenda for action. An ecological disaster? When assessing environmental problems, the most commonly used benchmark is damage to human health. On this score, air quality ranks as Eastern Europe's most acute problem, in large part because of the difficulty of avoiding exposure. Metal dusts—especially lead—and suspended particulate material (dust and smoke) are the main culprits, damaging the development of children and giving Source: Global Environment Monitoring System rise to excess mortality and ill health from

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©International Monetary Fund. Not for Redistribution respiratory diseases (bronchitis, emphy- Chart 2 Rhine is probably Europe's dirtiest sema, and asthma). Exposure to high Small-scale consumers still use large river, while the Mersey, the Po, concentrations of sulfur dioxide exacer- coal in Eastern Europe and even the Thames are as, or more, bates the effects of particulates and, (Average consumption per person in 1988) polluted than equivalent rivers in along with nitrogen oxides, can cause dif- Kilogram of coal-equivalent Eastern Europe on many indicators of ficulties of its own. Water pollution is water quality. also a serious cause for concern, though So how can we reconcile the generally simple measures can remedy the problem moderate levels of air and water pollu- or limit exposure. For example, bottled tion with the widespread perception water supplies reduce the threat to the that there are gross violations of health of newborn babies in those rural environmental standards throughout areas where high nitrate levels are found Eastern Europe? The answer may well in groundwater used for drinking. Still, be that the region's standards have been the careless disposal of toxic or nuclear absurdly tough compared to those of the wastes in some localities threatens the EC and the United States. For example, quality of surface and groundwater Source: International Energy Agency. several countries have set maximum ex- sources on which many people rely. posures over 24 hours for air pollutants From an economic standpoint, there similar to the annual average exposures are other costs, too. The need to spend implied by EC standards. Charts money on maintaining or replacing phys- What is more, the region's pollution Not even close to west European levels ical assets (buildings, pipes, roads, and Energy prices problems are no worse than those of bridges) that have been damaged by dirt (Index, west European average=100) Western Europe and North America or acidity in the air, or by saline water is some 20-30 years ago. Memories are certainly the biggest of these costs. There short, but environmental conditions in are also losses from diminished produc- the coal and steel communities of the tivity of farms and forests. Nonetheless, eastern United States, Japan, the Ruhr, the sums involved are small relative to and south Wales were little different the estimated costs of poor air quality to from those in similar east European human health. communities today. In effect, the region But are Eastern Europe's problems re- is caught in an economic and industrial ally any worse than those in other parts time warp, with all of the characteristics of the world? A worldwide network of of the rich countries in the 1950s and monitoring stations in large cities pro- early 1960s. vides comparable data on air quality that High coal use. Few west European lead to some surprising conclusions. It is Sources: International Energy Agency and national households now rely upon coal as a do- true that the levels of dust and smoke authorities. mestic fuel, but its use is still Note: Prices in local currencies have been converted and sulfur dioxide in some towns and to DM using the official commercial exchange rates. widespread further east (see Chart 2). cities (Teplice in Czechoslovakia, This is critical because the burning of Katowice in Poland, and Magnitogorsk in coal by households and in small boilers Russia) are deplorable, especially in the has always been the primary cause of winter. However, many urban areas in China, levels are the primary concern. The combina- smogs and of the most damaging exposures India, and Latin America experience levels tion of high levels of particulates, sulfur diox- to particulates and sulfur dioxide. that are similar or far worse. Even more rele- ide, and water vapor over several days (the Old technology. Emissions of dust con- vant, as Chart 1 shows, the average exposures classic London smogs of the past), poses the taining heavy metals from the metallurgy in- to air pollutants in the main towns and cities greatest danger to individuals with respira- dustry is the other major cause of concern. are no worse, and in some cases better, than tory or heart conditions. Most steel mills in the region rely upon old west European cities with similar income lev- As for water, the picture appears to be open-hearth furnaces that emit much more air els and industrial structures (Athens, Madrid, much the same, although the data are limited pollution per unit of output than the basic and Milan). Moreover, most large cities in and hard to interpret. Certainly, levels of oxygen or electric arc furnaces standard in Eastern Europe meet the European Com- heavy metals in soils and river sludge are rich countries. The region's nonferrous metal munity (EC) standards for both average and alarmingly high around metallurgical plants smelters, especially for lead and aluminum, extreme (98th percentile) exposures to particu- throughout the region. Major rivers in Poland have primitive arrangements for filtering lates. And although many east European and Ukraine are also badly polluted with metal dusts from the exhaust gases coming cities experience extreme exposures to sulfur saline wastewater from coal mines. But the from their furnaces, compared with the op- dioxide in excess of the EC standard, the same tions provided by modern technology. is true in Western Europe. Thus, the air qual- Low energy prices. Aggravating mat- ity problem is largely one of local concentra- ters have been the low energy prices charged tions of pollution associated with specific in- Parts of this article are based on material presented in most east European countries, relative to dustries. Hardest hit are urban areas with a in "Are the Costs of Cleaning Up Eastern Europe those in Western Europe from 1980-90, even concentration of heavy industrial plants, and Exaggerated? Economic Reform and the when converted at heavily overvalued ex- those where coal is the predominant fuel. For Environment," by the author, Oxford Review of change rates (see Chart 3). The same has been major cities, intermittent peaks in exposure Economic Policy, Vol. 7, No 4,1991. true for most natural resources, so that there

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©International Monetary Fund. Not for Redistribution was little incentive to save energy and raw was constructed for Bulgaria, Czechoslovakia, should reduce application rates and the run- materials. As a result, these countries rank as Hungary, Poland, and the states of the former off of chemical residues into rivers and the most profligate users of energy per dollar USSR. It assumes that (1) energy prices will groundwater sources. However, total dis- of GDP in the world, with energy intensities move up to west European levels by end-1993 charges of organic wastes, chemicals, and five or more times those in comparable west (e.g., Poland's industrial sector will face real other water pollutants from industry may not European countries. increases of between 47 percent for gas and be much affected by the process of industrial 425 percent for coal); (2) energy users will re- restructuring. The main source of water pollu- Transition to markets spond to higher prices over several years; tion—municipal wastewater—can be dealt Before drafting an agenda for action, it is (3) industrial sectors will be restructured in with only by major investments to rehabilitate reasonable to wonder how much the economic line with comparative efficiency; and (4) new existing, or build new, sewage treatment transformation already underway in the facilities. region will help clean up the environ- Chart 4 Better environmental policies ment. Because a large fraction of emissions come from a small number of Economic reform will solve The gains from introducing sensible industrial sectors—notably electricity many problems of air quality economic policies should be reinforced Aggregate emissions generation, metallurgy, and building ma- (Index, 1989=100) by good environmental policies. In the terials for air pollutants; and paper and past, local and national governments al- pulp, textiles, and food processing for or- ways gave priority to reaching produc- ganic effluent discharged into water- tion targets. As more power is given to ways—changes in the overall level and environmental agencies at a local level composition of industrial production and as governments disengage from di- should have an important bearing on pol- rect involvement in the ownership and lution levels. But the outcome need not be management of industry, it should be entirely beneficial in the short or medium possible to establish a more effective term. system of environmental regulation. But New investments embodying modern with falling output and rising unem- technologies will lead to a fall in the ployment, the authorities may be under- amount of pollution per unit of output. standably reluctant to enforce strict However, industrial restructuring will not rules if that means closing down plants. lead to the rapid closure of all the heavy A clear set of priorities and targets industrial plants that disfigure the envi- that can be realistically achieved over ronment. Although these industries are Note: The projections take account of energy conserva- the next five years must be established. inefficient by western standards, what tion induced by higher prices, changes in GDP, shifts in Policymakers should, in particular, the composition of industrial output, and, post 1995, new matters is how they compare with other investment in less-polluting technologies. build upon one good feature of the exist- industries within the same country. ing regulations—systems of emission Those that are performing relatively well fees and fines imposed on polluters. The (e.g., metallurgy in Czechoslovakia) should investments will gradually reduce emissions problem with these charges has been that not be expected to contract rapidly, so that the per unit of output to current west European they were set too low, not systematically ad- fall in total emissions may be less than the de- levels over the period 1995-2010. justed in line with inflation, and either not en- cline in total industrial output. The results show that the response to these forced or simply regarded as a cost to be Market-oriented reforms will also help by policy changes should reduce aggregate passed on to consumers. But if they were establishing proper incentives to use energy emissions of energy-related air pollutants by raised dramatically (maybe by as much as 50 and other natural resources much more effi- 60 percent or more by the beginning of the times) and enforced, the charges would pro- ciently, even without new investments next century (see Chart 4). Up to 1995, a sig- vide a powerful incentive for enterprises to prompted by industrial restructuring. In the nificant portion of that drop would come from find low-cost methods of abating emissions, past two years, most east European countries the decline in economic activity—as has al- even if large investments in new plant and have substantially raised real energy prices as ready been observed in Poland and Hungary. technology were not affordable. In this way, a key part of their reform programs. As enter- But after that, when it is assumed that total the ingenuity and skills of plant managers prises respond to past and future increases, output will rise, the continuing decline reflects could be mobilized to achieve better environ- the energy intensity of economic activity may the combined effects of higher energy prices mental performance, while avoiding the dan- well fall by at least one half by the end of the and new investment in less-polluting tech- ger of enforcing outdated or costly technology decade. Higher energy prices will also bring nologies. The path is not as smooth for metal standards. about a shift in the composition of fuel use. As dusts. In their case, industrial restructuring One word of caution, however. Pollution coal prices rise relative to other forms of en- would initially increase the level of total emis- charges should be reserved for dealing with ergy, the long-standing tradition of encourag- sions. Later in the decade, as better technol- emissions from large- or medium-sized indus- ing domestic coal consumption to lower depen- ogy is introduced, emissions should fall trial plants that can be monitored at reason- dence upon imported supplies of oil and gas rapidly, even with an increase in output. able cost. This includes air pollutants such as will be broken. For most forms of water pollution, the basic dust, sulfur dioxide, nitrogen oxides, and even But how far will sensible economic policies story line is similar, although the results are carbon dioxide, and water pollutants such as improve the environment? To answer that much less encouraging. Raising pesticide and organic material, suspended solids, and some question, a model for energy demand and en- fertilizer prices to world levels, together with heavy metals. Toxic chemicals, other heavy vironmental emissions up to the year 2000 the breakup and privatization of state farms, metals, and trace pollutants cannot be regu-

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©International Monetary Fund. Not for Redistribution metals, and trace pollutants cannot be regu- where exposure to particulates and sulfur • Establish a fund, perhaps using revenues lated by this approach. When monitoring dioxide due to the burning of coal is particu- generated by the fuel taxes, that would fi- emissions is too expensive, blunter forms of larly high. nance a program to extend gas distribution in regulation (e.g., technology standards) may be Encourage household energy con- cities with the worst air quality. The fund appropriate. servation. Anyone who has visited Eastern should also make loans to enable households, Poland has raised the level of its pollution Europe in the winter knows that the standard cooperatives, and municipalities to convert charges by about ten times in real terms since way of dealing with overheated rooms is to from coal to gas boilers for domestic heating. 1990. These charges, which go into a National leave the window open. Apartments, offices, But it must be recognized that—based on Environment Fund to finance various envi- and other buildings have few controls to regu- the experience of Western Europe and North ronmental investments, now provide a gen- late heating levels, and even meters to mea- America—tackling the region's most impor- uine incentive to reduce emissions. As a result sure household consumption are rare. tant environmental problems will take one or of the fall in output and the higher pollution Installing these devices will take a long time, two decades. Resources will be scarce and the charges, the situation in Katowice, for exam- involving large amounts of manpower and demand for investment high. It is critical that ple—where steel mills, nonferrous metal money. In the meantime, measures to control clear priorities be established and the most smelters, chemical plants, power stations, and temperatures and energy use for entire build- cost-effective methods adopted. The rich a wide range of other industrial plants caused ings would help significantly, even though countries have tended to rely upon inefficient extreme levels of exposure to pollutants—has there will be inevitable incentives for house- environmental policies to avoid making diffi- changed radically. Air quality has improved holds to "free ride." For these changes to be cult choices. Countries in Eastern Europe do significantly, and enterprises are considering, effective, however, governments must not shy not have the luxury of following such a waste- or investing in, environmental controls. away from raising fuel prices sufficiently to ful path and should not be urged or forced to While the changes in Poland are a major reflect the full economic cost of consumption, do so by their richer neighbors. step forward, weaknesses remain. An exam- including seasonal peak load charges where If, however, sensible policies are adopted, ple is the charge for saline water emissions, appropriate. the quality of the environment could be which is too low to force the mines concerned Find low-cost methods of treating greatly improved by the year 2000. London's to control their discharges. The government sewage. Full treatment of the large volumes experience with getting rid of its notorious is worried—and understandably so—that of sewage that pollute rivers and groundwater smogs exemplifies what is possible. Even be- higher charges would cause the mines to shut is far beyond the region's investment re- fore gas became widely available, industrial down, with a loss of jobs and greater depen- sources. Even so, some west European donors smoke emissions fell by 60 percent from 1950 dence upon imported energy. However, the have urged that new municipal wastewater to 1960, and domestic emissions by 20 per- costs of the damage caused by saline water treatment plants conform to current EC re- cent, because of a shift from coal to oil and are equally real, even though they may not be quirements. This is a classic case of the best electricity. The average number of smogs per immediately apparent. being the enemy of the good. The crucial chal- year dropped from over 50 to less than 20 dur- lenge is to invest in sewage treatment facili- Role of public investment ing this period, and the annual mean smoke ties that remove 60-80 percent of the organic concentration decreased by one half. In the Given that better economic and environ- material and suspended solids, but which can following decade, as the Clean Air Act was mental policies will take care of a large part of be upgraded to provide fuller treatment when implemented and natural gas use spread, the the emissions causing the most serious health additional resources become available. industrial smoke problem was effectively and economic damage, where should public The way forward cured, while domestic emissions fell by almost and private investment be directed? 60 percent. Thus it seems perfectly reasonable Pollution charges and stricter environmen- The image of Eastern Europe as an ecologi- for all east European countries to set them- tal regulations will steer private investment cal disaster is not only misleading but coun- selves a target of reducing smoke and sulfur toward more efficient and less-polluting tech- terproductive, as it gives rise to the impres- dioxide exposure by 75 percent over the next nologies. A modest share of public investment sion that enormous resources will be required. decade in all cities whose average exposures could then be used to accelerate implementa- It is, therefore, crucial to offer both politicians are more than twice the EC guidelines. tion of EC emission standards. However, the and the public the prospect of substantial im- main focus for public investment should be on provements in the next three to four years if reducing emissions from small industrial effective environmental policies are to be units, the services sector, and households. implemented. The priority should be on Reduce coal use in small boilers and reducing air pollution in localities where sig- houses. Most small-scale users of coal are nificant health damage is occurring. Three happy to switch to gas, even if it costs more, sets of measures would do this: because it is convenient and labor-saving. The • Insist that nonferrous metal smelters ei- Gordon Hughes a British national, was a major constraint is the availability of capacity ther install filters to eliminate most of their member of the Bank's in local gas distribution networks. In heavy metal dust emissions, or close down World Development Bulgaria, gas supplies have been restricted to within two to three years. Report 1992 team and is large industrial consumers, while in Poland, • Push prices of all fuels up to world mar- now consulting on an local pipelines were designed to meet house- ket prices as quickly as possible and then im- Environmental Action hold demand for cooking but not heating. pose additional taxes on the use of coal (with Program for the region. Thus, a substantial investment program the highest rates for brown coal and lignite), He is on leave from the spread over a decade or more will be needed gasoline, and diesel fuel. Rebates should be University of Warwick. to develop the necessary infrastructure. given to enterprises that can show that their Priority should clearly be given to areas emissions fall below an appropriate standard.

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