Report No. 44062-PA Republic of Panama Public Disclosure Authorized Country Environmental Analysis Public Disclosure Authorized June 23, 2008 Sustainable Development Department Latin America and the Caribbean Region Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank CURRENCY EQUIVALENTS Currency unit = Balboa 1 US Dollar = 1 Balboa FISCAL YEAR January 1 – December 31 Vice President: Pamela Cox Country Director: Laura Frigenti Sector Director: Laura Tuck Sector Manager: Laura E. Tlaiye Acting Sector Leader: Emmanuel A. James Task Manager: Juan Carlos Belausteguigoitia Table of Contents Acronyms and Abbreviations ........................................................................................... i Acknowledgments ............................................................................................................ iv Executive Summary .......................................................................................................... v I. Introduction ................................................................................................................... 1 1. Development Objectives, Natural Resources, and the Environment ......................... 1 2. Development Plan and Bank Assistance.................................................................... 2 3. Main Environmental Problems and New Pressures on Natural Resources ............... 2 4. Rationale, Objectives and Approach, and Value Added............................................ 5 5. Organization ............................................................................................................... 6 II. Institutional and Organizational Analysis ............................................................... 10 1. Institutional Analysis ............................................................................................... 10 2. Organizational Analysis ........................................................................................... 23 III. Environmental Health in Panama .......................................................................... 33 1. Background ............................................................................................................... 33 2. Urban Air Pollution: Analysis and Recommendations ............................................. 34 3. Inadequate Water and Sanitation: Analysis and Recommendations ......................... 40 4. Rural Energy and Indoor Air Pollution: Analysis and Recommendations ............... 48 IV. Environmental Management in the Panama Canal Watershed .......................... 54 1. Background ............................................................................................................... 54 2. Water Quantity and Quality ...................................................................................... 58 3. Land Use Trends in and Around the PCW ............................................................... 69 4. Institutional Capacity and Current Investments ........................................................ 75 5. Conclusions and Recommendations ......................................................................... 78 V. Unleashing the Poverty Reduction Potential of the Tourism Sector ..................... 84 1. Background ............................................................................................................... 84 2. The Tourism Sector within the Broader Social and Economic Context ................... 84 3. Tourism Potential for Poverty Reduction and Growth in Rural Areas ..................... 87 4. Approaches to Measuring Economic and Social Impact at the Local Level ............ 89 5. Tourist Spending at the Province Level in Panama .................................................. 92 6. Growth Linkages from Tourism Activities in Panama ............................................. 94 7. Impact of the Tourism Sector on the Environment ................................................... 98 8. Recommendations for Enhancing Sustainability in the Tourism Sector ................ 102 VI. Forestry and Conservation Challenges ................................................................ 105 1. Deforestation: Importance and Causes ................................................................... 105 2. Governance in the Forest Sector ............................................................................. 106 3. Transparency, Accountability, and Information ..................................................... 107 4. The Value of Conservation ..................................................................................... 108 5. Development of Conservation Policies ................................................................... 109 6. Challenges for Conservation and Natural Resources Management ........................ 114 7. Conclusions and Recommendations ....................................................................... 114 8. Prioritize Actions .................................................................................................... 119 VII. Mining and the Environment: Balancing Two Forms of Natural Capital ...... 121 1. Background ............................................................................................................ 121 2. Panama’s mining sector ......................................................................................... 121 3. Environmental and social issues in Panama’s mining sector................................. 122 4. Legal and regulatory framework governing mining .............................................. 125 5. Legal and regulatory framework governing environmental and social protection 126 6. Recommendations for enhancing sustainability in the mining sector ................... 127 7. Conclusions ............................................................................................................. 130 VIII. Conclusions and Recommendations .................................................................. 132 1. Conclusions ............................................................................................................. 132 2. Recommendations ................................................................................................... 136 Annex I: ANAM Organizational Chart ...................................................................... 138 Annex II: Public Environmental Expenditure Review.............................................. 139 Annex III: The “Degazetted” Western Watershed .................................................... 145 Annex IV. Formulating a Carbon Policy: Panama’s Carbon Footprint ................. 149 References ...................................................................................................................... 159 Acronyms and Abbreviations AMRO World Health Organization region of the Americas ANAM National Environmental Authority ANARAP National Association of Reforesters and Citizens of Panama (Asociación Nacional de Reforestadores y Afines de Panamá) ARAP Aquatic Resources Authority of Panama ARIs Acute Respiratory Infections BOD Biochemical Oxygen Demand BPPS Palo Seco Protection Forest (Bosque Protector Palo Seco) BRT Bus Rapid Transit CABI Leadership of Upper and Lower Izozog (Capitania del Alto y Bajo Izozog) CAMIPA Director of the Mining Chamber CATHALAC Water Center for the Humid Tropics of the Caribbean and Latin America CCAD Central America Commission on Environment and Development CCNA National Consultative Commission on the Environment (Comisión Consultiva Nacional del Ambiente) CEA Country Environmental Analysis CGE Computable General Equilibrium CH4 Methane CIAC Watershed Environmental Information Center (Centro de Información Ambiental de la Cuenca) CICH Hydrological Basin of the Panama Canal (Cuenca Hidrografica del Canal de Panamá) CITES Convention on International Trade of Endangered Species CNG Compressed Natural Gas CONADES National Council on Sustainable Development COPD Chronic Obstructive Pulmonary Disease CO2 Carbon Dioxide CPS Country Partnership Strategy DALYs Disability-adjusted Life Years DO Dissolved Oxygen DR-CAFTA Dominican Republic-Central America Free Trade Agreement EA Environmental Assessment ED Executive Decree EIA Environmental Impact Assessment EMP Environmental Management Plan ENSO El Niño-Southern Oscillation ESIA Environmental and Social Impact Analysis FAO Food and Agricultural Organization GDP Gross Domestic Product GEF Global Environmental Facility GIS Geographical Information System GLE General Law of the Environment GNP Gross National Product GOP Government of Panama GWh Gigawatt hours HADCM2 Hadley Centre Coupled Model, Version 2 HCA Human Capital Approach ICMM International Council on Mining and Metals i IDAAN Institute for National Water Supply and Sewerage Systems (Instituto de Acueductos y Alcantarillados Nacionales) IDB Inter-American Development Bank INRENARH National Institute of Renewable Natural Resources I-O Input-Output IPAT Panamanian Tourism Institute IPCC Intergovernmental Panel on Climate Change IUCN International Union for the Conservation of Nature JICA Japan International Cooperation Agency KINP Kaa-Iya del Gran Chaco National Park and Integrated Management Area Ktoe Kilo ton of oil equivalent LAC Latin America and Caribbean LPG Liquified Petroleum Gas LSMS Living Standards Measurement Survey MBC Mesoamerican Biological Corridor MCM Million Cubic Meters MEF Ministry of Economy and Finance MGD Million Gallons per Day MICI Ministry of Trade