The Global Environment Facility: Promoting Environmental Protection in Central and Eastern Europe

I had an incredible opportunity to spend the 2017-2018 academic year as a visiting scholar at the Skalny Center for Polish and Central European Studies at the University of Rochester. This fellowship allowed me to focus on several research projects on foreign aid and economic sanctions. Most importantly, I made significant progress on expanding and revising my book manuscript, which investigates the politics of international environmental aid.

There is a long-standing debate in academic and policy communities regarding effectiveness of environmental aid. Despite the lack of consensus, donor countries and international organizations provide growing amounts of aid to developing countries with the goal of addressing global environmental problems. For instance, in 2006, the World Bank’s environmental lending was approximately 396.4 million USD, whereas a decade later, in 2016, the World Bank’s environmental assistance increased tenfold – to 3.8 billion USD. European Union (or EU) aid for the environment has also increased from 237 million USD in 2006 to 370 million USD in 2016. Finally, bilateral environmental aid disbursed by developed countries went up from the total of 1.5 billion USD in 2006, to 3.6 billion USD in 2016. Recently, advances in the understanding of climate change and its effects became a new driving force for larger volumes of environmental assistance. Under the 2015 Paris Agreement, advanced economies agreed to contribute 100 billion USD annually by 2020 to a mitigation and adaptation fund, which would then assist developing countries in implementing environmental programs. Therefore, environmental aid is an increasingly important foreign policy instrument, even though its effectiveness remains an understudied issue.

Developed countries have two main motivations in offering environmental aid. The first motivation is altruistic: less developed nations are often most vulnerable to the dangers of environmental degradation, and least capable of taking necessary steps to reduce such negative changes or adapt to them. Moreover, recent studies suggest that environmental problems, such as climate change, make it much more difficult for developing nations to pursue economic and social development. For instance, research shows that higher temperatures slow down economic growth in less developed countries. Since these countries are concentrated in geographic areas with hotter climates, climate change will be particularly harmful for this set of nations.

The other motivation stems from donors’ self-interest. Most environmental problems are truly global in their scope, and often cannot be solved through uncoordinated unilateral actions. Therefore, environmental degradation has long been used as an example of an international issue that calls for cooperation among countries. Mutual gains from implementing environmental measures result from the fact that problems of global environmental commons can often be ameliorated more cost effectively in developing countries that have lower marginal costs of reducing negative environmental externalities. In the area of climate change control, for instance, the European Commission calculated that the EU could reduce its abatement costs of CO2 emission cuts by as much as two-thirds if it supported the implementation of emission reduction projects in developing countries.

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Both types of motivations point to the same goal of environmental assistance – donors seek to produce environmental improvements. The key questions are: can aid succeed in addressing environmental problems, and if yes, under what conditions is success most likely? Previous studies have argued that providing poor countries with the resources necessary to boost state capacity is the key to achieving progress. In contrast, I argue that incentives play a crucial role. I develop a game-theoretic model to analyze the interaction between aid-recipient countries and the aid-donor international organization, and show that variations in project design create different incentives to motivate sub-national actors to support environmental protection. A surprising prediction is that although aid promotes environmental protection, increasing the scale of individual aid projects is often self-defeating.

I test my theoretical expectations with data on environmental projects funded by the Global Environment Facility (GEF), one of the largest donors of aid for projects with global environmental benefits. In 2016, the GEF disbursed 651 million USD to support projects around the world. While other sources of environmental aid, such as the World Bank, provide more assistance, the GEF is a critical player in international environmental politics because it provides grants, rather than loans, which makes its funding more attractive for developing countries, and GEF assistance is normally accompanied by aid from other sources, which magnifies the impact of the GEF’s activities through links to other aid donors’ programs. The GEF’s importance is related to its global focus: for instance, 57% of its cumulative funding supports projects in the areas of climate change and biodiversity. The organization’s global focus is reinforced by the GEF’s status as the financial mechanism for implementing five major international environmental conventions: the Convention on Biological Diversity, the United Nations Framework Convention on Climate Change, the Stockholm Convention on Persistent Organic Pollutants, the UN Convention to Combat Desertification, and the Minamata Convention on Mercury. Hence, one of the organization’s main objectives is to facilitate countries’ compliance with these international agreements. Finally, the GEF is a highly transparent organization, which enables researchers to collect information on project design and implementation. This information is key to any assessment of when aid fails and when it succeeds in improving environmental policies. My statistical analysis of data from GEF projects demonstrates that successful project implementation becomes more likely as recipient governments’ own contribution levels increase, but actually becomes less likely when recipients receive more aid. The figure below illustrates these results. The GEF is most successful when it can increase recipients’ efforts, not when it disburses large grants.

In addition to quantitative tests, I rely on detailed case studies to construct a nuanced account of environmental cooperation and the effectiveness of GEF environmental aid. A significant benefit of qualitative research is that it reveals how well the game-theoretic model and statistical results represent actual cases of environmental assistance. My research focuses on Poland, Ukraine, and Russia, the countries that were the largest recipients of GEF financing located in what the GEF calls the Europe and Central Asia region. They faced similar environmental problems caused by decades of industrial and agricultural pollution that accompanied communist policies of rapid economic development. The three countries correspond to different recipient types in my game-theoretic model. The first is an ‘unconditionally green’ recipient – Poland. Four GEF projects in my dataset were implemented in Poland, and all of them received satisfactory evaluations from the GEF on overall performance. I find that Poland’s success in implementing these projects was not due to incentives linked to significant amounts of GEF financing; the strongest motivation for action was the country’s own environmental priorities. While Poland’s successes cannot be attributed to the GEF’s incentive structure, however, Ukraine’s failures can be. The case of Ukraine corresponds to a ‘mean’ recipient type and demonstrates that the weakness of the GEF’s incentives and the recipient’s low level of environmental concern jointly explain project failure. As a recipient of GEF aid, Ukraine was a more difficult assistance case than Poland, and half of Ukraine’s projects were deemed unsatisfactory. In fact, it appears that the GEF did not succeed in incentivizing the country to increase its effort levels. Finally, Russia is an illustration of the third recipient type – a ‘conditionally green’ recipient. One of Russia’s four projects in my dataset received an unsatisfactory evaluation, while others succeeded in reaching their goals. The GEF’s willingness to suspend the failed project and impose strict monitoring and compliance checks, which the GEF subsequently implemented, accounted for the project successes that followed. The GEF’s threat of project cancellation was credible and sufficient to extract higher contribution levels from the recipient.

The findings of my book will not just advance the academic enterprise, but will also have important practical implications for how donors should go about providing aid. Previous studies have not gotten to the bottom of how aid incentivizes environmental cooperation, so they do not provide donors with guidance to redesign aid programs, mitigate their unintended consequences and promote environmental efforts. This book project clarifies the impact that GEF programs have in incentivizing recipients to address environmental issues and provides donors with the analysis they need to make more informed decisions. I am grateful to the Skalny Center for supporting me as I worked on this research project.

Dr. Elena McLean was the Skalny post-doctoral fellow for the 2017-2018 academic year. She is associate professor at the Department of Political Science, University at Buffalo, SUNY.