The Regional Environmental Center for Central and Eastern Europe
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Sofia Initiative on Economic Instruments (SIEI)

Implementation period:
1995–2001

Sofia Initiative on Economic Instruments (SIEI)

“The major advantage of economic instruments is, in theory, that they incorporate environmental concerns directly into the market price mechanism. Therefore, these instruments have all the efficient properties of competitive market pricing. That is they trigger actions both among producers and consumers that allow the achievement of given environmental objectives at the lowest costs.”
— Sourcebook on Economic Instruments for Environmental Policy in CEE

Environmental Action Programme Task Force
At the Fourth Ministerial Conference “Environment for Europe”, held in Aarhus, Denmark, in 1998, participating ministers called for the REC to play a more active role in the Task Force for the Implementation of the Environmental Action Programme (the EAP Task Force). The REC and the Organisation for Economic Co-operation and Development (OECD) formed a joint secretariat that focused on assisting the newly independent states (NIS) — now referred to as Eastern Europe, Caucasus and Central Asia (EECCA).

The REC was subsequently involved in several successful and influential projects related to the EAP Task Force. Among them was the Sofia Initiative on Economic Instruments (SIEI), which is described below. Three further projects — the Sofia Initiative on Environmental Impact Assessment (EIA); the Sofia Initiative on Local Air Quality; and Environmental Funds in Central and Eastern Europe — will also be profiled in this series of REC anniversary articles.

Aims of the Sofia Initiative on Economic Instruments
Set up and approved by high-level officials from Central and Eastern Europe (CEE) in 1995, the broad goal of the SIEI — a goal initially elaborated under the Environmental Action Programme for CEE adopted in 1993 — was to support CEE and NIS countries in making more effective use of economic instruments for environmental protection. This was to be achieved by facilitating the exchange of information on economic instruments; promoting steps leading to the closer integration of environmental and economic policies; and raising awareness of the potential for and benefits of “green” budget reform.

Environmental ministers at the 1998 “Environment for Europe” conference in Aarhus welcomed the work completed under the programme and renewed the SIEI mandate to respond to the needs of stakeholders within the region. The SIEI work programme for 1999–2001 was based on priorities identified by Aarhus participants and the SIEI Advisory Board and Expert Group.

“Economic instruments” encompassed a wide range of policy measures, including pollution, emissions and product charges; natural resource extraction charges; subsidies beneficial or detrimental to the environment; deposit refund schemes; user charges; tradable permits; and eco-taxes.

As applied throughout CEE under the initiative, economic instruments played an important role in environmental policy in three principal ways: by providing incentives for behavioural change to reduce environmental damage; by generating revenues to finance environmental investments; and by supporting the transition to sustainable development by shifting society’s resources towards environmentally sound activities.

The 1997–1998 SIEI work programme was funded by the Danish Environmental Protection Agency, the Swiss Agency for Environment, Forests and Landscape, and the Ministries of Environment of France and the Czech Republic. The 1999–2001 work programme was funded by the Danish Environmental Protection Agency and the Ministry of Environment of the Czech Republic.

Activities and achievements
The SIEI project brought together various stakeholders, economic experts and environmental specialists at conferences and workshops for the exchange of information and experiences. The project also focused on disseminating the latest available data and analyses, as well as other information on economic instruments, by publishing reports, distributing an electronic newsletter and maintaining an SIEI website. Some of the key achievements are listed below.

Sourcebook on Economic Instruments
Drawing together material on economic instruments in 14 CEE countries, this reference publication was useful for cross-country comparison, bilateral experience exchange, policy making and further research. The sourcebook presented up-to-date achievements and allowed for the identification of key challenges and needs in CEE countries.

SIEI Expert Meeting
The REC hosted an SIEI Expert Meeting in Szentendre, Hungary, on April 16–17, 1998. Participants discussed the conclusions of the sourcebook, analysed the use of economic instruments, and identified possible elements of an SIEI work programme to follow up on the Aarhus conference.

Electronic newsletter on green budget reform
Up-to-date information on issues related to green budget reform were produced and published on the web and distributed via email. The information produced included reports on challenges and achievements related to green budget reform in CEE and NIS countries, reviews of Western experience with green budget reform, and reports from conferences and workshops.

Reports on policy integration and green budget reform in local languages
Local-language reports for five CEE countries were produced in late 1998 that summarised the most recent knowledge and experience on green budget reform and the potential benefits of the improved integration of environmental-economic policy. The general aim was to increase the awareness of key stakeholders and to contribute to enhanced discussion outside environmental circles. The primary target groups were political and business decision makers.

Conclusions
Economic instruments continue to play a key role in appropriate pricing and cost recovery in the water, wastewater and waste sectors. They are also important in terms of providing incentives to reduce the need for costly solutions at a later date. The SIEI project was instrumental in identifying the potential to improve the use of economic instruments as cost-recovery and incentive tools to achieve EU compliance in a cost-effective way, opening up untapped opportunities for the regions involved.

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