Chapter 3. Fostering environment in decentralized decision-making

3.1 Summary

Fostering the environment in decision-making for sustainable development involves a number of changes that range from technical, political, institutional, and cultural.

The role of the government, both at the central and local level, is of utmost importance to set up the appropriate environment for these changes to occur.

The instruments available to the government are direct investments, the incentive system, and the institutional system. For these instruments to be properly used in the environmental sector at the decentralized level, two conditions are necessary:

real and not formal empowerment at local government level; and

participation of people in the decision-making process.

Environmental consideration in decision-making for sustainable development at the local government level also requires that an appropriate decision-making framework be designed, able to account for all dimensions of sustainable development, including environmental, economic and social.

3.2 The role of government

Creating an enabling context

As pointed out in the previous chapter, the intervention of the government both central and local in addressing the environmental problems is indispensable in some circumstances. The government plays an important role in the creation of the overall context within which the private parties operate and make decisions related to the environment.

Three broad and interrelated means are available to set up a sound and effective context for integrating the environment in decision-making:

• direct investments;

• regulatory and market based instruments; and

• the institutional set-up.

In addition to influencing the behaviour of individuals towards the use of the environment, the above means include powerful instruments for:

• capacity-building within and outside of the government;

• awareness creation both within the government and among communities;

• communication between the government and the communities (vertical communication) as well as between communities (horizontal communication); and

• participation of local communities in the decision-making process.

In Nigeria, for example, a proposal has been submitted to the Federal Ministry of Education which recommends, among others things, to initiate a national environmental awareness campaign and establish a Conservation Club Programme at the community level that will distribute environmental related material and will mediate with foreign environmental donors for specific project funding and technical support^[34].

3.2.1 Direct investments

Cases for public sector investment

Despite the fact that it is largely accepted now that the major role of the public sector is not so much to undertake economic activities aimed at the production of goods and services to be sold in the market, but rather to provide the private sector with the necessary services and incentives to ensure that resources invested are allocated in those activities generating the highest returns to the society, there are some circumstances, which do justify a direct involvement of the public sector in investment projects and programmes. Among the most important the following can be mentioned:

• investments are not profitable from the financial (private) point of view but they generate positive returns from the economic (society) point of view;

• investments involve public goods and externalities;

• financial benefits of the investment occur in the long-term whereas costs are borne in the short-term; and

• investments are subject to high risks as to the financing of the project. This aspect is very much related to the life span of the project.

All of the above circumstances are typical of the environmental sector. Indeed, conservation and protection projects are generally characterized by very long benefit generating periods, high positive externalities for which the generators are not paid, limited financial benefits for the entrepreneur, and high risks regarding the financing of the project.

... in view of economic social and environmental objectives

The private sector will most likely not be attracted by such investments because they will certainly find alternative investments generating higher financial returns with less risks. This is not the case of the public sector, whose objectives are broader than just maximizing private profits. In addition to economic objectives (e.g. maximizing the welfare of the whole society), the public sector aims at achieving social objectives (e.g. distribution of income), and environmental objectives (e.g. habitat conservation, wildlife protection, etc.) which are generally not accounted for by private investors.

Decision criterion

... of private entrepreneurs

Let us consider, for example, a reforestation project. The private sector will only be interested in financial returns; that is, the returns generated by selling the goods and services produced with the investment. It will not be interested in other benefits which do not generate a flow of money. Yet, we know that apart from producing timber and other marketable goods, reforestation generates a number of other services that are not exchanged in the market (i.e. erosion control, water and air quality improvement, and so forth). The decision criterion of the private entrepreneur as to whether to invest in reforestation or alternative projects will rely on the comparison between the financial net benefits of reforestation (i.e. the money earned with the selling of timber and other goods) and the financial net benefits of the alternative project. She/he will choose to invest in reforestation only if the Financial Net Present Value (FNPV) of reforestation (i.e. the sum of the discounted flow of financial net benefits) is higher than the FNPV of the alternative project. The evidence shows that this situation is not common because positive discount rates tend to minimize the costs and benefits occurring in the future as compared to the costs and benefits occurring in the short-term. In addition, investments in long-term projects such as reforestation are subject to higher financing risks. It follows, therefore, that private entrepreneurs will be more attracted by alternative investment projects.

and

... of the public sector

The public sector will use a different decision criterion. Since its objective is not to maximize private profits but rather to maximize the welfare of the whole society, it will also consider the benefits accruing from all non financial services provided by the forests. Indeed, it will take into account the positive impacts of forests on air quality, on water quality, on soil protection because the whole society will be better off if these services are provided. If these values are added to the value of the goods sold, the final profitability (generally named economic profitability) of reforestation may become higher than alternative projects.

It is worth noting that private sector can be involved in environmental related investments if appropriate policies are set up, which promote incentives for this kind of investments. These issues are discussed in more detail in the following sections.

3.2.2 Regulatory and market based instruments

Incentives for environment related investments

The incentive system consists of a number of regulatory and market based instruments aimed at modifying the behaviour of individuals towards the consumption of environmental goods and services.

Regulatory instruments are, for example, pollution emission standards, issuing of licenses and permits, land use controls, definition of property rights, and so forth.

Market based instruments include taxes, user charges, emission charges, subsidies, deposit refunds and tradeable permits (see Annex 1 for a brief illustration of the main instruments).

the widespread use of regulatory instruments

It is worth noting here that, thus far, regulatory instruments are the most frequently recommended both in industrialized countries and in developing countries for addressing environmental problems, though market based instruments are generally considered more cost-effective.

... and their implementation problems

Though an increasing number of countries are introducing environmental measures, their application is still faced with a number of problems, mainly due to the poor institutional capacity of developing countries. Regarding the regulatory instruments, it has been observed that the major problems are:

• the vagueness in the specification of the type and quality of standards and ambient concentration of pollutants, which sometimes is responsible of unreasonable high standards and low compliance; and

• the difficulty and poor capacity of countries to set, monitor, enforce, and administer the regulations.

Market based instruments (taxes, charges, subsidies, etc.) are seldom applied in the developing countries due to:

• unfamiliarity with these means;

• lack of expertise to assess the impact of these measures.

3.2.3 The institutional set-up

Mainstreaming environment in decision-making through:

The institutional system is the organizational arrangement and functioning of all the bodies - public and private - involved in environmental management and analysis. The role the institutional set-up plays in mainstreaming the environment in the decision-making process is particularly important because it:

Commonly encountered institutional failures

The institutional set-up of many developing countries, however, is not adequate to provide the above services effectively for a number of problems, generally attributable to:

• inadequate skills of the personnel;

• not clearly defined institutional responsibilities concerning the environment which often leads to duplication or poor coverage of some environmental issues;

• competition among agencies with environmental responsibilities;

• lack of co-ordination among the agencies;

• scarce financial resources; and

• limited involvement of private agencies in the provision of environmental services.

In addition to the above problems, the institutional system suffers from the vertical, hierarchical, and centralized structure of organizations of many developing countries. Indeed, local agencies at the local government or lower level generally lack the required institutional autonomy and resources to ensure a more efficient provision of the above services.

Government role

To overcome the above mentioned constraints, the government may play a major role in promoting and supporting institutional reforms aimed at creating a consistent and effective framework of organizations and rules able to ensure sustainable development, as well as guaranteeing the proper functioning of the institutional set-up. In particular, it may play a major role in achieving the following basic conditions for decentralized sustainable development.

Decentralization and empowerment

As pointed out in Chapter 2, decentralization is a necessary but not sufficient condition to cope with environmental and sustainability concerns at the local government level. Indeed, decentralization of some environmental services such as enforcement and monitoring is unlikely to produce any significant change towards sustainable development at the local government level unless it goes along with actual empowerment in decision-making. That is, unless the principle of subsidiarity is respected. In practice, the higher the power of decentralized institutions, the wider the range of environmental related decisions that can be made by the local government administrations.

It is also important that decisions made at the local government level about the identification of priorities, the allocation of resources, and the related policies, be consistent and co-ordinated with decisions made at the other institutional levels, be they lower or higher levels. This would avoid situations in which management decisions made at certain levels offset management decisions made at other levels.

Decision-making must be thought of as a shared process in which the various institutional levels in the hierarchy interact continuously and undertake efforts for sustainability in a coherent fashion and within the same vision.

Cooperation and collaboration are also essential between the various agencies responsible for various aspects of natural resources management at the local government level. Given that environmental problems may involve more than one administrative area, collaboration is also necessary among local administrative areas. For example, in:

• using the same zonal classification system;

• sharing knowledge and information;

• developing joint programmes, policies, and legislation; and

• creating alliances to negotiate and influence decisions made at the central level.

Involvement and participation of the private sector

Effective decentralization in environmentally sustainable decision-making also includes a major involvement and participation of the private sector (NGOs, etc.) in the decision-making process and in the provision of environmental services when it is expected that they are more cost-effective. Indeed, given the scale and complexity of global-local relationships of environmental issues and the trade-offs between economic, social, and ecological objectives involved in sustainable development, no single organization, no matter how interdisciplinary it may be, can reflect the needs, the preferences, the diversity of interests that environmental problems can create, and manage alone the use of natural resources.

Moreover, the potential conflicting nature of economic, social, and environmental objectives often leads the decision-makers to make a choice among them. This choice cannot always be done on the basis of scientific criteria.

Often it is necessary to rely on the preferences and value judgements expressed by people on trade-off between economic, social, and environmental objectives. Conflicts also exist between individual interests and collective ones (see Box 3.1).

Box 3.1 Individual versus collective interests

Examples of how private organizations could be involved effectively in contributing to decision-making and providing environmental services are the cases of Philippines and Madagascar. In the Philippines, the government recommends in its reforestation policy to use the private sector to execute government-funded reforestation projects. In Madagascar, the government intends to leave the management and the implementation of local development activities to NGOs because these organizations are more decentralized and thus have more access to remote areas and information, and can play a major role in communication with local populations.

Various means available to the government exist to achieve the above conditions. Some of them, such as research and extension, health, nutrition, financial institutions can be better thought of as part of nation-wide programmes^[35]. Others such as participation and training can also be handled easily at the decentralized level.

Stakeholder participation

Participation is a useful approach for facilitating negotiation, communication, information, awareness, and conflict resolution. Stakeholder participation together with co-operation among involved institutions in decision-making process allows to:

• cope with environmental issues in a more comprehensive manner;

• account for people’s expectations;

• consider stakeholders’ information on knowledge, capacities and technologies available in the area;

• facilitate exchange of information;

• identify with more accuracy discrepancies and define appropriate corrections;

• introduce new techniques and technologies more compatible with the environment;

• improve awareness and understanding of global/local environmental issues; and

• increase the chances of understanding and acceptance of actions and plans.

External assessment

To complement the participatory approach in environmental assessment it is sometimes worth relying also on independent (from stakeholders) assessment. External expert knowledge can give stakeholders new insights and avoid or overcome conflicts of interest generally emerging in self-assessment. External expertise can be provided either by public or private institutions, such as universities, NGOs, private research institutes, and so forth.

Increasing human capital lowers dependence on natural capital

Like health and nutrition, training and education contribute to increasing the quality of human capital. The evidence shows that the higher the human capital of a country is, the lower its dependence on natural capital (Figure 3.1 on the following page). Knowledge and skills improve the capacity of countries to develop and transfer new technologies, to sustain productivity growth, and to endow countries with well-trained staff at all levels (banks, universities, ministries, extension institutions and so forth). They also allow the exchange of information and better communication among institutions.

Figure 3.1 Capital endowment by income groups

3.3 A framework for environmental considerations in decentralized decision-making

Decision-making

Decision-making is “a continuing process of management and mediation among, social, economic, and biophysical needs which result in positive socio-economic change that does not undermine the ecological and social systems upon which communities and societies are dependent. Its successful implementation requires integrated policy, planning and social learning processes; its political viability depends on the full support of the people it affects through their governments, social institutions and private activities linked together in participative action”. (Carley and Christie, 1992, as reported in FAO, 1994).

“Decision-making is the outcome of creative, fertile minds of people involved in the day-to-day delivery of services, products, and experiences, and is based on a mixture of hard (e.g. quantitative data) and soft information (e.g. observation and intuition)”. (Mintzberg, 1994).

In the past, decision-making was often understood as a sequential and rigid model as the one illustrated in Figure 3.2. This process suggests that the various components and steps be addressed in a chronological sequence and that once one component has been analysed, there is no need to come back to it. This conventional approach was mainly aimed at maximizing one objective, usually the growth rate of the Gross Domestic Product (GDP), with poor integration of other goals (e.g. environmental, social, cultural, etc.). It was mainly top-down, that is government planning institutions identified problems and issues, set priorities, developed solutions and measures to be adopted by the people. This approach paid limited attention to some important aspects such as communication, capacity-building and participation.

Sequential model

Figure 3.2 Sequential framework of decision-making

The evidence shows that the above approach is in contrast with the sustainability concept. In the case of priority setting, for example, priorities at the national level do not necessarily correspond to priorities at the local level. Indeed, the behaviour of environmental systems changes significantly depending on, among other things, the geographical areas. So, non perceived environmental problems at the farm or local government level (e.g. wind erosion) may cumulate and become a major problem at the national level. Conversely, wind erosion may be the priority concern at the sub-national level but a minor one at the national level. In addition, the generating processes of these problems may also vary according to agro-ecological zones. For example, the causes of wind erosion in lowlands sub-arid areas will differ from the causes of the same environmental problem in mountainous areas.

Sustainable development model

as a process

As the quotations point out, decision-making for sustainable development is rather a process which:

• is able to be adaptive to the evolution of the situations and to the diverse location-specific circumstances, since individual preferences, social norms, ecological conditions change over time and according to the locations;

• combines economic, social and environmental concerns, in a comprehensive and integrated fashion;

• takes due account of the dynamic interactions of these dimensions and of their dependence on the scale of the system. That is to say that the goals pursued at the sub-national level can have a different weight than the same pursued at national or higher levels;

• is receptive of time dimensions of humans and environmental processes. Indeed, human time spectrum and environmental processes are not synchronized. For example, most governments’ decisions are short-term (from 1 year to 4-5 years) whereas environmental processes operate on a spectrum of time that can range from very short periods (seconds) to very long periods (decades, century). An illustration of the time-space relationships of environmental processes and human activities is provided in Figure 3.3; and

• is based on communication, participation, and capacity-building.

Figure 3.3 Time and space dimensions of environmental processes

... of a cyclical and interactive nature

A more suitable framework able to incorporate the above mentioned aspects reflects more a cyclical and interactive process where the steps only indicate a logical sequence rather than a chronological one. For example, some components of decision-making such as information collection, monitoring, communication, capacity-building are activities that may be needed at any point of the process. Furthermore, some elements of them can be undertaken simultaneously. For example, implementation can take place at the same time as policy formulation or action planning. Moreover, with this approach, the goals are achieved progressively, through a continuous adjustment of the various components to the changing circumstances and the feedbacks between the components.

Figure 3.4 depicts one cycle of the framework described above and illustrates the possible feedbacks between the various components. This approach can apply to decision-making at the project, programme, plan, or strategy level.

According to the goals pursued, the time necessary for completing the whole cycle may vary significantly from less than one year if objectives are achievable in the short term (e.g. introduction of sustainable agricultural practices at the farm level) to several years or even decades if longer term goals are pursued (e.g. rehabilitation of habitats, etc.).

Figure 3.4 Framework for a dynamic environmentally sustainable decision-making