Republic of Peru Environmental Sustainability

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e 2007

ument of the World Bank

ort No. 40190-PE

epublic of Perunvironmental Sustainability: A Key tooverty Reduction in Peruountry Environmental Analysis

ronmentally and Socially Sustainable Development Departmentn America and the Caribbean Region


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ACKNOWLEDGEMENTSThis report was prepared by a team led by Ernest0 Shnchez-Triana (LCSEN). Th e core teamincluded Yewande Awe, Renan Poveda, Carolina Ur m ti a Vhsquez, M ar ib el Cherres, and Ang ieAl va (LCSEN); W ill ia m Reuben (LCSEO); Marcel0 Bortma n (LCSHH); Marea Hatziolos andPoonam Pil la i (EN); Ani1 Markandya (ECSSD); and Da vi d Lee (Cornel1 University), Bj or nLarsen, Santiago Enriquez, Elena Strukova, and Mi che lle Fa lck (Consultants).The extended team include d Abel Me jia (LCSEN); Vicente Fretes (LCC6); Ma ria Donoso Clark(LCSES); Dougla s C. Olson (LCER); Juan D av id Quintero (LCSEN); Veronic a And ino(LCSEO); Alberto N in io and Charles Di Leva (LEGEN); Andrea Semaan (ENV); LenkizaAngulo, Juan Guerrero Barrantes, Peter Davis, Jorge Elgegren, Nelson Schack, Juan CarlosSueiro, Jorge Price, and Jorge Villena (Consultants); Manuel Pulgar-Vidal and Isabel Calle(Sociedad Peruana de Derecho Ambiental); and Man uel G lave and Rosa Morales (GRADEConsultants). The peer reviewers for the study include Ma ria Angelica Sotomayor (LCSFP), D anBiller (EASES), Raul Tolmos (UnitedNations D evelopm ent Program), Javier Cuervo and SergioAr di la (Inter-A merican Development Bank), and Ric har d Morge nstern (Resources for theFuture).The Government o f Peru, mainly through the Consejo Nacional Ambiental (CON AM), providedkey feedback during the preparation o f the study and participated actively in the product ion o fdiverse parts o f the report. Particularly important were the contributions o f th e fo l lowinggovernment officials: Carlos Lor et de Mola, Mariano Castro, and Gabriel Quijandria (CO NAM ).The team wo uld also lik e to thank the fol low ing government officials for their feedback WalterHuanami, M ari a Paz Cigarhn, Julio Garcia, Ma ria Luis a de l Rio, and Iv6 n Lanegra (CONA M);Vi lma Mora les (DIGESA); Albe rto Bisb al (INDECI); Rosa rio Acero, Man uel Cabrera Sandoval,Anton io Mor isah, Mar io Aguirre, and Javier Martinez (INRENA); and HCctor Talavera(OSINERG). Importan t feedback was received from members o f nternationa l donor agencies andnon-governmental organizations, including Swisscontact and UNDP. The team i s particularlygrateful to the Norwegian and Finnish governments fo r supporting some o f the studies thatunderpin this report through TFESSD funds.

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ACRONYMS

D I N S E C O V IDIREPRO Direc cion Regional de ProduccionD I RESADI RT UECOE C A E s t h d a r de Calidad AmbientalE C L A CEL4 Evaluacion de Impact0 AmbientalEPSFA0 Foo d and Agriculture OrganizationFEN Fenbmeno de El NiiioF O NA M F o nd o Na ci on a l del Ambiente

DirectionNacional de Seguimiento, Control y VigilanciaDirecc ion Regional de Salud AmbientalDi recc ion de Turismo y EcologiaEconomic C ommission for La tin America and the CaribbeanEmpresa Prestadora de Servic ios de Saneamiento

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H C Ho ja de Cubicac ionH C Hy droc a rb o nH C A Human capi ta l approachIDB Inter-American Development BankI I A PIMAWEI N D E C IINIAINRENAIPCCIPPS Industrial Pol lut io n Projection SystemIRA Infecc ion Respiratoria AgudaITDGITTAI T T OIU C N Wo r ld Conservat ion Un ionJASSJIC A Japan International Coopera tion AgencyJNUDWJu Juntas de Usuar iosKg K i l o g ra mlull2 Square kilometersl/s per km2LFFSLGA Ley General d e l AmbienteL M P L im i te Max imo PermisibleLP G Liauef ied uetro leum gas

Instituto de Investiga cion de la Amazo nia PeruanaInsti tu to del M ar del Pe n iInsti tuto Nacional de Defensa Ci vi lInsti tuto Nacional de Investigacion AgrariaInsti tuto Naciona l de Recursos NaturalesIntergovernmen tal Panel on Climate Change

Intermediate Technology DeveIopment Group - Soluciones PracticasAcuerdo Intemacional de Comercio IntemacionalOrganizacion Intemacional de Maderas TropicalesJunta Adminis tradora de Servicios de SaneamientoJunta Naciona l de Usuarios de 10s Distrito s de Rie go del Pen i

L i te rs per second per square kilomete rLey Forestal y de Fauna Silvestre

m/s Cubic meters per secondMDGs Millennium Development GoalsMDL Mecanismo de Desarrol lo Lim pioMEFMEGAMEMMINAG Ministe rio de AgriculturaMINEDU Ministe rio de EducacionMINEMM IN S A Minis ter io de Saludmm Mil l imetersM T CMvcs

Min is teno de Economia y FinanzasMarc o Estructural de Gesti6n AmbientalMin is ter io de Energia y MinasMiniste rio de Energia y Minas

Min iste rio de Transportes y ComunicacionesMinis ter io de Vivienda, Construcci6n y Saneamiento

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M W M ega wa ttNBI Necesidad BBsica InsabsfechaNGO N o n g o v e m e n t a l orgamzahonNO2 Nitrogen d ioxideN O x Ni t rogen ox ideO&M Operation and maintenance0 3 OzoneOAD Obstructive am a y s diseaseOD S Ozone-depleting substancesO ECDOGEONERNON G Orgamzac ion N o GubemamentalOP D Orgamsmo Publico DescentrallzadoOPSORT Or al rehydration therapyOSINFORO R Odds rat ioP AH O Pan-Amencan Heal th Organlzat ionPAMAP B I Product0 Bruto IntemoPCBs Polychlormated biphenylsPCF Prototype Carbon FundP C MPCS-1EP E T TP G M FP H R DPIGARSPEAP M Particulate matterP M l OP M 2 5P N D FP N P A DP N RPO A Plan Operat ivo AnualPOP Persistent organic polluta ntsPP M Parts p er m l l i o nP R A LP R O D U C E M m s t e n o de la Producc i6nPRO F O NANPEPRO NAM CHCSPSP Private sector partxipationPT S Particulas Totales e n Suspensi6nRAD Restncted actwity daysR A M S A R Wetlands ConventionRFF Resources for the FutureRNS C Ci v i l Soc iety Natura l ReservesRR HH Recursos HidricosRR ss Residuos SohdosSDPASE AS Strategic Envlron menta l Assessments

Orgamsation for Eco nom c Co-operabon and DevelopmentOficina General de Epide molo gia del Mim sten o de SaludOficina Nacion al de Evaluacion de Recursos Na turales

Organlzacion Panamencana de la SaludOrgamsmo Supervisor de 10s Recursos Forestales Maderables

Pr og ra m de Adecuac i6n y Mane jo Am bien ta l

Presidencia d el Consejo de MmistrosPrograma de Ciudades Sostembles - Primera EtapaProyecto de Titulacibn de Tierras y Catastro Rura lPlan General de Manejo ForestalJapan Po licy and Hu ma n Resources Deve lopme nt FundPlan ntegral de Gestion Ambiental de Residuos SolidosPlan Integral de Saneamento Atmosf6ricoParticulate matter less than 10 mc ron s in s u eParticulate matter less than 2 5 mcro ns in slzePlan N acional de Desarrollo ForestalPlan N acional de Prevencion y Atencion de DesastresPlan N acional de Prevencibn y Control de la Deforestacion

Programa Regional de Are L i m p i oFond o Nacional po r las Areas Naturales Protegidas por e l EstadoPro g ra m Na ci on a l de Man ejo de Cuencas Hidro gri f icas y Conservaci6n deSuelos

Sociedad Peruana de Derecho A mbien tal

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Sistema Nacio nal de In formaci6n Ambienta l


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VOLUME 2TABLE OF CONTENTS

Execut ive Summary....................................................................................................................... vi1Chapter 1-Coun try Environmental Analysis: An Overv iew ......................................................... 1Chapter 2 -An Evolv ing Env i ronmenta l Management Framework ............................................... 7Chapter 3 -Aligning Environmental Pr ior i t ies with t he Needs o f he Mo s t Vu lnerab le .............. 35Chapter 4 - Red ucing Disease a nd Deat h Caused by Environmental Degradation ...................... 68Chapter 5 -Reduc ing Vulnerabi l i ty to Nat ura l Disasters ............................................................. 95Chapter 6 - Sustainable Fisheries Throu gh Im prov ed Management and P ol ic ies ...................... 114Chapter 7 - Conservation of Nat ura l Assets: Soils, Forests, and Bio dive rsity ............................ 133Chapter 8 - Enhancing Competi t iveness Through Im prov ed Environmental Protect ion ........... 17 0Chapter 9 - Opportuni t ies and Challenges fo r Effec t ive Environmental Manag ement .............. 19 9Chapter 10-A W a y F o n v a rd ..................................................................................................... 228A n n e x 1 Technical Summary o f he Cost o f Environmental Degradation ................................. 242Annex 2: Technical Summa ry o f he Cost-Benefi t Analysis ....................................................... 261References .................................................................................................................................... 271

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EXECU TIVE SUMMARY1. Peru s one o f he most eco logxa l ly diverse countries in th e world, endowed with a largeand diverse territory and an enormous wealth o f natural resources. However, Perus naturalresources have n ot been used to develop a diversified and res i l i en t economy. Instead, throughoutPeruvian history, there i s a pattern in which a speci fic com modity triggers an economic boomshort ly fo l lowe d by resource deple tion and collapse (Castro, 2005). Some comm odities that haveexperienced these boom-and-collapse cycles include guano (1 850s-I870s), saltpeter (1 860s-1 8 7 0 ~ ) ~ubber (I90s-19 lo), and anchovies (1960s-1970s). T he b o o m o f the agro-industrialsector lasted for more than seven decades, until i t finally collapsed when the agrarian refor m o f1969 redistributed land property rights. Mining activit ies have remained a pi l lar o f the nationaleconomy since colon ial times, but have not been exempt from problems, including a decline inmineral production during th e late eighteenth century that had econo my-w ide implications. Thecauses o f these pernicious cycles are multiple, but i t i s clear that they include pol icy andinstitutio nal failures, including l l-de fine d property rights.2. Until recently, the development o f economic activities and th e adoption o f land-usepatterns took place in th e absence o f adequate environme ntal safeguards. A ltho ugh mine ralresources have been extracted f or centuries, i t was only in he early 1990s that th e Government o fPeru (GoP) took the f i r s t steps to address the environmental and social impac ts o f the miningsector.2In this context, ef fluen ts and materials generated by mining activities were no t adequatelydisposed o f and generated significant impacts o n ecosystems and pu blic health. The negativeeffects o f mining are s t i l l a matter o f concern, as indicated by well-documented evidence. Forexample, a study carried out by the Ministry o f H e a lt h in several locations in Tru j i l lo found that,because o f water po l lut ion f rom mining and industrial activities, 23.5 percent o f the sampledpopulation had cadmium blood levels that exceeded international standards (DIGESA, 200 1).Unsustainable agricultural practices were associated with th e most signi f icant environmentalproblems during th e 1940s-197Os, when m ost o f Perus populat ion was rural. In 1940, 65 percento f Perus populat ion lived in the S ierra (Pulgar-Vidal, 2006). High population density in an areawith scarce agricultural land contributed to a decrease in farm size and intensification o fagncultural practices that eventua lly led to loss o f s oil fer t i l i ty , decreased yields, erosion and,ultimately, migra tion to other areas.3. W h i l e acknowledging that the problems o f minings environmental legacies andunsustainable a pc ul tu ra l practices persist, an d th e possibi l i ty o f uture environmental problems,todays most im portant environm ental challenges in Peru consist o f reducing the incidence o fwaterborne diseases and illnesses caused by urban and indoor air pol lut ion, and minimizingvulne rabil i ty t o n atural disasters. These categories o f environme ntal damages have an economiccost o f 3.7 percent o f gross domestic product (GDP), and pr im ar ily affect th e poor. Futureenvironmental challenges cou ld result fro m the expansion o f transportation infrastruc ture aimedat increasing accessibility t o the eastern parts o f th e country. The construction o f roads in theAmazon has often been accompanied by uncontrolled forest burning, i l le ga l logging, slash-and-bum agnculture, destructive mining, unplanned developments and plantations that might lead toth e destruction o f critical watersheds and wild life habitats. Consequently, efforts to m itigate

Thi s section was prepared by Emesto Sanchez-Triana and Santiago Enriquez.Since 1993, Peru has taken concrete steps to mitigate the negative social and environmental impacts o f he miningsector, including (a) creating an institution al framew ork to harmonize instit ution al responsibilities and environmentallegislation; (b) d eveloping environmental sectoral norms; (c) d efin ing environmental standards for water, air and soi lquality; and (d) elaborating an inventory o f minings envi ronmental liabi li t ies w o r l d Bank, 2005e).

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potent ial future environmental chal lenges would need to control these potent ial detr imentalactivit ies and their cumulative impacts. In addi t ion, effor ts would be needed to preventplund er ing and uncontrol led exploi tat ion of Perus land an d natur al resources, as has occurred inthe past throughout the Amazon; to control unplanned settlements and unregulated extractivemining activit ies; a nd to pre ven t wide-scale lawlessness.4. Peru has responded to i ts environmental challenges by developing and cont inuouslystrengthening a n environmental management framewo rk. Th e N ational Code for Envi ronmentand Natural Resources was adopted in 1990 after extensive consensus building amongstakeholders. Chapter XI1 o f he Code contained norms t o regulate the evaluat ion, enforcementand mon ito r i ng o f natu ral resource management, thereby cons tituting a f i r s t effor t t o integrate thedi f ferent act ions to control water , air , noise an d visual pol lu t ion that were managed independentlyby different entit ies. In 1994, the Nat ional Counc i l for the Env i ronment (CONAM) wasestablished as a coordinating body with a mandate to propose, manage and evaluate nationalenvironmental po licy. Variou s other leg al instruments an d entit ies have been created to addressspecif ic areas, rang ing f ro m forests an d biodiversi ty t o the regulat ion of sectoral activit ies and theintegrat ion o f a nat ional environmental system. However, th e development o f he environmentalsector has been stro ngly resisted by sectors that perceive e nviron men tal prote ction as an obstacleto economic growth. In 1991, such resistance l ed o the abol ishment o f Chapter XI1o f he Code,through the approval o f the Framework La w for the Gro wth o f Private Investment, whi chformal ized the distr ibut ion o f environmental management amo ng l in e ministr ies. Fur thermore,Peru has neither an independent environmental enforcement agency nor a planning system torigo rous ly define nationa l environmental prio ntie s and al locate resources accordingly.5. Rece nt events highlighting he consequences o f environmental degradation and de plet iono f natural resources have reinvigorated effor ts to strengthen Perus environmental managementframework. The media have widely covered the env ironmental legacies o f mining and conf l ic tsover mining concessions, w hi ch have become the emb lem o f social and indigenous movements.The devastat ing effect o f na tura l disasters associated with the occurrence o f El Nit70 in 1998 andthe collapse o f the hak e and anchovies fisheries in recent years have tr iggered short-termins titu tion al responses to these issues. In this context, P eru has approved ove r the last f ive yearsne w law s to regulate the use o f Environmental Impact Assessments (EIAs), strengthen the lega lfram ewo rk o f the fo restry sector, and advance to wa rd a more integrated and decentralizedenvironmental management system. These efforts constitute the in it ia l steps o f he reforms thatPeru needs t o ca rry out to address the urgent environmental problems o f environmental health andvulnerabil i ty to natural disasters, and to ensure that the environment i s safeguarded asdecentral ization advances, new developments take place in the Peruvian Amazon and othersensitive areas, an d n e w land-use patterns are adopted. How eve r, Pe ru will need to car ry outprofou nd reforms to strengthen i t s environmental insti tu tions to ensure that sound environmentalstewa rdshp a nd the sustainable use o f natu ral resources contr ib ute to builda more d iversi f ied andresil ien t economy.

CEA Objectives6. The objectives o f the Country Environmental Analysis (CEA) center on presenting ananalyt ical f ramew ork to support the GoPs effor ts toward achieving integrat ion o f he pr incipleso f sustainable development in to cou ntry pol ic ies and programs and reversing the loss o fenvironmental resources. The findings o f he CEA are expected to help design and implementpolicie s to (a) imp rove the effectiveness and efficiency o f Perus environmental managementsystem; and (b) integrate principles o f sustainable de velopment into key sector policies, with an

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emphasis on protecting th e most vulnerable groups. The CEAs m ai n elements are analyses o f (a)the institutio nal capacity fo r environmental management in Peru, (b) the cost o f environmentaldegradation, (c) the mo st environ me ntally sensitive spe cific sectors, and (d) the effectiveness andef f ic iency o f existing pol icy and legslat ive and regulatory frameworks to address pr ior i tyenvironmental concerns.

7. The CEA was prepared through an open participatory process. An in i t iat ion workshopwas organized in Paracas, Per u in October o f 2005 t o build consensus on the importance, scope,and methodologies o f the Analysis. T he CE As prelim inary findings were presented in th e V IEcodialogue, which took place in Iquitos, Peru in Ma rch o f 2006. The f indings andrecommendations o f he C EA were disseminated in a workshop held in Lima, Peru, on June 6-7,2007. These workshops involved th e part icipation o f a broa d range o f stakeholders, includingrepresentatives o f agencies fr om va rious sectors, inc lud ing environment, health, finances,agnculture, and energy and mines; regional env ironmen tal authorities; the private sector; N GOs ;indigenous comm unities; c iv i l society; an d international organizations.

Institutional Fram ewo rk8. Perus environmental management framew ork has continuous ly evolved over the pastdecades. T o gain a better understanding o f the inst i tut ional challenges, th e C E A examines thelandmarks in th e evolution o f environmental management in Peru during 1950-2005. Thisanalysis focuses o n four b road areas: (a) conservation a nd management o f natural resources, (b)conservation o f biodiversity, (c) sectoral environmental management and pollution control, and(d) environm ental health.9. Conservation and management o f natu ral resources i s one area in which Peru hasregistered some o f t s most important achevements. During 1962-1992, the Na tion al Off ice forth e Assessment o f Nat ural Resources (ONERN) le d nstitu tional efforts to foster the developmentof th e agncultural sector through investments in integrated watershed management, includingprojects fo r reforestation, land-use management, erosion cont rol and aquaculture. In 1992,ONERN was transformed int o the Nationa l Ins t i tu te for Natu ral Resources (INRENA). INRENAexecutes i t s mandate to manage public forests, soil and water resources and biodiversity th roughthree key departments: (a) th e Intendancy o f Forestry and Wild Fauna, (b) th e In tendancy o fNatural Protected Areas, and (c) the Intendancy for Water Resources. This organizationalstructure, supported by an evolving legal framework, has allowed W N A o support theexpansion o f irr igation infrastructure (with an increasing role o f Water B oard Users in i t soperation and management), and to ma intain deforestation rates belo w those o f neighborin gcountries. However, INRENA has also evidenced technical and administrative l imitation s thatshould b e addressed to ensure the sustainability o f hese resources.10. Bio div ers ity conservation has been one o f Perus environmental pr iori t ies. T he Natio nalSystem for Protected Areas currently comprises 61 protected areas, covering 17.66 mil l ionhectares, representing 13.74 percent o f the countrys tot al area. Biodiv ers ity cons ervation i sregulated by various legal instruments, inc hd in g th e Convention on Biological Diversi ty, rat i f iedin 1993, and the L a w f or the Conservation and Sustainable Use o f Bio lo gc al Diversity, approvedin 1997. The Peruvian Trus t Fund for Protected Areas (Fondo Nacional po r las kreas NaturalesProtegidus por el Estado - P R O F O N M E ) w as e stablished in 1992 to raise funds for theconservation o f protected areas. PROF ONA NFE has been successful in increasing i t s funds andusing them to leverage additional resources, with an estimated US$90.6 m i l l io n having been

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channeled through PR OF ON AN PE t o support conservation efforts. Nonetheless, the developmento f a financial strategy has no t been matched by increased administrative and operativecapabilities, and the Intendancy o f Protected Areas has been unable to spend PRO FON ANP Esfunds efficiently. In addition, a systematic priority-s etting mechanism i s missing, an dconservation efforts have largely been defined in response to demands from the donorcommunity.11. Sectoral environmental management has developed unevenly across sectors. Perusinst i tut ional framework assigns the m ain regulatory responsibil i ties o f pol lut ion control andenvironmental management to th e environmentalunits created within each sectors authority. TheEnergy and Mining sector spearheaded these efforts by developing sectoral norms based on th eus e o f Environmental Impact Assessments (EIAs), Environmental Management andAdaptatiodCompl iance Plans (PAMAs), and Maximum Permi t ted L i m i t s (LMPs), an d byestablishing an independent entity to enforce environm ental norms in the electricity andhydrocarbon subsectors. Environmental units have also been established in th e Min i s t r i e s o fProduction, Transport and Communications, and Housing, Construction, and Sanitation. Despitethese efforts, Perus sectorized approach to environmental management and pollu tion cont rol hasevidenced significant weaknesses, including wide variation across sectors in developingappropriate regulations to safeguard th e environment and limited institutional capacity to applythose regulations effectively. Furthermore, lack o f overall coord ination and c la r i ty o fenvironmental approvals processes affects investor confidence and weakens the countrys long-ter m competitiveness.12. Governm ent support of, and com mitm ent to, environmental health management havebeen mixed. Since th e 1940s, various entit ies have been created and reformed to addressenvironmental he alth issues under the Ministry o f Health. Currently, th e General Directorate fo rEnvironmental Health (DIGESA) i s th e only governmental institution with a regulatory mandatefor environmental health issues. DIGESAs mandate inclu des (a) operating nation al ana lytica llaboratories; (b) establishing and enforcin g huma n health safety norms a nd standards; and (c)inspecting and controll ing environm ental health matters related to water supply, sewage, wastesand air quality. Recent efforts to mitigate environmental health r i sks have involved actions tocontrol air pollution, such as th e establishment o f air qua lity standards invo lving variousparameters, including particulate matter ( PM 10), and measures to reduce th e generation o f s ol idwastes. Alth oug h important, these steps wil l be insuff icient to reduce environmental hea lth risks,wh ich currently represent Perus mos t importan t environmental problem.

Revisiting Environmental Priorit ies for the M os t Vulnerable G roups13. A study was conducted as part o f th e CE A to i den t i fy th e environm ental problem s thatare associated with the most significant economic costs (Larsen and Strukova, 2006a). The studyestimated that th e economic costs o f environm ental degradation, depletion o f natural resources,natu ral disasters and inadequate env ironm enta l services (such as inadequate sanitation) a mount to8.2 b il li on soles, equivalent to 3.9 percent o f GD P in 2003. The analysis shows that th e mostcostly problems associated with environmental degradation are, in decreasing order, inadequatewater supply, sanitation, and hygiene; urban air pollution; natural disasters; lead pollution; indoo rair pollution; and agncultural soil degradation. The costs o f deforestation and inadequatehousehold solid waste collection are substantially less than the former categories (Figure 1). I tshould be noted that these estimates are based on very conservative assumptions that aim toreduce unce rtainties associatedwith data constraints.

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WaB supply, sanitation,Outdoor air pollutionNatural disasters

Leadexp u r eIndoorair pdlutjonI Soils degradation

D!fOff?SUOllMunicipalwastes collecijon

0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 0.9% 1.0% 1.1%Source: Larsen and Strukova (2006a)

14. The cost o f environmental degradat ion in Peru i s higher than in other countr ies withsimi lar income levels. Studies o f he cost o f environmental degradation conducted in Colombia,an upper-middle- income coun try in La tin Amer ica, and several lower-middle- income countries inNo r th Af r ic a and the M idd le East show that the monetary value of increased morbidi ty andmor ta l i ty typ ica ll y l ies bel ow 2 percent o f GDP in these countr ies. Thi s corresponding figure fo rPeru s 2.8 percent o f GDP (Figure 2).

I Figure 2. Costs of Environmental Degradation(Health and Quality o f Life)

3 5%3 0%2 5 % I

ci 2.0%2I1.5%1 0%0 5%

0 0%

s II Egypt Peru Colombia Lebanon Altrena Swia Mmocco Tunisia 1

Source: Tunisia and Lebanon: Sarraf, Larsen and Owaygen (2004); Algeria: Min is te re de 1Amknagement du Territoireet de 1Environnement (2002); Egypt: World Bank (2002a); Morocco: World Bank (2003); Syria: Sarraf, Bolt andLarsen (2004); Jordan: METAP (2000). Note: Th e cost in Peru includes healtheffects and naturaldisasters.

15. The burden o f hese costs fal ls most heavi ly on vulnerable groups. The poor are exposedto greater environmental r is ks than hghe r-inc ome groups and lack the resources to mitig ate thoser isks. Environmental heal th impacts often have more severe repercussions o n he po or than on th enon-poor, because the latter te nd to h ave mor e resources to cope with suc h events, bet ter access tohea lth services and better hea lth in general. En vironm enta l impacts and na tura l disasters can alsoresult in a loss o f ncome or assets tha t i s more det rimental fo r the li ve l ihoods o f he poor than forthe non-poor. I t s estimated that the impa ct of environmental degradat ion fo r the poo r relat ive tothe non-poor i s 20 percent higher per 1,000 people, a nd 4.5 times high er per unit o f income,highlighting he importance of enviro nme ntal degradation as a barrier to reducing nequal i ty.16. The impacts o f urban a i r po l lu t ion re lat ive to income are more severe for the poor thanfor the non-poor . He al th impact re lat i ve to income i s a u s e h l indicator , because i l lness and

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premature mortality resul t in medical treatment costs and lost income, in addition to pain,suffering and restrict ion o f act ivi ty. Based on this indicator, hea lth impacts are between 75 and300 percent higher among th e poor.17. The imp acts o f waterborne diseases are several t imes higher for the poo r than for th e non-poor . B oth c h i ld mor ta l i ty and child diarrheal prevalence have a strong correlation with poverty.Of f icia l data indicate that the ch i ld mortal i ty rate among th e poorest 20 percent o f he populationwas f ive t imes hg he r than among th e richest 2 0 percent, while ch ild diarrheal prevalence amongthe poorest 20 percent was tw o times high er than among th e richest 20 percent. Based o n thesedata and on the higher relative share o f children in he poo r population, i t s estimated that he althimpacts per 1,000 people are three t imes higher in th e poor populat ion than in th e non-poorpopulation. Th e difference i s even higher in terms o f effects relat ive to income, with impacts inthe poor popu lation estimated to be 10t imes higher than for th e non-poor.18. The impacts o f ndoor air pol lut ion are highly concentrated among the poor. Aro und 10percent o f he urban population and more than 85 percent o f he rura l populatio n use solid fuelsfor c ookin g and heating. Alt hou gh data are no t available o n the percentage o f poor and non-poorpopulat ion that use solid fuels, i t s reasonable to assume, based on u rban and rura l pove rty rateso f 40 and 65 percent, respectively, that almost the enti re 10 percent o f he urban populat ion andaround 65 percent o f he rura l populat ion that us e solid fuels are poor. Under these assumptions,an estimated 80 to 85 percent o f th e total heal th effects wo uld be among the poor. This sharecould be even higher in th e plausible cases that poor households us e more polluting stoves andhave worse general hea lth conditions.19. The priorities identified by th e analysis o f the cost o f environm ental degradation areconsistent with pub lic perceptions. Water c ontam ination and air pol lution w ere iden tified as th eenvironm ental issues o f greatest concern in a national survey on environmental awarenessconducted in 1997. At that time, 85 percent o f survey respondents expressed the view thatenvironm ental problems must be solved pro mp tly (Instituto Cuanto, 1998). In a different surveyconducted in 2004 in th e Lima -Cal lao region, 80 percent o f respondents identified air po llutio nas the principal environmental problem in the area (GEA, 2004).20. Responding to environmental health problems and vulne rabil i ty to natural disasters,wh ich are associated with the highest costs o f environmen tal degradation in Peru, will requireestablishing specialized agencies with clear responsibilities and adequate resources to addressthese priorities. The GoPs existing organizational structure i s inadequate to reduce v ulnera bil i tyto natural disasters, since there i s no national enti ty in charge o f articulating and leading theimplem entation o f a long-term strategy for incorporating disaster prevention and r i s k assessmentinto national and regional development planning. With respect to environmental health,DIGESAs limited resources and relat ively l o w hierarchy wou ld constitute severe obstacles tosolving Perus severe environmental hea lth problems. Therefore, th e CEA recommends th efo l lo win g agencies in he short run:

a. An autonomous Environmental Health Agency within th e Ministry o f Heal th , withresponsibil i t ies for regulating environmental quality parameters that affect health,including(i)missions o f PM2.5, lead and toxic pollutants; (ii)u e l quality to tackleair quality; a nd (iii) ater-quality parameters such as bacteriological quality,Persistent Organic Pollutants (POPS), Volatile Organic Compounds (VOCs) andheavy metals.

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b. An autonomous agency with respons ibil i t ies for designing, an d ensuring th e adoptionof, nonstructural measures to p revent nat ural disasters.

Environmental H ea l th21. Negative health impacts represent more than 70 percent o f the costs o f environmentaldegradation. Increases in morbidi ty and mortal i ty resul t ing from urban air pol lut ion and leadexposure; inadequate water supply, sanitation and hygiene; and indoor air pollution have anestimated cost o f 5.85 b il l io n soles (Figure 3).

Figure3. Costs o f EnvironmentaI Health Damagein Peru

Urban a i r po l lu t ion Water supply, Indoor a i r po l lu t ionand lead exposure sanitation, and

hygiene22. Urb an air pol lut ion i s one o f th e most widespread and serious problems in Perus c i t iesan d i s responsible for an estimated 3,900 premature deaths per year. Peru i s already und ertakingsubstantive measures to eliminate lead in fuels. Thus, th e CEA discusses more thoroughly th er i s k s associated with exposure to PM , particu larly those o f less than 2.5 micros (PM2.5), w hi chhave a strong documented relationship with negative he alth effects. T h e prob lem o f a i r po l lu t ioni s most cr i t ical in the countrys indus trial corridors, such as Lima-C allao, wh ich bears almost 75percent o f th e estimated cost o f associated hea lth impacts. Po lluta nt concentrations in parts o fLi m a are higher than in other La tin American ci t ies with severe air pollution, such as MexicoCity and Santiago, and are considerably higher than in cities outside the region, including LosAngeles, Tokyo and Rome, which have successfully reduced their ambient concentrations o f airpollutants, despite ha ving larger indus trial and transportation sectors (Figure 4).

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Figure 4. PMlO Average Annual Concentrations n Selected Cities (pglm3)

pglm3= micrograms pe r cubic meterSource: World Bank (2005~)23 . As par t o f the preparatory wo rk for the CEA, a study evaluated several interventionsaimed at reduc ing urban a i r po l lu t ion. These inc luded the in t roduct ion o f ow-sulfur diesel; theuse o f compressed nat ura l gas in buses and taxis; changes in th e bus fleet t o larger, cleane r buses;imp rove d inspe ction and maintenance prog rams for vehicles; retro fi tt in g particu late controltechnology fo r vehicles; a phaseout o f wo-stroke engmes in baby taxis; better fac ilitie s fo r theuse o f bicycles; and the introdu ct ion o f industr ial abatement technologies. Th ree sets o frecommendations emerge from the study as short-term actions that the Go P cou ld undertake toreduce healt h r isks associated with ambient ai r pol lut ion:

a. Implem ent intervent ions to control ai r pol lut ion, including (i)etro fi t diesel-poweredvehicles; (ii)ntroduce a vehic le inspe ct ion and maintenance program with r igorousvehicle emissions testing; (iii)educe sulfur content in diesel to less than 5 00 partsper mi l l ion, inc luding increas ing c lean impor ts o f diesel with low-sulfur content; and(iv) contro l emissions fro m stationary, mo bile a nd non-poin t sources.

b. Estab lish nation al ambient standards fo r PMlO and PM2.5 in pr i o r i t y urban areas,and strengthen technology-specific emission standards for PM and i t s precursors,par t icular ly su l f u r and ni trog en oxides.c . Implement a program to moni tor a i r qual ity to keep t rack o f PM2.5, PMlO and ozone

in pr ior i t y urban areas.24 . In spite o f the important reduct ions that Peru has achieved in ch i l d mor ta li t y f r o mdiarrheal illnesses, diarrheal prevalence in both adul ts and chi ldren remains high. Poorhouseho lds are most severely affected, because their relat ively l o w inco me and education interactwith lac k o f access to basic services t o generate a v ery high risk o f diarrheal i llness. An analysisconducted as par t o f he CEA estimated the costs a nd benefi ts o f our water supply, sanitation andhygien e interventions: (a) han dwash ing by mothers or caretakers o f young ch i ldren in rura l andurb an areas, (b) improved water supply in ru ra l areas, (c) safe sanitation fac ilitie s in rur al areasand (d) drinlung water disinfection at point-of-use in urban and rural areas.3 The analysisconcluded that benefits wou ld exceed the costs o f each o f hese interventions, and that they co uld

Each intervention i s considered independently of other possible interventions, with the aim o f prov idin g benefi t-costratios for each intervention that the GoP might consider implementing.

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reduce the costs o f environmental health effects by more than 300 m i l l io n so les pe r year (Figure5).4 However, for handwashing among adults in households withou t you ng children, the benefitswere not found to exceed the costs. Based on this analysis, the CEA recommends promotinghandwashing programs that target children under the age o f five, as well as safe water programsthat include the disinfection o f drinking water at point-of-use. Im plem ent ing these actions in theshort run could help the GoP reduce th e health risks associated with inadequate water supply,sanitation and hygiene.

Figure 5. Wa ter Supply, Sanitation and Hyg iene Interventions

5

4 ,

3

Urban

Safe rural 4sanitationfacilities i

2 -

1

0 ,

L B/C = Benef i t -cos t ra t ioCED = C o s t o f env iron me nta l damage (Le., cost of hea l th e f fec ts )

Urban drinkingwater disinfection

I J andwashing(adult health)

25. Unce rtainties regarding beh avioral changes should be considered wh en evaluating th edifferent interventions that cou ld be conducted t o reduce w aterborne diseases. Infi-astructure andhardware improvements (water and sanitation facil it ies) are predom inantly functions o f provision.I t can be safely assumed that households will use these facil i t ies i f design and service deliveryreflect demand and pro vide convenience. On th e other hand, eva luating interventions that inv olvechanges in household behavior (improved h yg en e and disinfectio n at point-of-use) entail greateruncertainties, since authorities can promote such behavior, but actual behavioral changes arebeyond the i r control. T o account for such uncertainties, the analysis o n wh ich Figure 4 i s basedassumes a response rate o f 15% among targeted households and beh avio ral change beingsustained for two years, b ot h o f which are ve ry conservative estimates.26. The urgency o f control l ing water pol lut ion to protect and impro ve public health cannot beoveremphasized. Mo st o f the sectoral agencies responsible f or regula ting water-pollution con trolhave focused o n a l im ite d range o f activities and have established lega l limits o n a reducednumber o f parameters, mos t o f whic h have aesthetic or e cological significance, but m i n i m a limportance for human health. The dearth of relevant regulations in th is area i s a problem thatshould be solved, since waterborne diseases are a sign ificant cause o f morb idity and m orta lity in4 .Figure 4 does no t consider the possible interaction effects between different interventions (i.e., ho w the impacts o f af i rs t inter ventio n affect those o f a second intervention), because data constraints preclude a sound analysis o f sucheffects.

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Peru. In th is context, th e GoP s hou ld consider developing spec ific regulations and enforcementmechanisms in th e short run to contro l water-qu ality parameters that have health implications,such as pathogens, vo latile organ ic compounds and persistent organics. As me ntion ed above, th esever i ty o f environmental hea lth problems underscores the need fo r th e creation o f anautonomous Environmen tal He alth Agency responsible for e nforc ing health-related parameters.27. Indoor air pol lut ion (LAP), associated with th e us e o f s oli d fuels for cooking and heating,has a well-documented relationship with negative hea lth effects, particu larly with acute lowerrespiratory i l lness (ALRI) n chi ldten under age five, and chron ic obstructive pulm ona ry disease(COPD) and lung cancer in adult females. IAP i s most severe in poor ru ral communities andpredominantly affects women and children, who spend more time in closed areas with highconcentrations o f pollutants associated with th e use o f s o l id fuels. The analysis conducted as parto f the CEA evaluated various interventions to eliminate indoor air pollution from solid fuels,including the instal lation of mproved wo od stoves with chimneys and using cleaner fuels in bo thindividual households and in community lutchens. Benefits from replacing unimproved stoveswith improved ones in households were found to be almost seven times larger than the costs.Substituting liquefied petroleum gas (LPG) for unimproved stoves, or substituting L P G fo r acomb ination o f unimpro ved stoves and LP G was also estimated to have higher benefits thancosts. Conversely, the benef i ts o f substitutingclean fuel (LPG) for im prove d stoves were found tob e slightly smaller than th e costs o f LP G at current m arket prices. Substituting mp rove d stovesfor unimproved ones in households, and substituting clean fuel alone for a mi x o f unimprovedstoves and clean fuel, and the use o f c lean fue l in communi ty lu tchens cou ld reduce th e cost o fenvironmental health effects by 250 m il l io n soles per year (Figure 6). Based on the analysis, th emost e fficient interventions that th e GoP could implement in the short run to reduce th e cost o fenvironmental degradation associated with IAP are (i) romoting the use o f LP G and o thercleaner fuels in areas that predominantly use fuelwood, and imp rovin g safe and cost-effectiveavailab il i ty of, and access to, fu elwo od for users; and (ii)mplem enting a program to promoteimpro ved stoves.

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Figure 6. I n d o o r Air Pollu tion Interventions

7.0

6.0

5.0 ~

I stoves If

Community Kitchens (cleanfuel from unimprovedhousehold stove)

fuel from improvedI II

household stove)Clean fuel (from mixof clean fuel 8

3.0

2.0

1 o

I I unimproved stove) IClean fuel (from Clean fuelimproved stove) stove)mtx of clean fuel 8 (from improvedI * f

0.0 j I0 50 100 i 0 200 250 30 0 350 400

CED reduction (mill ion Soles per year)

BIC = benefit-cost ratioCED= cost o f environmental damage (that i s , cost o f health effects)

Na tu ra l Disasters28. Perus incidence o f natural disasters i s near ly tw ice that o f Lat in Amer ica as a whole,w h i l e i t s rate o f fatali t ies i s the highe st o n the en tire continent (Charvkriat, 2000). Perusgeographic location partly explains such a high incidence, because the co unt ry i s in o ne o f h eplanets mo st seismically active areas and is recurren tly affected by the atmospheric a nd oceanicconditions caused by E l Niiio. The most prevalent types of disasters during 2000-2004 werestrong winds, f loods and heav y rains. Howev er, f loods, earthquakes, frost and snow, an d drough thave affected a larger number of vict ims. Di f fere nt data series sho w an increasing frequency o fnatu ral disasters over bo th he short and long term. Although some o f hese disasters have distinctna tura l sources, others-notably flo od in g an d landslides-are increasin gly inf lue nc ed by humanactivit ies that mo di@ en vironmental cond itions and create a greater predisposition to mo re severeeffects. S oi l erosion and deforestation have contr ibuted to h igher f l oo d risk in exposed and low -lying areas, and contribute to creating the conditions for mass soi l movement resul t ing inlandslides and huaycos (mudflows). Urbanizat ion and greater demographic densi ty haveincreased exposure to potential disasters in specific areas that concentrate socioeconomicactivities.

~~

The benefit-cost ratios included in Figure 5 reflect both health benefits and the value o f time-savings. Benefit-costratios are based on upgrading o improved stoves in 33 percent of rural households, use o f LPG in community Iutchensfor 15 percent of rural households, and switching to LPG alone from a mix of unimproved stoves and LPG in 5 percentof rural households An upgrade from unimproved stoves to LPG i s not included in Figure 5, since this would representa double counting of reductions n health effects from indoor air pollubon because switching from unimproved stovesi s already reflected n the upgrade to improved stoves

5

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29. Redu cing vulnerabi l i ty to natural disasters should const itute a short- term pr ior i t y for theGoP. These events have resulted in a signi f icant cost to the country s h uman a nd physical capital.I t s est imated that more than 2 m i l l io n people were affected by natural disasters during 2000-2004, at an annual cos t o f approx imate ly one b i l l i on soles or US$325 m i l l io n (Larsen andStrukova, 2006a). Th e poorest and most suscep tible hav e p a id the highest costs for these disastersin damages, deaths and lo st assets. These gro ups ten d to be more vulnerable to natural disastersfor a var iety o f easons. These include the construct ion o f hous ing where la nd i s cheap, frequentlynear r iver bottoms and o n steep hi lls ides; the lack o f and-use control in these areas; poor qualityconstruct ion; la ck o f basic m it igat ion measures; and the marg inal l ivel ihoo ds and l i mi t ed capaci tyfo r economic resil ience o f hese groups.30. To address this problem, i t is necessary to develop an integrated response to naturaldisasters that emphasizes prevention, vuln erab il i ty analysis and r is k assessment. As discussedearl ier, the G oP s hou ld consider establishing an autonomous agency6 in charge o f nonstructuralmeasures to pre ven t na tura l disasters. This ne w agency cou ld funct ion independent ly o f ex is t ingent it ies focusing o n emergency rel ief . A crucial element o f he strategy would be the creation o f afund to provide incent ives for local governments to advance in the preparation andimplementat ion of preve ntion plans. T o reduce vulnera bil i ty to na tural disasters, the CEArecommends the ad option in the short run o f structural and nonstructural measures, inc ludi ng theadoption o f adequate con struction technologies, practices a nd standards in po or urb an sectors andamong the r ura l populat ion.

Na tur al Resource Managem entFisheries3 1. Perus fishing grounds are the richest in he wor ld. Over 274 mi l l i on metr ic tons (MTs) o ffish were harvested from Peruvian waters during 1950-2001, with anchovies const ituting over 75percent o f otal harvest during that period, and currently representing app roxima tely 10 percent o fthe global annual mar ine catch. The importance o f he anchovies l ies no t onl y in i t s social andeconomic value as a fishery, but also in i t s r o l e in sustaining a large a nd diverse food web thatsupports a wi de array o f ecosystem goods and services that are essential to main tain marinebiod ivers ity and prod uctivity. Fisheries also target ad ditiona l pelagic species, such as sardine,horse mackerel and chub mackerel, and coastal species that include hake (rnerluza). In landfisheries in the Amazo n and Hig hlan d areas yie ld an annual 30,000 to 80,000 MT. The fisheriessector i s a signi f icant con tr ibutor to the P eruvian economy, generat ing around 6 percent ofemployment, 1 percent o f GDP, and accounting for 11 to 16 percent o f total export earnings(which makes i t he second-largest earner of oreign exchange after mining).32. The sustainabil ity o f Perus fisheries i s crit ical ly threatened by several factors. Theovercapaci ty o f he fishing f leet and the occurrence o f El Nifo have resul ted in extreme resourcevolat i l i ty and o verexploi tat ion o f f isheries o f various species, inclu ding anchovies a nd hake.Econ omic in efficien cies plagu e the sector, with vessels remaining idle for most o f he year andthe sector absorbing a substantial amount o f capita l to service i t s heav y debts. A ddit ion al issuesthat should b e tackled to ensure the sustainabil i ty o f Perus fisheries includ e (a) negativeenvironmental/ecosystem impacts; (b) wea k governance and inadequate oversight, manifested inthe existence of egal loopholes and the grant ing of exceptions that have allo we d the sectorscapacity to grow despite exist ing regulations limiting such growth; (c) we ak accountabil i ty and

Th e Federal Emergency Management Agency (FEMA) in he Un ite d States i s an agency of this type

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lac k o f ransparency resulting f r om th e in fluence o f a power fu l lobby and the conf l ic ts o f nterestthat stem f r o m th e dual role o f th e Ministry o f P roduc t ion (Ministerio de la Produccibn -PRODUCE) in regulatory oversight and production; and (d) social and equity issues, includingthe need to develop a domestic m arket for direct con sump tion o f species that represent a potentialprotein source for the poor, and the dissipation and drain o f resource rents that th e governmentmight col lect fro m th e sector to support other soc ially desirable goals, such as pove rty reduction.45. Continuation o f he exist ing situation will most l i ke ly resu l t in severe overexploitation o ffisheries and th e waste o f scarce economic resources that c oul d beused as a platfo rm to develop amore divers ified and resil ient economy. In his context, the GoPshould consider institutio nalizinga system o f radable quotas for th e fishing fleet, as a short-term action that would help to reduceovercapacity in he f ishery sector.Soil Degradation33. Cult ivable land i s a scarce com mo dity in Peru: arable land amounts to only about 0.155hectare per capita, one o f he lowest am ong developing nations. This makes soil erosion, whichaffects th e whole country and i s particularly severe in he Sierra, a significant challenge. Lac k o fupdated statistics precludes a robus t assessment o f he sever i ty o f he problem, but data from th e1970s indica te that moderate-to-severe erosion affected 19 m il l i on hectares in Peru, and l ight-to-moderate erosion affected another 110 m il l io n hectares. Di fferen t estimates (o f wh ich the mostrecent date from 1986) consistently conclude a soil loss arising fro m erosion o f over 300,000hectares per year. Soil salinity i s also known to affect a significant share o f Peru's cultivated land.Again, lack o f moni tor ing makes i t impossible to c onfi rm the magnitude o f he current problem,but studies conducted in the 1970s found that salinity affected 69 percent o f the soils evaluated,and qu alitativ e evidence suggests that the situation has worsened over time. Larsen and Strukova(2006a) estimate that farmers' los t revenue caused by soil erosion and salinization i s 544 m i l l i o nto 918 m i l l io n soles per year. W h i l e problems associated with land degradation, partic ularly soilerosion, have worsened with time, they are s t i l l lo w compared to other countries where sim ilaranalyses have been done (Figure 7).

Figure 7. Costs o f Environm ental Degradation (Erosion a nd Salinity)1.20%1OO%0.80%2 0.60%

0 0.40%0.20%0.00%

Source: Tunisia and Lebanon: Sarraf, Larsen and Owayge n (2004); Algeria: M inistere de l 'Am6nagementdu Territoire et de I'Environnement (2002); Egypt: Wo rld Bank (2002a); Morocco: Wo rld Bank (2003a);Syria: Sarraf, Bo lt and Larsen (2004); Jordan: METAP (2000); Peru: Larse n and Strukova, 2006a.

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34. Nat ura l factors, inclu din g topographic variations and seasonal rains exacerbated by th eperiod ic occurrences o f EZ Nirib, mak e the countrys soils vulnerable t o erosion. However, thesenatural causes are aggravated by hu ma n influences such as overgrazing, deforestation and poorcult ivati on practices. Similarly, soi l sa l inity problem s are created by a combinat ion o f natura lfactors, su ch as the soils na tur all y high min era l salts levels, and hum an activit ies, such asinefficient irr igation. Concerns regarding soil degradation are deepened by the evident andprogressive dis investment o f he Peruvian government over the past 30 years in mechanisms toaddress the problem. Recommended short-term actions that would help redress this situationinc lude (i)onduct inghpdat ing a n ew nat ional inventory of soil erosion an d salinity; (ii)ev is ingthe 1969, 1989 and 1990 Water L aw s to authorize higher, broad-based fees fo r water use; an d (iii)ending the preferent ial reatment f or r ice in water al locat ion in coastal irr iga tion projects.Water Resources Management35. Peru is endowed with abundant water resources. I t has a national average freshwatersupply o f a lm os t 60,000 cubic meters per capita, a figure that i s several orders o f magni tudelarger than for other L at in Amer ica n countr ies such as Me xi co and Argent ina. H owever, waterresources are une venly distr ibute d hrou ghou t the terr itory, and the largest share o f he popu latio nand economic activit ies are located in th e dry Coastal region, generating considerable stress onthe resource. The a gncu ltural sector consumes the vast majo rity (86 percent) o f available water atthe nat ional level . This pattern i s emulated in the Coastal region, where 58 percent o f th ecountry s i r r igat ion infrastructure i s located. Th e use o f gravi ty and f looding- i r r igat ion methods,and the setting o f very l o w i r r igat ion fees that are rarely col lected, largely e xplain a l o w watereff ic iency o f 35 percent. These factors have also co ntr ibuted to drainage and salinizationproblems in he Coastal val leys. H istorica l ly, water-resources management has focused mai nl y onsectoral users, particularly irr igation, and water-supply infrastructure. Recommendations t oaddress the water sectors challenges include contin ued impleme ntatio n and strengthening o f acomprehensive water-rights system, cont inued mod ernizat ion o f i r r igat ion pract ices and r ive r-basin agencies to improve eff ic iency, prom otio n o f ntegrated land and water management, andstrengthening water-user organizations.Deforestation36 . With an estimated 68.7 m il l i o n hectares o f natu ral forests coverin g rou gh ly 35.5 percento f t s territory, Perus forest cover i s the eigh th largest in th e world and second only to B raz i l inLat i n Amer ica . Fully 99.4 percent o f he forests are located in the eastern (Onente) par t o f hecountry. Th e Coastal regi on has been depleted almost entirely o f t s forest cover o f mangrovesand dry and sub-humid forests in the Andean highlands, and some 300,000 hectares o f naturalforests remain. Recent estimates suggest that Perus deforestation rate betw een 1990 an d 2000was rou gh ly 150,000 hectares per year, representing an annual cost of approximately 440 m i l l i o nsoles or US$1 30 mil l i on (Elgegren, 2005; INRENA, 2005; Larse n and Strukova, 2006a).Proximate factors leading to deforestation in Peru include slash-and-burn agriculture, woodfuelextraction, and overgrazing in the Sierra; an d large-scale agnculture and forest plantations,narcotics traff ickers who clear forests to grow coca and to build l leg al runways, cattle ranching,and the development o f oads and infrastructure in he Amazon. Yet, increasing demand for l andand resources driven by demographic growth, rur al poverty rates o f as m uc h as 70 percent,undervaluat ion o f the environmental services provide d by forests, and po l ic y fai lures representsome o f he ul t imate causes o f deforestation.

An Irrigation Strategy stressing the importance o f he subsector was discussed and approved among the authorities.T h i s strategy was used as a basis fo r the Wa ter Resources Str ategy discussions.

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37 . The 1975 Forest and W ild l i fe La w that governed the forest sector until 2000 had seriousflaws including the lack o f recognition o f the needs o f indigenous populat ions, th e granting o fexcessively small (1,000 hectares) annual forestry contracts, and the encouragement o f anexploitative relationship between sma ll loggers and the timber industry and intermediaries. Thenew Forestry and Wildlife L a w o f 2000 strengthened th e sectors institutional framework byintroducing 40-year timber concessions for 5,000 to 50,000 hectares, allocated throughtransparent public bidding. Among th e mos t important features o f the la w are requirements forsustainable management plans based on forest inventories and census, and access rights to forestresources. However, implem entation o f the new law has been characterized by inadequateplann ing and scheduling o f he in i t ia l pub l ic biddingprocess; poo r mapp ing o f he concessions, inturn creating access difficulties to concessions and confl icts with concessionaires wh o argue thatthey received something different from what they bid for; lengthy delays in administrativeprocesses that m ake timely harvesting difficult; and inadequate mo nito ring o f th e i l legal t imbertrade. Major factors limiting the sectors development have been th e concessionaires generallack o f adequate capital; lac k o f access to credit; and lack o f suff ic ient technical, business andforest management experience. Based on the experience to date, the CEA recommendssuspending concessioning processes in the short run until necessary reforms are made toovercome existingproblems.Biodiversity38. Peru s recognized as one o f he worlds 12mega-diverse counties, hosting 70 percent o fth e worlds biological diversity and a very large number o f endemic species. Perus biologic aldiversity represents a source o f comparative advantage for th e development o f commercialspecies, including the alpaca and vicufia, Brazil nuts, tropical fish, the peccary (for meat andhide), orchids and medicinal plants. Although these species may no t have the same comm ercialpotential o f crops such as potato or maize, they constitute the basis fo r a more d iversifie dap cu l tu ra l act iv i ty that can contribute to th e countrys sustained economic growth . Am on g otherconservation efforts, Peru has established 61 natu ral protected areas that cover 13.74 percent o fi t s total territory, a relatively high f i gu re whe n compared with other b io log xa l ly diverse countriesin Latin America and other regions (Figure 8). Perus biological wealth has attracted muchattention from international organizations and nongovernmental organizations (NGOs), w h i c hhave supported numerous efforts to establish baseline data and monitor biological diversity indi f ferent biodiverse or biolog ically fragile sites.

Figure 8. Nationally Protected Area (% o f land)

Source: WorldBank (2005a)

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39 . W h i l e progress has been achieved in the use and conservation o f biodiversity, P eru facesth e challenge o f ntegrating a consistent biodiv ersity management framework that i s supported atth e highest political level. Specifically, there i s a need to guarantee the sustainabil i ty o f existingconservation efforts, p artic ula rly because current leg isla tion does no t assign clear responsibilitiesto different entities with mandates on biological conservation, nor does i t foster interagencycoordination. Further, th e appl ication o f the existing body of regulat ions and pol icies i schronically deficient, there i s im ite d capacity to pro perly manage biodiv ersity at the regional andloca l levels, and th e country lacks a standardized monitoring system to assess the status of, orchanges in, bio log ica l diversity. T o tha t end, the C EA recommends strengthening th e institutionalcapaci ty o f key actors, clearly defining C ON AM s roles and functions, supporting national effortsto value biological diversity and environmental services, building on Perus comparativeadvantage in bio log ica l diversity, and refining coordination mechanisms among don or agencies.40. T h e GoP i s considering addressing the institutional weaknesses that affect th emanagement o f water and biodiversi ty by establishing two independent and financiallysustainable agencies. First, a national water au thority has been included in a Water ResourcesManagement bill. T h i s agency wo ul d have a mandate for overseeing the allocation o f water rightsby Water User Boards and enforcing secondary water-quality standards for parameters such asbiological oxygen demand, chemical oxygen demand, PH, iron, manganese and salts. The billproposes a series o f ins truments to financially support the national water authority, includingwater fees based on th e quanti ty and qual i ty o f water assigned to users, and pollutio n charges onparameters regulated by secondary wat er-qu ality standards. A second agency wo uld be in chargeo f th e conservation and use o f biodiversi ty, including the management o f national parks.Resources to fund the functioning o f this agency would come from the Nat iona l Fund o f t heNatural Protected Areas o f Peru (Fondo Nacional po r la s Areas Naturales Protegidas por elEstado - PROFONANPE) and would a lso be collec ted throu gh fees charged for entrance tonational parks and fo r th e us e o f b iodivers ity . I f hese reforms come to fruit ion, INRENA w o u l dbe redefined as a specialized agency responsible for managmg forests and soils. Under th isscheme, INRENA would car ry out i t s activities through watershed councils and be fundedthrou gh stumpage fees and taxes on forests or soi l degradation.

Enviro nme ntal Assessment and Sectoral Enviro nme ntal Ma nage men t41. Environmental Impact Assessment (EIA) i s th e main instrument for sectoralenvironmental management in Peru. However, confl ict ing conceptions o f he EIA have turned th einstrument into a bureaucratic obstacle for projects with m inim al environmental impacts, whileconstraining i t s use as a decision-malung to ol for mana ging and resolving com plex environmentaland social issues. Limitat ions in the use o f EIAs include (a) lac k o f standardization anduni formi ty in th e content and scope o f EIAs across and within sectoral ministries, (b) theconception o f public participation as events for sharing information rather than for receivingcr i t ical input and (c) w eak enforcement o f EL4 commitments.42. The approval in 2001 o f the National System fo r Envi ronmental Impact Assessmentconstitutes an important step to address these issues, but specific regulations s t i l l need to bedeveloped to ensure that EIAs are inclusive and standardized mechanisms through which socialand environm ental concerns can be incorporated in to th e project l i f e cycle. Because EIA i s th em ain instrum ent for sectoral environmental management in Peru, issuing specific EIA regulationsconstitutes one o f he recommended short-term actions that the G oP might consider implementingto strengthen the countrys environmental nst i tut ional framework.

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43. Ex ist ing inconsistencies in th e approach, content, timing and requirements o f the E Mlega l and regulatory process in Peru create a lack o f standardization and unif orm ity in he projectplanning and approval process. Given this situation, CONAM i s designing regulations for aun i f i ed EIA process-including screening and scoping criteria for all min is t r ies and sectoralauthorities-that i s consistent with the existing leg al fkamework and incorporates aspects o f bestEIA practice. Th is will ensure consistency with the proposed SEIA regulations and avoid th eprol i ferat ion o f di f ferent E M standards between sectors. T o enhance EIAs effectiveness, i t i ssuggested that the need be min imized for car ry ing out EIAs for projects that pose noenvironmental threat or r isk . Carrying out fewer EIAs by concentrating on significant projectswith regon al, precedent-setting impacts wou ld greatly imp rove the qual ity o f EIAs and increaseopportunities f or m eaningful public consultation and comm unity participation.

InstitutionalAnalysis44. Peru has conducted imp ortan t effo rts to consolidate an organizational structure that canrespond to the countrys environm ental challenges. These efforts have generated considerabledividends, part icular ly in th e conservation o f biodive rsity and natural resources management.However, the existing organizational structure has severe limitations that hinder an eff ic ientresponse to th e countrys current and future environm ental challenges. These l imitations originatef r o m three ma in sources: (a) lack o f an integrated environmen tal plann ing system, (b) l a ck o fsufficient management capacity, and (c) weak accoun tabil i ty and mo nito ring and enforcementcapabilities.45 . One o f he most serious weaknesses o f Perus environmental management framew ork i sthe lac k o f capacity for environmental p lanning. An assessment o f th e costs o f environmentaldegradation and a review o f surveys on public perceptions indicate that environmental healthproblems and th e reduction o f vulnerab il i ty to n atural disasters are the problems that requi reattention most urgently. However, a review o f environmental expenditures and an institutiona lanalysis, bo th conducted as part o f th e CEA, conclude that environmental health and th eredu ction o f vulnera bil i ty to na tural disasters have received min im al attention. T h i s misal ignmentbetween environmental priorities, institut ional efforts and resource allocation i s largely due to (a)the absence o f an integrated system o f reliable data to provide analytical support to the decision-ma lung process; (b) th e lack o f representation o f vulnerable groups; and (c) th e absence o f aformal mechanism for allocating financial and human resources according to clearly definedenvironmental priorie s that are l in ke d to poverty alleviatio n and social priorities.46. The lack o f management capacity constitutes a fundamental challenge in te rms o fimp leme nting environmental regulations and plans. M os t entities must cope with eitherinsuff icient funding or with the variable resources provided by th e donor community. Humanresource capacities vary from one agency to another. Some entities, including DIGESA, havebeen affected by th e downsizing o f the publ ic sector (W orld Bank, 2000, 2005d). Otherorganizations, such as CONAM, lac k a c r i t ical mass o f human resources with sufficient technicalexpertise to analyze and formulate environmental policies in highly complex sectors. Perussectorized approach to environmental management exacerbates these problems, because agenciesfocus their efforts on the specific interests o f he sectors they represent, and not on the solutio n o fenvironmental problems that require a m ulti-sectoral approach.47. The absence o f a form al mechanism for environmental p lannin g and prio rit y setting hasbeen associated with inadequate funding fo r the environmental sector and decreases in th enational governments total environmental expenditure. Between 1999 and 2005, annual

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environmental expenditure has represented arou nd 0.01% o f GDP. Thus, resources allocated forenvironmental protect ion const itute a smal l f ract ion o f the est imated costs o f environmentaldegradat ion and are low by international standards, particularly when compared to OECDcountries, which typically spend 0.05 to 0.07% o f GDP. Perus fal l ing al locations for theenvironmental sector have taken place within a favorable economic context and could thereforeindicate a relat ive loss o f importance o f environmental challenges relat ive t o other socialconcerns. Ensuring adequate funding fo r the environmental sector fro m the nation al budget, aswe l l as f ro m a ddi t ional sources, i s essential to develop the necessary capacity to address Perusmo st pressing environmental concerns.48. Accountabi l i ty , enforcement and monitor ing capaci ty require urgent improvement.Accountabi l i ty i s di lu ted by (a) the absence o f clear responsibil i t ies an d capacities amongagencies and by (b) the lack o f an effec t ive vo ice for the poor , s temming f ro m a lack o fawareness and the absence o f sound mechanisms fo r pu bl ic par t ic ipation. Mo ni t or i ng capaci ty i sconstrained by a lack o f rel iable t ime ser ies data on the state o f the environment and naturalresources, the nonexistence o f a system o f results-focused indicators of environmental quality,and in sufficie nt resources to ensure a n adequate insti tut ional presence in the f ield. Enforcementhas been suboptimal mostly because enforcement power ultimately rests in the same ministr iesthat are responsible for sector development, but also because quality standards s t i l l n e ed t o b edefined in ma ny areas.49. M aj or refo rms are needed to address Perus insti tut ional weaknesses a nd respond to thecountrys most pressing environmental challenges. There i s a def ini te need t o assign clearerduties and functions t o a l l the sectors agencies to a voi d overlaps and confl ic ts o f nterest, buildorganizational capacities to d eliver and be responsive to enviro nme ntal needs, and establish theincentives and mechanisms for inter-agency coordin ation within and outside the sector. Th e CEArecommends the creation o f an independent task force integrated by high -level representatives o fthe Congressional and Executive branches, as well as from those groups most affected byenviron menta l degradation, to assess the alternative stru ctural refo rms .50. Strengthening the enviro nme ntal sector will requ ire the establishment o r reorganizationo f governmental bodies to ensure a n adequate response to enviro nme ntal prio rit ies (Table 1).Base d o n nternational experience, wh ic h ndicates that special ized governmental agencies tend tobe mo re effect ive than a s ingle agency with a wid e mandate, the CEA recommends the creationo f a nat ional environmental heal th agency, an agency to reduce vuln erabi l i ty to natural disasters,a national water agency and a central ized environmental regulatory body. Inter-agencycoordinat ion will remain crucial even within a ne w inst i tut ional fram ework give n the cross-sectornature o f var ious environmental pr iori t ies, inclu ding indoor a nd outdoor ai r pol lut ion, andinadequate water supply, sanitation and hygiene.

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Table 1. Proposed Institution al Arrangements2P-3!?Ec

Coordinaion,designand Jimplementationofenvironmentalpolicys, Jnforcementofenvironmentalpolicies

I I I I I I Is, s , s ,nforcenicntof potlutioncontrol measures

Enforcemento f naturalresources managementregulations l s , l s ,I I I IJ + s , s , +nvironmental permitting

1 EAJ s , s , + s ,eductionofvulnerability to naturaldissters

Conservationandprotected areas

I I I I+ + J Jater and forestry rightsallocation5 1. Strengthening CONAMs capacity to coordinate and foster consensus building amongkey sectors should constitute one o f th e GoPs prior i ty actions in the short run. As the leadenvironmental authority, CONAM should play a lead role in ensuring the coordination o fdifferent agencies to address priorities that require a multi-sectoral approach, as well inincorporating sub-national agencies in th e response to regional environmental challenges.CONAM sho uld also assume the prime respons ibil i ty for e nsuring that the GoPs resources areprim arily devoted to address the nations environm ental priorities instead o f sector prioritie s.52. The GoP should consider pursuing short-term actions to address the exist ingmisalignment between environmental priorities and resource allocation. These include thefol lowing:

a. Dev elop a robust priority-settin g mechanism based on (i) he impacts o fenvironmental degradation on the poor and other vulnerable groups; (ii)he mosturgent needs as perceived by the population, gauged through th e conduct o f surveys,(iii)he major private and public costs and r i s ks that environmental degradation

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imposes o n the ov erall society; and (iv) and analysis o f the effectiveness andefficien cy o f environmental policies and o f alternative interventions t o reduce thecost o f environmental degradation.b. Establish a plann ing process to a lign en vironmen tal expenditures with priorities.

53. For ma l evaluation and learning mechanisms should be incorporated in th e short run in tothe management routines o f all the institutions in Perus environmental system. The systematicestablishment o f baselines and th e evaluation o f governmental interventions constitute anappropriate tool to gauge progress, incorporate the lessons from past experience, and adjustpolicies based on ne w developments in science and technology. The information col lected w it hthis too l i s crucial f or build ing performance-based indicators, which allow organizations to se tmeasurable goals, evaluate their achievements, and engage in a process o f reforming andimp rov ing their practices. Performance-based indicators also have th e potential to strengthen th eenvironmental sector by enhancing transparency and accountability, as well as by demonstratingthe social benef i ts o f nvesting pu blic resources in environm ental protection.

Conclusion54 . The highest costs o f environmental degradation in Peru are, in decreasing order o fmagnitude, inadequate water supply, sanitation and hygiene; u rban air pollutio n; natu ral disasters;lea d exposure; ind oo r air pollu tion; lan d degradation; deforestation; and inadequate mu nic ipa lwaste collection . Combined, these environmental pro blem s cost 8.2 bi ll io n soles, or 3.9 percent o fPerus GDP. The poor and vulnerable populations bear a disproportionately high amount of th iscost. To address these problems, th is report ident i f ies a number o f cost-effect ive po l icyinterventions that could be adopted in th e short and medium t e r m to support sustainabledevelopmen t goals.55 . In recent decades, there has been considerable progress in addressing a biodiversity-conservation agenda. The high mortality and morbidity rates suggest th e need to increaseemphasis on environmental health interventions. However, the environmental managementagenda has yet to catch up with this shift in priorities to strengthen environmental heal thprograms, because mechanisms in the current institutional structure to signal these changes aren o t yet in place. Improved mo nitor ing and dissemination o f information o n environmentaloutcomes, assignation o f accountabil ities f or environm ental actions and outcomes, andinvolvem ent o f a broad range o f stakeholders are three important mechanisms to allo w thesesignals to be pick ed up.56. Table 2 summarizes the m ain recommended short-term actions.

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Table 2. Recommended Short-Term ActionsObjective

[nstitutional ref or m

Reduce hea lth risksassociated wi th ambient airpollution

Reduce hea lth risksassociated w ith inadequatewater supply, sanitationand hygieneReduce cost o fenvironmental deg radationassociated wi th ind oor ai rpollution

Recommended Short-Term ActionsDeve lop a priority-setting mechanism based on (a) the impacts o fenvironmental degradation on the po or a nd other vulnerable groups,(b) th e mos t urgent needs as perceiv ed by the population, and (c) th emajo r publ ic and private costs and r i sks that environmentaldegradation imposes on the overall society. (Cost: low)priorities. (Cost: low )building among sectors.(Cost: modest)

Establish a planning process to alig n environmental expenditures w it hStrengthen CON AM s capacity to coordinate and foster consensusIssue regulations for the En vironm ental Impact Assessment La w.Establ ish Environmental Hea lth Agency withm the Ministryo f(Cost: low)He alth o regulate environmen tal quality parameters that affect health,inc luding(i)mission o f PM2.5, lead and toxic pollutants; (ii)u e lquality to tackle air quality; and (iii)ater-quality parameters such asbacteriological quality, Persistent Organ ic Pollutants (POPS), Vola tileOrganic Compounds (VOCs) and heavy metals. Imple ment reform sbeing proposedby the government, such as the establishment o f anenvironmental regulatory bod y (Procuraduria Ambientao to addressth e enforcement o f all productive sectors. (Cost: modest)measures to Drevent natura l disasters. (Cost: modest)Establish an autonomous agency responsible for nonstructural

Establ ish national ambient standards for PM2.5 and P M lO in pr ior i tyurb an areas and strengthen technology-specific emis sion standards fo rP M and i ts precursors (particularly sulfur and nitro gen oxides). (Cost:l ow)Implement a progr am o monito r air qual i ty to keep track o f PM2.5,Implem ent interventions to control air pollution, that includes (a)PM10, and ozone inpr ior ity u rban areas. (Cost: modest)promot ing th e ret rof i t t ing o f diesel-powered vehicles, (b)implementing a progr am o test vehicle exhausts, (c) reducing sulfurcontent in diesel to less than 500 parts permil l ion, inc ludingincreasing clean imports o f diesel with low-sulfur content; and (d)controlling emissions f ro m stationary, mo bile and non-po int sources.(Cost: modest to high)Promote handwashing programs that target children under the age o fPromote safe water program s that include disinfe ction o f dr ink ingfive. (Cost: low)water at point-of-use. (Cost: low)Promote the use o f L P G and other cleaner fuels in areas thatpredo minan tly use fuelwood, and implem ent actions to imp rov e safeand cost-effective availability and access to fue lwo od fo r users.(Cost: modest)

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Objective

Reduce vulnerability tonat ura l disasters

Reduce soil degradation

Reduce deforestation

Reduce overcapacity infishery sector

Recommended Short-Term ActionsImplementa program to promote imp rov ed stoves. (Cost: modest)Ado pt structural and nonstructural measures to reduce v ulnerabi l i ty tonatura l disasters, includ ing th e adoption o f adequate construct iontechnologies, practices and standards in poo r urban sectors and amongth e ru ra l pop ulation. (Cost: modest)Conducthpdate new nat ional inventories o f (1) soi l erosion and (2)soi l sal ini ty. (Cost: low )

0 Revise the 1969, 1989 an d 1990Water Law s to authorize higher,broad-based fees for water use. (Cost: lo w)Endpreferent ial t reatment fo r r ice in water allocation in coastali rr igat ion projects. (Cost: lo w)

0 Suspend concessioning process untilfurther reform s are made. (Cost:l ow)Inst i tut ional ize a system o f radable quotas for f ishing fleet. (Cost:modest)

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CHAPTER 1COUNTRY ENVIRONM ENTAL ANALYSIS: AN OVERVIEW

1.1 Over the last five decades, Perus environmental management framework has evolvedin to a large set o f regulations, policies, and institutions that a im to respond to th e countrysenvironmental concerns. Recent efforts have brought encouraging results, particularly inadvancing towards the integrated management o f water resources, and creating one o f the mostconsolidated systems o f Natural Protected Areas in the region. The establishment of agencies,including th e Off ic e o f Natural Resources Evaluat ion (ONERN) and the N ational Ins t i tu te fo rNatural Resources (INRENA), as well as th e approval o f egislation such as the General WaterLa w o f 1969 and th e La w o f Forestry and Wildlife (with i t s f i rst version dating fro m 1975 and anewer version promulgated in 2000), have been instrumental. However, the country facessignificant challenges in controlling pollutio n and advancing sectoral environmental managementand, most impo rtantly, in addressing environmental health impacts, disaster prevention, and r i s kmitig ation . Mo re recently, Peru has taken a number o f n i tia tives to further integrate the differ entelements o f i t s environmental management framework, inc lud ing the establishment o f theStructural Framework for Environmental Management o f 1993, the National EnvironmentalManagement System L a w o f 2004, and the General Environmental La w o f 2005.1.2 Environ mental degradation and depletion o f natur al resources constitute a formidab leobstacle to Perus efforts to eradicate poverty, reduce inequ ality, an d develop a more diversifiedand resi l ient economy. The principal causes o f environmental degradation represent more than3.9 percent o f he countrys GDP, mai nly due to increased mo rbid ity and morta lity and decreasedprod uctiv ity. Inadequate water supply, sanitation, and hygiene alone are estimated to generate asocial cost o f over one percent o f GDP, with 82% o f that cost attributed to health impacts thatchiefly affect children under the age o f ive. Ind oor air po llution, representing around 0.4 percento f GPD, imposes a significa nt burdenon vulnerable groups, such as chi ldren and wome n in poorrur al households. These individuals must re ly o n solid fuels for coolung and heating, and spendprolonged periods o f time in closed areas with high concentrations o f pollutants resulting f romthe us e o f such fuels. As these tw o environmental pr oblems illustrate, poo r households are oftenexposed to greater environmental risks, lack the resources to mitigate those risks, and aretherefore affected in a way that further reduces their chances o f escaping pove rty.1.3 Some o f Perus highest costs o f environm ental degradation are associated with thecountrys grow ing urbanization. Greater concentration o f populations and economic ac tivities inspecific areas has led to hgh evels o f atmospheric pollutan ts and to a larger number o f peoplebeingexposed to the ir negative impacts, wh ic h represent 0.9 percent o f GDP. Ur ban populationshave also been exposed to lead pollution, and exposure to po llutants i s aggravated by inadequatesolid wastes collection, amoun ting to 0.5 and 0.05 percent o f GPD, respectively. Ur bani zatio n hasalso meant that a greater number o f people are affected, an d the econom y i s most severely struckwhen a city i s devastated by a natural disaster. This phenomenon occurs more frequently, andl u l l s more people, in Peru than in the rest o f Lat in America. Natural disasters also highlight theimportance o f sustainable resource management, n ot on ly as a means to optimize the economicbenefits o f fisheries, forestry, and other activities, but as an indispensable element in controllingthe anthropogenic factors that result in greater vulne rabil ity to natural disasters.

* T h i s chapter was prepared by Emesto Sanchez-Triana.1


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1.4 I f managed sustainably, Perus profuse endowment o f natu ral resources cou ld become apillar o f an increasingly diversi f ied and robust economy. Perus f ishing grounds an d naturalforests are amon g the mo st abundant in the wor ld, whi le i ts ecosystems host a wide an d highlyendemic biodiversi ty. Ea ch o f these factors cou ld support the development o f commercial lyvaluable products, broaden the range o f act iv i t ies fuel ing the country s economic growth, andgenerate significa nt revenues to support the countrys social agenda. However, as the analysisdemonstrates, insti tut ional and po lic y fai lures threaten the sustainabil ity o f Perus natu ralresources and are largely responsible for leaving their po tent ial fundame ntal ly untapped. Otherna tura l resources, su ch as water an d cultiva ble lands, are unde r severe stress. Un less imm ed iateact ions are taken to m od i fy current patterns o f esource ut i l izat ion, gro wing resource scarcity i sl i ke l y to r esu l t in heightened social conf l ic t and diminished contr ibut ions to the country ssustainable growth by related economic activit ies, i ncl ud ing agriculture.1.5 Over the past five decades, Peru has restructured its legal and regulatory landscape,undertaken numerous po lic y init iatives, and dra matica l ly expanded and strengthened i t sinst i tut ional capaci ty fo r protect ing and mana ging the natural resources and environme ntal qual i tyvi tal to sustainable growth and poverty reduct ion. Whi le the government made signi f icantadvances, such as estab lishing a system o f nat ional parks and forestry reserves that covers nearlya quarter o f the nat ional terr i tory and phasing out leaded gasoline, it still faces the seriouschallenge o f s lowing and reversing en vironmental degradat ion.

Objectives o f the Country Environmental Analysis1.6 The object ive o f he Country Env i ronmenta l Analys is (CEA) is to present an analyt icalf ramework to support the ef for ts o f he Government o f Peru toward achiev ing in tegrat ion o f heprincip les o f sustainable d evelopment into coun try policie s and programs a nd reverse the losseso f environ menta l resources.1.7 Through i t s examinat ion o f urban e nvironmental issues such as ai r po l lu t ion anduntreated hnlungwater that affect the most vulnerable popu latio n groups, the CEA provide s theanalyhcal underpinnings for designing pol ic ies aimed at achieving MDG &reducing chi ldmortal i ty-by addressing the causes o f espira tory i l lness, diarrhea, an d other prin cipa l factors inmorb idi ty and mortal i ty fo r chi ldren under age f ive.1.8 The findings o f he CEA are speci f ical ly expected to h elp design and im pleme nt pol ic iesto (a) improve the effect iveness and eff ic iency o f Perus environmental management system, and(b) integrate principle s o f sustainable development i nto ke y sector policies, with an emphasis o nprotect ing the most vulnerable groups. The ma in elements o f the CEA are analyzes of (a) theinstitutional capacity for environmental management in Peru; (b) the cost o f env i ronmenta ldegradation; and (c) the effectiveness and efficiency o f existin g policy, and legislativ e andregula tory frameworks t o address pri orit y en vironm enta l concerns.

CEA Process and Linkages with other Bank Products1.9 The CEA was ini t iated in October 2005 through a workshop in Paracas, Peru, involvingnatio nal stakeholders and development partners. Participants includ ed representatives o f agenciesfr om various sectors, includ ing environment, health, and energy and mines; regio nalenvironmental authorit ies; and the private sector; nong overnmental organizations, and

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international organizations. Workshop participants provided valuable input fo r the overalldiagnosis o f he state o f he environment in Peru, helped to ide ntify crucial inform ation gaps thatneeded to be addressed by the CEA, and recounted Perus progress in establishing a solidenvironmental management framework. The workshop also provided a venue fo r buildingconsensus regarding he importance,

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Republic of Peru Environmental Sustainability

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