4. Promoting a green economy transition in EECCA: selected priority themes

Apart from overarching policy development on green economy transition presented in chapter 3, Eastern Europe, the Caucasus and Central Asia (EECCA) countries1 have also been pursuing a range of actions on green growth at the sector and thematic levels over the past decade. Such sectoral and thematic approaches can present important and practical entry points for integrating green economy considerations into development of individual sectors and policy areas. While such sectors and thematic issues can be diverse, this chapter provides some of the key priority areas in the EECCA region, including sustainable infrastructure, sustainable water resources management and compliance and enforcement mechanisms for environmental regulations. This and the next chapters present progress made by the EECCA countries in collaboration with the GREEN Action Task Force, and remaining challenges, on respective policy areas. These chapters also highlight selected concrete examples of good practice from the region.

Over the past two decades, strong economic growth in many EECCA countries has been driven by the benefits of market reforms. Exporters of fossil fuels and minerals have taken advantage of relatively high commodity prices in hydrocarbon and metals. There is, however, still significant scope to support the growth by developing and implementing infrastructure projects that support a green transition. Such projects could boost investment and employment, while addressing energy security concerns and contributing to progress towards long-term objectives of the Paris Agreement and the SDGs.

On the one hand, the infrastructure gap in EECCA countries combined with the economic downturn resulting from the COVID-19 pandemic and Russia’s war against Ukraine represent a major challenge in the region. On the other, EECCA countries continue to face a more fundamental challenge. They must develop infrastructure systems that support economic growth and prepare for the transition towards lower GHG emissions and greater resilience to the effects of climate change. In many EECCA countries, marked service disparities between urban and rural districts undermine economic opportunities for rural residents.

In the energy sector, most EECCA countries are primarily concerned about energy security, which can be addressed through diversification of supply. Rising energy prices and supply disruptions caused by the war in Ukraine have highlighted the reliance of many countries in the region on Russian oil and gas imports (Chapter 2). In terms of power generation, renewable energy sources and, in the cases of Armenia and Belarus, nuclear energy are important components of countries’ diversification strategies. However, implementation of renewable energy development plans has been sluggish in the region. Transmission and distribution systems also need to be further improved to reduce losses. At the same, countries need to enhance demand-side energy efficiency measures, such as for heating systems and building stock.

At present, the region faces constraints to economic growth and trade on several levels. In addition to poor quality transport networks, including ageing road and rail systems, there are numerous regulatory and policy barriers to cross-border flows. Increased investment in transport infrastructure is essential to facilitate integration into global value chains. It is also needed to take advantage of the region’s strategic position along emerging transport corridor initiatives. These include the EU’s Transport Corridor Europe-Caucasus-Asia (TRACECA) initiative, the ADB-led Central Asia Regional Economic Cooperation Programme and China’s Belt and Road Initiative.

The industry sector has also been facing the need for energy efficiency measures and renewable energy sources especially at the on-site level. As infrastructure, industrial areas and large industrial facilities have shown great opportunities to generate solutions and knowledge for the green economy transition in the EECCA region (Box 4.1). For example, eco-industrial parks and the industrial symbiosis promote the development of sustainable infrastructure and energy systems by harnessing secondary use of “waste”, recovery of wasted heat streams, material reuse, recycling, and use of renewable energy systems for the own industrial park and its tenant companies. These types of business models are still at the early stage of adoption, showing a potential to be enhanced in the region.

Many infrastructure projects planned and under construction in the region do not yet fully support countries’ long-term development and climate objectives. In 2019, the OECD compiled a database tracking infrastructure projects worth approximately USD 546 billion in eight countries (Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, Turkmenistan and Uzbekistan) (OECD, 2019[1]). In 2020, the database was expanded to include all six countries of the EU Eastern Partnership (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine). It tracked projects in these six countries valued at USD 120 billion (OECD, 2021[2]). The OECD analysed the projects captured in the database and reviewed strategic planning documents from across EECCA countries. In this way, it identified misalignments between planned project pipelines and stated sustainable development objectives.

Some large-scale energy projects have emerged that improve energy efficiency and integrate renewables into the energy supply. However, in most cases the slate of projects is not transformative enough and continues to perpetuate regional dependency on fossil fuels. With few exceptions, EECCA countries continue to invest heavily in power generation using fuels that dominate their existing energy mixes (Figure 4.1). This trend contradicts stated objectives to diversify power generation capacity by integrating more renewable energy power generation capacity.

Many transport projects in the EECCA region aim to refurbish road infrastructure and improve domestic connectivity. However, this could mean that rail systems in many EECCA countries will likely remain underinvested. To date, the modal share of cargo and passenger turnover, as well as investment priorities, shifts in favour of road transport (Figure 4.2). Most EECCA countries are investing more intensively in road projects than in other modes of transport.

Infrastructure challenges also exist in water sector. Infrastructure for water supply, sanitation as well as for irrigation in EECCA countries is generally under-developed. Where infrastructure exists, it is often in poor condition due to chronically under-funded maintenance and repair and a lack of systematic rehabilitation. The next section discusses some key issues about water-related infrastructure and broader policy frameworks on water resources management in the region.

Mainstreaming climate and development considerations in infrastructure investment decisions and strategies involves action on multiple fronts. They include upstream sustainable infrastructure planning, project prioritisation, financing and delivery and development of the enabling policy and regulatory frameworks, as highlighted in the following recommendations:

  • Link national and subnational level plans to the broader, long-term infrastructure investment strategy to provide more granular detail and lay out the options available to reach the country’s overarching goals:

    • Long-term economic development plans with clear priorities and targets are an important tool to guide policy makers and infrastructure planners. A cascading system of shorter-term and sector-specific strategies, development programmes and action plans at the national and subnational levels should accompany the broader, long-term strategy to provide more granular details and lay out the options available to reach the country’s overarching goals.

  • Develop long-term low-emission development strategies, as encouraged by the Paris Agreement, and integrate their objectives across other planning and policy making activities:

    • The strategy should be used to map out pathways to lower emissions and to evaluate policies, infrastructure projects and other strategies to ensure their alignment with the country’s decarbonisation goals.

  • Engage with multiple state and non-state stakeholders to address inter-linked issues on climate change and other environmental issues:

    • EECCA countries should seek to improve co-ordination mechanisms between ministries and agencies to develop integrated and cross-sectoral infrastructure strategies that account for the trade-offs and synergies between different SDGs, including climate action.

  • Bolster the systematic use of high-quality environmental impact assessments (EIAs) for major infrastructure projects and strive to use strategic environmental assessments (SEAs) to evaluate their policies and programmes:

    • EIAs and SEAs can bridge the gap between high-level, long-term goals and near-term decisions related to infrastructure development by rigorously assessing how a given project or programme impacts efforts to achieve long-term goals.

  • Enhance capacity development, particularly in planning, modelling, project evaluation and monitoring:

    • These capacities are essential to promote sustainable infrastructure projects across all levels of government.

As a horizontal issue touching all areas of the economy, water is a key pillar to support the transition to a green economy in EECCA countries and the well-being of the population. Since 2016, many EECCA countries have made significant efforts to make their national water policy frameworks more robust, pursue targeted investments and move towards the principles of integrated water resource management. Several EECCA countries have conducted National Policy Dialogues (NPDs) in collaboration with the OECD and the UNECE. These multi-stakeholder platforms have helped countries improve transparency of decision making, co-ordinate between government institutions and progress towards alignment with the Water Framework Directive (WFD) and related EU directives (OECD, 2016[3]; OECD, 2021[4]).

EECCA countries in collaboration with the OECD have also conducted several analytical work to understand the progress made on sustainable water management. For example, the OECD developed baselines to assess national water policy frameworks in Georgia, Moldova and Ukraine and current performance. This exercise also defined the long-term vision for their water sectors and fulfilment of requirements under the EU Association Agreements (Box 4.2).

In the region, however, water management still faces a number of challenges. Water sector is typically fragmented with many actors involved and inadequate governance arrangements. National water strategies are generally insufficient or non-existent, while sector specific strategies (irrigation or water supply and sanitation) exist to varying degrees depending on the country. The need for policy coherence with the energy sector, agricultural reforms and socio-economic development at the river basin, national and regional levels is increasingly clear, while sound strategic planning taking into account climate change and international commitments such as SDGs can build confidence with the donor community.

Other examples of challenges include outdated design and construction standards that lead to building significantly over-sized water supply and sanitation (WSS) systems in rural areas. Some of the policy frameworks in the region have also provided counter-productive incentives to build assets in water risk-prone areas for which the governments act as the “insurer of last resort”. Poor water policy often contributes to this by increasing future financial liabilities, demand for finance and ultimately the financing gap.

Sustainable water resources management also needs a comprehensive approach that includes the demand side. There tend to be limited incentives for industries to invest in water efficiency and pollution prevention of wastewater discharges. Industries together with farming and urban areas are sources of pollution to water bodies increasing pressures on water accessibility and environmental impacts. Hence, the policy development should also target users as part of the national water management strategies, overcoming constraints to apply enforcement and lack of incentive to prevent pollution and implement reuse and recycling of water, sustainable use of water sources and water efficiency in sectors like industry and agriculture. The future work should build on good examples that already exist in the region (Box 4.3).

The water sector still lacks sufficient funding to support appropriate water management activities. Poor water policy often contributes to this challenge by increasing financial liabilities, demand for finance and ultimately the financing gap. Examples include outdated design and construction standards that lead to building significantly over-sized water supply and sanitation (WSS) systems in rural areas. Some policy frameworks in the region have also provided counter-productive incentives to build assets in areas prone to water risk for which the governments act as the “insurer of last resort”.

In EECCA countries, the water sector is typically fragmented with many actors involved and inadequate governance arrangements (OECD, 2016[6]). National water strategies are generally insufficient or non-existent. Meanwhile, sector-specific strategies (irrigation or WSS) exist to varying degrees depending on the country. The need for policy coherence with the energy sector, agricultural reforms and socio-economic development at the river basin, national regional level is increasingly clear. At the same time, sound strategic planning that considers climate change and international commitments such as the SDGs can build confidence with the donor community.

A number of socio-economic, demographic and climatic factors also affect water management challenges. For instance, competition for water resources between different sectors of the economy has been increasing with rising scarcity of water in certain areas or at certain times. Water is often not efficiently allocated to priority uses or sectors where it can add the greatest economic value. Many EECCA countries also face high water losses, including through network distribution, as well as low water quality in some water bodies (OECD, 2016[6]). Both issues are also exacerbated by lack of monitoring of water quantity and quality. There are also high risks to the population from outbreaks of water-related diseases. Meanwhile, water-related hazards, including floods, droughts, mud-flows and landslides, pose risks for human life, property and water infrastructure (OECD, 2016[6]; OECD, 2021[4]).

While EECCA countries share a common Soviet legacy, they are also linked by the transboundary watercourses that run through the region. This includes notably the Syr-Darya and Amu Darya Rivers in Central Asia and a number of rivers including the Kura, Dniester and Dnipro in the Eastern Europe and the Caucasus region.

Although part of the same system in the past, the countries in Central Asia2 face different water management challenges compared to those in Eastern Europe and the Caucasus3. In Eastern Europe and the Caucasus countries, several countries have signed agreements with the European Union (OECD, 2021[4]). For their part, Georgia, Moldova and Ukraine have signed Association Agreements, while Armenia has signed a Comprehensive and Enhanced Partnership Agreement. These agreements provide a framework for deeper political ties and stronger economic links with the European Union. Further, the European Council has decided in June 2022 to grant the status of candidate country to Ukraine and to Moldova, and to grant the status of candidate country to Georgia once the priorities specified in the Commission’s opinion on the country’s membership application have been addressed (Europen Council, 2023[7]). They include commitments for approximation towards EU environmental legislation, including the WFD. OECD work on strategy development in Georgia, Moldova and Ukraine noted the countries have ambitious long-term strategic plans for their water sectors. These include fulfilment of requirements under the Association Agreements and international commitments including the SDGs.

Recent OECD work in Georgia, Moldova and Ukraine compared stated policy objectives to 2030 and mapped policy frameworks in each country to assess the likelihood of achieving the policy objectives (OECD, 2021[4]). The objectives included SDG alignment, in particular the water-related SDG 6 concerning access to safe and affordable drinking water and sanitation services, and the Paris Agreement on climate change.

In Georgia, the OECD found legislative barriers are blocking progress of the draft Law on Water Resources Management; the country needs to consider future implementation and enforcement arrangements. The review in Moldova exposed a lack of financial resources and the need for better co-ordination of institutional and investment measures, aiming at economy of scale. They also identified the need to explore new financing mechanisms based on improved water demand management and taxation of water use and pollution. In Ukraine, the review identified sector fragmentation and absence of an overarching national water resources strategy to align sector priorities and strategic financing as a key challenge looking to 2030 (OECD, 2021[4]).

For all three countries, the review recommended supporting policy reform through practical implementation, compliance monitoring and enforcement. They should give appropriate attention to supporting sustainable financing of water policy reform. In addition, they should support infrastructure development with prioritised strategic plans linked to financing and budgeting processes.

These challenges are not unique to Eastern Europe and the Caucasus. OECD work in Central Asia has indicated a variety of water management issues. These issues include lack of transboundary co-operation on water management; unbalanced and not adhered to flow regulation regimes; weak legal and institutional frameworks; lack of monitoring and evaluation; and insufficient research and development (OECD, 2021[8]). In Central Asia, the countries also face a growing population, increased water withdrawals, and pressures stemming from climate change that are predicted to further contribute to future water scarcity.

Water management in Central Asia is complex and many challenges of 20 years ago persist today (OECD, 2021[8]). Water scarcity coupled with governance and management challenges means the region is vulnerable to shocks, while at the same time increasingly exposed to the impacts of climate change. Unpredictable water availability with more frequent and severe natural floods and droughts, a growing population and increasing extra-regional water withdrawals create urgency.

Regional co-operation will be at the centre of sustainable water management in Central Asia and presents significant opportunities for the future water security of the region. Improved governance frameworks, supported by national and regional monitoring of water resource availability and use, could improve water management potential significantly (Botta, Griffiths and Kato, 2022[9]). To that end, they could leverage economic gains and deliver social benefits to improve the well-being of Central Asian citizens. Studies estimate that lack of co-operation on water management could cost the region more than USD 4.5 billion annually (Pohl, et al., 2017[10]).

Improving the coherence of water management systems at all levels (end-user, sub-basin, basin, sector, national and regional) is required. This will include improving the accuracy of annual flow forecasts and long-term forecasts; addressing deviations from agreed water distribution plans, poor water accounting and idle discharges from hydropower and storage facilities; and harmonising water releases between energy and irrigation needs.

With water use efficiency a key challenge in Central Asia, policy makers should use water conservation techniques as a pillar to support sustainable water management (OECD, 2021[8]). This is particularly true in the agricultural sector, which is the largest water user in Central Asia.

OECD work in Central Asia demonstrated the need to introduce economic measures to save water and leverage more effectiveness in water management and water use efficiency, and to encourage sustainability (OECD, 2021[8]). Properly valuing water and reflecting this value in tariffs and through better use of economic instruments will be a crucial element of sustainable water management. This will build confidence and support investment in the sector.

OECD work has increasingly highlighted the need for economically and environmentally sound water strategies at national and transboundary levels (OECD, 2016[6]). These strategies should be inclusive of all actors and water users, linked to economic and budgetary processes, and supported by effective economic instruments.

If properly designed and implemented, economic instruments for water management can play a crucial role in achieving water policy objectives. Such instruments include, for instance, licensing and charges for surface water and groundwater abstraction, and charging regimes for water pollution. In particular, they can provide incentives for conservation and more efficient use of water and mobilise additional financial resources for water management (e.g. by increasing revenues). In this way, they can enhance the financial sustainability of the water sector. By helping reduce the risks of water-related hazards, economic instruments can also contribute to wider economic development and sustainability (OECD, 2016[6]). The use of economic instruments for water management in the EECCA countries needs to improve in terms of their design, implementation and enforcement.

With complex multi-stakeholder sectors, OECD analysis demonstrated the importance of monitoring and reporting in tracking progress, prioritising human and financial resources and securing political support for water policy reforms (Oshakbaev, Akisheva and Martoussevitch, 2021[11]). Recent progress in Kazakhstan, for example, has identified water security priorities and established indicators to monitor and measure progress towards achieving water security. An OECD study found strong opportunities to mainstream water sector monitoring by linking to established data management and reporting processes (Oshakbaev, Akisheva and Martoussevitch, 2021[11]). This included through the identification of water security indicators that simultaneously related to the “nationalised” Green Growth Indicators (GGIs) and SDG indicators relevant to water security. Key challenges for future work in this domain included improving data collection and reporting. Moreover, water security indicators should be integrated into relevant policy documents, strategies and plans. This would secure the technical and political attention necessary to drive progress towards achieving water security and maintain linkages to established budgetary processes.

Given the horizontal nature of water and achieving water security, the OECD recommended a review of roles and responsibilities of key agencies for individual indicators. It also noted the need to improve the frequency and quality data collection and reporting systems to allow regular monitoring of the indicators. Amendments and additions should be introduced to the state statistical and sectoral reporting to help increase the frequency and quality of reporting. In addition, dedicated statistical surveys should be carried out where required.

The OECD also recommended elaborating or adjusting legal regulatory acts to fine-tune data collection for monitoring national indicators of water security. This would be in line with such fundamental principles of statistics as transparency and independence. Finally, it recommended that Kazakhstan consider integrating the recommended set of priority indicators of water security into relevant strategic documents. Implementation of the recommendations would strengthen the information base for sound decision making aimed at improving water security of Kazakhstan (Oshakbaev, Akisheva and Martoussevitch, 2021[11]).

The OECD, in partnership with the United Nations Economic Commission for Europe and with financial support from the European Union and other donors, has successfully facilitated National Policy Dialogues (NPDs) on water in many EECCA countries. NPDs are policy platforms where stakeholders meet to advance water policy reforms. [See also (OECD, n.d.[12]) for further details on NPDs.] They are driven by demand from the host countries and usually chaired by heads of government agencies, which demonstrates strong political commitment. A variety of stakeholders participate in the meetings. These range from ministries and government agencies and institutions to non-governmental organisations, development partners, the business community, parliamentary bodies and academia.

The following sub-sections provide examples of outcomes from NPDs in EECCA countries, such as legislative acts, national strategies, ministerial orders and implementation plans. The NPD platform then provides a useful peer review and consultation mechanism for monitoring implementation, collecting data and supporting analysis.

The OECD analysed Armenia’s sanitation services to propose reforms for the sector (OECD, 2017[13]). This covered areas such as ensuring equitable access by all and identifying solutions that work for the poorest and most remote communities; generating economies of scale and scope; and reducing both investment and operational costs for the efficient delivery of sanitation services. In addition, it looked at how Armenia could move towards sustainable cost recovery for the sanitation sector by identifying how much funding can be mobilised from within the sector and how much external transfers are required. The study recommended robust strategic planning linked to appropriate financial mechanisms and supported by monitoring and tracking of progress.

The study found that Armenia’s sanitation services were inadequate (OECD, 2017[13]). More than half (51%) of the population in rural areas used unimproved facilities, causing direct damage to the environment and exposing inhabitants to health risks (OECD, 2017[13]). Urban areas had access but degraded sewerage-system infrastructure. This posed health hazards due to potential cross-contamination between sewage and drinking water. Preliminary estimates demonstrated that EUR 2.6 billion of investments was required to meet Armenia’s sanitation needs. About EUR 1 billion of this amount needs to be spent in the next seven to ten years (OECD, 2017[13]). Clearly, this investment would have to be prioritised and spread over time. It would need to target use of limited resources and work to avoid further deterioration of infrastructure and increase of the financing gap.

The study showed that required investments in infrastructure would generate an approximate EUR 52 million in additional operation and maintenance costs per year (OECD, 2017[13]). It recommended a targeted approach that focused first on areas of greatest need and/or on those that offer the best benefit to cost ratio. Subsequently, it could take incremental steps towards achievement of overall sectoral goals.

The study also identified a number of development funds that local governments might approach to fund their sanitation projects. However, it also considered alternatives to existing (or planned) financing channels. For example, it suggested there was scope for a dedicated fund for sanitation, focusing on rural areas since they faced many of the challenges.

The study recommended encouraging the National Statistical Service to strengthen its surveys. This, in turn, would support strategy implementation and prioritisation of investments and interventions. In addition, it should improve statistics on the volume of wastewater discharged without pre-treatment. Furthermore, it should include a separate question in the annual household survey to reflect household expenditure on water and sanitation. Other supporting mechanisms included ensuring the strategy is reflected in legal and contractual frameworks. This may include reforming the legal framework for sanitation i.e. developing a unified and comprehensive legal act to regulate the sanitation sector. This could be achieved through a separate legal Act or through a new chapter in the Water Code of the Republic of Armenia.

After Georgia signed an Association Agreement that committed the country to align with the EU’s WFD, the OECD (2018[14]) identified three economic instruments for water resources management as candidates for future reform:

  • introduction of a licensing regime and charges for both surface water and groundwater abstraction

  • restoration of a licensing and charging regime for all forms of water pollution

  • more rigorous enforcement of these measures, including more active monitoring and higher fines for offenders.

OECD work under the EU Water Initiative Plus for Eastern Partnership Countries (EUWI+) Programme4 from 2016 to 2021 helped Georgia progress towards charging regimes for surface water. These charges could create an incentive for water abstractors to minimise their use of water, and reduce its waste and loss in transit. Abstractors could also be encouraged to pass on these charges to final users who, in turn, have an incentive to economise on consumption. If set at adequate levels, abstraction charges can signal the real resource cost of the water. Abstraction charges or taxes are also a source of financial revenues. They enable funds to be raised either for water resources management (charges), other environmental improvements or for general public expenditure (taxes).

The OECD identified creation of a comprehensive and effective licensing regime as essential before the introduction of viable abstraction and pollution charges. Work on a draft Water Law provides the legislative grounding for this regime. However, Georgia will need to strengthen its monitoring and enforcement capacities, or in certain cases create them to support effective implementation. Other economic instruments for possible development in Georgia include:

  • raising tariffs for water supply, sanitation and wastewater collection and treatment to cost-recovery levels, with an accelerated programme of metering for water users. This action would generate more funds for investment in new wastewater treatment plants, which are urgently needed to curb surface water pollution. They would also create incentives for more careful and efficient water use by consumers.

  • raising irrigation charges, with a more vigorous effort to collect fees to promote water use efficiency in agriculture. This is particularly important in regions exposed to seasonal low water and vulnerable to climate change.

  • exploring with Azerbaijan the feasibility of cost- and benefit-sharing projects to reduce pollution of transboundary rivers and lakes. Pollution of rivers and lakes in Eastern parts of Georgia is of concern both to Georgia and to the downstream parts of Western Azerbaijan.

  • exploring the feasibility of creating an environmental fund, including its scope, potential beneficiaries and the various options of financing it. Such an environmental fund can be funded from various sources, which in some cases includes earmarking some proceeds from the abstraction and pollution charges.

Through NPDs, Kyrgyzstan committed to reform use of economic instruments for water resources management (OECD, 2016[15]). The reforms would strengthen incentives for improving water use efficiency to better balance growing demand for water with available fresh water resources. In this way, it would ensure greater levels of security of water supply. The reforms could also help make the water sector more financially autonomous and less dependent on state support.

An OECD study concluded that implementation of recommendations in Kyrgyzstan would have three outcomes (OECD, 2016[15]). First, it would help mobilise substantial additional financial resources for water resource management through fiscal revenue and tariffs. Second, it would contribute to a greater degree of financial sustainability for Kyrgyz water utilities (Vodokanals). Third, it would reduce the state irrigation system’s dependence on public subsidies for operation and maintenance (O&M) of water networks (OECD, 2016[15]).

This work led to the 2020 passing of Resolution No. 330 on a new Programme of Water Supply and Sanitation Development till 2026 in the Republic of Kyrgyzstan. In addition to the new programme, the government approved delivery and approval of a draft methodology for setting fees for surface water abstraction and for the use of surface water bodies. It also developed recommendations on estimating the monetary value of environmental damage caused to water bodies.

Increasingly, water infrastructure is used for more than one purpose, leading to the term “multi-purpose water infrastructure” (or MPWI). MPWI encompasses all constructed water systems that can be used for more than one purpose for economic, social and environmental activities. This includes dams, dykes, reservoirs and associated irrigation canals and water supply networks. Worldwide, there are more than 8 000 large MPWI systems by design. In addition, a significant number of systems operate as multi-purpose although they were designed for single purpose use.

Inspired by NPDs in Kazakhstan, the OECD explored the complexity in designing, financing, regulating and managing MPWI projects. This work aimed to inform policy and decision making and make MPWI schemes more attractive from inception. It examined several principles, approaches and instruments to enhance the sustainability of MPWI, drawing on international experience. This led to an OECD study in Kazakhstan that used a computer-based hydro-economic model to inform decision making. The study identified knowledge and experience gaps, needs for further research and possible areas of future work (OECD, 2018[16]).

Water resource management is a horizontal issue touching all areas of the economy and EECCA countries’ effort towards green economy transition. The countries could benefit from further enhancing several aspects of their strategies and legal frameworks on water, economic instruments for water management, finance and investment, and multi-stakeholder dialogues and promotion of multi-purpose water infrastructure:

  • Develop economically and environmentally sound water strategies at a national, sub-regional and regional level

    1. o These strategies should be inclusive of all actors and water users, linked to economic and budgetary processes, and supported by effective economic instruments.

  • Design and implement economic instruments for water management in line with the countries’ water policy objectives

    1. o Well-designed and implementable economic instruments could provide incentives for conservation and more efficient use of water. They could also mobilise additional financial resources for water management, thus enhancing the financial sustainability of the water sector.

  • Put greater emphasis on legal, regulatory and institutional frameworks that enable economic instruments to serve their intended purposes

    1. o Work on reform of economic instruments must be supported by an appropriate enabling environment. This should include necessary legal, regulatory and institutional frameworks supported by necessary monitoring, reporting, compliance and enforcement activities.

  • Continue and enhance multi-stakeholder National Policy Dialogues (NPDs) on water

    1. o NPDs have proven to be a sustainable and effective platform to advance policy reforms in EECCA countries. NPDs with appropriate political ownership and cross-sectoral representation can inspire policy reform studies and can be fed by robust analytical work and incorporate good international practice.

  • Recognise the cross-sectoral nature of water and multiple benefits and usages of related infrastructure, and enhance approaches to make multi-purpose water infrastructure development more financially viable

    1. o Decision makers and financial institutions need to have increased confidence in, the benefits and viability of cross-sectoral, multi-purpose infrastructure projects.

    2. o Potential projects should be well scoped from inception in consultation with all possible actors and sectors of the economy, including energy and agriculture sectors.

    3. o Approaches to improve confidence include, for instance, up-front environmental impact assessment and strategic environmental assessment, involving different water users, as well as water supply agreements, approved water allocation rules and Memoranda of Understanding to be developed between different actors.

A well-functioning system of environmental compliance assurance has a multitude of societal and economic benefits (EU4Environment, 2021[17]) (see also Box 4.6). Environmental compliance assurance refers to governmental activity aimed at ensuring the compliance of regulated entities with environmental regulations. Its main functions are to promote voluntary compliance with environmental regulations; detect and reverse non-compliance; and impose penalties for non-compliance, where applicable.

Over the last several years, the economies of Eastern Europe and the Caucasus region have adopted new environmental compliance assurance legislation or are drafting new laws. Highlights include the following:

  • Risk assessment methodologies for planned environmental inspections were adopted in Armenia in 2019, in Georgia in 2019, in Moldova in 2018 and in Ukraine in 2019.

  • Georgia adopted the Law on Environmental Liability in 2021, which aims to establish the polluters’ responsibility for remediating environmental damage along the lines of the EU Environmental Liability Directive.

  • Georgia and Moldova have developed draft laws on industrial emissions aimed at establishing integrated permitting and control along the lines of the EU Industrial Emissions Directive.

  • Moldova and Ukraine have new legislation aimed at strengthening environmental enforcement bodies. Moldova adopted government decisions on the Inspectorate for Environmental Protection and on the Environmental Agency in 2018. Ukraine has a draft law, “On State Environmental Control” aimed at strengthening the State Environmental Inspectorate.

  • Moldova adopted a Government Decision on Establishing Provisions on Maintaining a Government Control Registry in 2018, which established an online database of inspection plans and results for all sectors of the economy.

Armenia, Georgia, Moldova and Ukraine have association and co-operation agreements with the European Union6. They have been catalysts for legislative reform in the region.Environmental provisions extend to environmental governance and compliance assurance and include requirements to approximate many EU environmental laws. To support ongoing legislative reforms in the region, the OECD helped policy makers from the Eastern Europe and Caucasus countries participate in the EU Forum of Judges for the Environment (EUFJE) 2020 annual online conference, which focused on air pollution law. In addition, the OECD is supporting development of environmental liability legislation to Moldova.

Environmental control and enforcement institutions have played an important role in promoting compliance and responding to non-compliance. Georgia’s Department of Environmental Supervision (DES) within the Ministry of Environmental Protection and Agriculture of Georgia (MEPA), which was set up in 2013, ensures state control in the field of environmental protection and the use of natural resources, except for mineral extraction, mining activity, and radioactivity. Ukraine’s State Environmental Inspectorate, subordinate to the Ministry of Environmental Protection and Natural Resources of Ukraine, carries out state supervision in the field of environmental protection.

Since 2016 several new compliance assurance institutions have been created, for example:

  • Armenia’s Environmental Protection and Mining Inspection Body (EPMIB) was established in 2017. The EPMIB monitors and enforces compliance with environmental and subsoil safety legislation. In a rather unique set-up, the EPMIB’s activity is co-ordinated by the Inspection Bodies’ Co-ordination Bureau within the Office of the Prime Minister rather than the Ministry of Environment.

  • Azerbaijan’s State Environmental Security Service was created in 2019. It is responsible for the protection of the environment and natural resources, except for subsoil. It is subordinate to the Ministry of Ecology and Natural Resources.

  • Moldova’s Inspectorate for Environmental Protection was set up in 2018 to oversee and control implementation of regulations in the area of environmental protection and use of natural resources. The inspectorate is subordinate to the Ministry of Environment.

The OECD published reports assessing environmental compliance assurance systems of Armenia and of Moldova in March 2022 in the framework of EU4Environment programme (EU4Environment, 2021[19]; EU4Environment, 2021[17]). These supported the optimisation of functioning of the environmental compliance assurance institutions. It is finalising the assessment report of Georgia’s environmental compliance assurance system, which is expected to be published in November 2022. Brief assessment reports of Azerbaijan’s and of Ukraine’s compliance assurance systems are in the pipeline for 2022-23.

Most information management for environmental compliance assurance in the Eastern Europe and Caucasus countries remains manual. However, some countries have established electronic information management systems for environmental permitting, monitoring, enforcement and sharing of environmental information:

  • Georgia has an electronic timber resource management system, an electronic fishing system, an Ambient Air Quality Portal, a water information system and a self-monitoring electronic system. It plans to introduce an electronic licensing system for natural resources and is also testing a geoportal.

  • Moldova has an electronic one-stop shop for permits (the Automated Information System for the Management and Issuance of Permissive Documents, the Automated Information System “Waste Management”, the “E-Pescuit” electronic system for fishing permits), an electronic Registry of Control to compile data on inspection planning and results, and an “EcoAlert” electronic application for environmental alerts from the public.

Other countries have plans to develop necessary electronic information management systems in the near future:

  • Armenia plans to digitise its environmental permitting and to install an electronic control management system in the EPMIB.

  • Georgia’s DES plans to introduce an e-system for inspection management and risk calculation.

  • Ukraine’s State Environmental Inspectorate is trying to create an internal electronic system “Environmental Inspector”, which will aggregate information on issued permits, monitoring, reporting and inspections.

The Eastern Europe and Caucasus countries have been providing information on environmental regulations and environmental compliance assurance on line, such as on official websites of ministries and environmental inspection bodies. They have also been making use of social media such as Facebook. Some of the more creative initiatives for sharing information and raising awareness include the following:

  • The mandate of Armenia’s EPMIB includes awareness-raising measures and preventive measures such as provision of free advice and other methodological assistance to regulated entities, according to the 2014 Law on Inspection Bodies. The EPMIB adopts a plan of preventive and awareness-raising measures every year.

  • In Azerbaijan, experts organise a weekly “Expert Hour” on the Facebook page of the Ministry of Environment and Natural Resources to answer questions from citizens.

  • Azerbaijan’s Ministry of Environment and Natural Resources presents awards to compliant companies and plans to establish a medal to reward environmental protection activity.

  • Georgia’s Environmental Information and Education Centre, established in 2013 within the MEPA, facilitates environmental and agricultural education, raises public awareness, supports the participation of the public in decision making and ensures access to information.

  • Moldova’s State Registry of Control, created in 2018, publishes inspection plans and results for different economic sectors.

  • Ukraine organises events where businesses share information and experiences of greening their operations. It has recently introduced incentives for businesses to undergo environmental audits.

The region has adopted risk methodologies for planning inspections since 2016, with specific approaches varying among countries (Table 4.1). This is an important step towards ensuring that planned inspections focus on the highest-risk entities and that resources are prioritised.

All countries of Eastern Europe and the Caucasus have self-monitoring and reporting by business entities. In Armenia, companies must provide quarterly reports on their emissions and face administrative penalties if they do so late. In Azerbaijan, industry representatives must submit air, water and hazardous waste information to the statistical agency on a yearly basis. In Moldova, economic entities must report on emissions into water and air, as well as on generated waste, to the Environmental Agency annually. Companies in Georgia are required to conduct self-monitoring and submit yearly self-monitoring reports to the MEPA on air, water and waste emissions. In addition, continuous self-monitoring of air emissions is mandatory as of June 2021 for highly polluting activities. In Ukraine, business entities either carry out self-monitoring voluntarily, or based on specifications in permits, or in environmental impact assessments. Inspections by the State Environmental Inspectorate consider results of self-monitoring.

Moldova and Ukraine have made progress in establishing Pollutant Release and Transfer Registers (PRTRs). Moldova’s electronic PRTR register was developed in 2016; 75 operators registered for it in in 2017, and another 188 did so in 2018. Moldova also adopted a regulation on the national PRTR in 2018. Ukraine launched its first PRTR in October 2021 (Ministry of Environmental Protection and Natural Resources of Ukraine, 2021[20]). It is available to all citizens through the EcoSystem website. Moldova and Ukraine both ratified the Protocol on Pollutant Release and Transfer Registers to the Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters (Moldova on 23 December 2013 and Ukraine on 2 May 2016). Armenia and Georgia signed the protocol in 2003 but have not yet ratified it. Azerbaijan has not yet signed the protocol.

Penalties for non-compliance generally are too low to prevent non-compliance in the region. Some countries have begun revisions to relevant legislation or are planning to do so:

  • Armenia plans to revise its legislation on environmental damages.

  • Azerbaijan is updating its 1993 law on payments from large pollution sources.

  • Georgia is revising its penalties for air pollution.

  • Moldova is revising the 1999 Criminal Code’s chapter on environmental crimes and the 1984 Code of Administrative Offences.

  • Ukraine’s draft “Law on State Environmental Control” aims to increase environmental fines.

Georgia has emerged as a leader in the Eastern Europe and Caucasus region in terms of legislation on environmental liability. Georgia adopted a Law on Environmental Liability in 2021 and is developing relevant bylaws. The main features of this law are the following:

  • The Law describes measures to prevent significant environmental damage, steps to follow in case of environmental damage, damage assessment, decision making and damage correction.

  • Appendix I includes criteria for determining significant damage to biodiversity, land and water.

  • Appendix II establishes activities that are particularly hazardous for the environment.

  • The Law provides an opportunity for the public to comment on remedial measures for significant environmental damage.

  • It requires polluting entities to undertake remediation measures for their environmental damage. They will need to produce remediation plans, the implementation of which will be overseen by the DES.

  • The Law creates an environmental fund to collect environmental damage payments and spend them on environmental matters.

Moldova is also working on developing environmental liability legislation. EcoContact NGO is leading a project on revising legislation to include environmental liability provisions.

The OECD, under the EU4Environment programme, has organised seminars to support countries in the Eastern Europe and Caucasus region in developing capacity on compliance assurance. The programme has provided or is planning to provide the following support for establishing liability for environmental damage in the region.

  • It organised training on “Identification and Assessment of Remediation Measures for Significant Environmental Damage and Preparation of a Remediation Plan” for Georgia’s MEPA between 4-8 July 2022 in Tbilisi, Georgia.

  • It hired an environmental law expert to provide analytical support to the EcoContact NGO in Moldova on incorporating environmental liability provisions in Moldova’s legislation.

  • It is organising a virtual regional capacity-building seminar on “Liability for Environmental Damage: From Policy Design to Application” on 14-15 September 2022.

  • IMPEL has opened up to the Eastern Europe and Caucasus countries events of its project “Criteria for the Assessment of the Environmental Damage” and the “Practical Perspectives on Waste Enforcement Planning and Inspections with a Focus on Forensic and Damages Analysis Relating to Waste Crime”. This included a presentation of the ongoing BIOVAL project on evaluating ecological damage (a joint project of EUFJE, IMPEL, the European Network of Prosecutors for the Environment and KU Leuven University).

Box 4.7 also provides seminars and training in various areas related to comprehensive compliance mechanisms.

The Eastern Europe and Caucasus countries will benefit from further developing several aspects of their environmental compliance assurance systems to build on the progress already achieved:

  • Continue efforts to improve the legislative base to ensure it provides enough incentives for companies to comply with environmental legislation or go beyond compliance.

    • Countries of Eastern Europe and the Caucasus need to ensure that environmental laws are up-to-date and fit-for-purpose, coherent and free of discrepancies and contradictions.

    • Countries that have Association Agreements with the European Union need to accelerate the approximation of EU legislation. They must also access to best practices and capacity building, especially when introducing new concepts. These include integrated permitting and control, Best Available Techniques and environmental liability.

    • Consultation with and participation of the private sector and civil society in the development of environmental legislation should be enhanced.

  • Improve the institutional set-up for compliance assurance through increased co-ordination, streamlining, human and financial resources, better information systems and equipment, and measures to tackle corruption:

    • Institutional co-operation between the permitting and enforcement institutions should be improved, for example, by regular communication between the two bodies, with the enforcement institution being able to comment on important environmental legislation and permits.

    • Permitting and enforcement authorities must strengthen human capacity and improve their equipment, including sampling equipment and electronic technology.

    • Electronic information systems must be available for key processes such as inspection planning and the logging of results, processing of environmental complaints, and tracking of violations and responses to them. In addition, it is important to share electronic permitting databases between environmental permitting and control authorities.

    • Countries should redouble their efforts to ensure sufficient financing for compliance promotion and enforcement actions but must also take measures to prevent corruption in environmental control institutions.

  • Further enhance environmental inspections to make them more effective:

    • The number of yearly planned and carried out inspections should at least be enough to cover high-risk entities and mechanisms are needed to ensure the same inspectors do not routinely visit the same sites.

    • There is room to further enhance the risk assessment methodologies for planned inspections such as ensuring a minimum frequency of visits, room for flexibility of risk assessments and a regular review of the risk assessment criteria.

  • Promote voluntary compliance through a wider range of tools:

    • Countries are encouraged to improve online information and to undertake more proactive activities to raise public awareness of environmental regulations, penalties and institutional responsibilities in environmental compliance assurance.

    • They should apply more reward and recognition activities for compliant companies and provide incentives and explanatory activity on adopting Environmental Management Systems and green technologies.

  • Improve laboratory equipment, further develop self-monitoring mechanisms, and promote Pollutant Release and Transfer Registers (PRTRs):

    • Equipment of laboratories that carry out environmental monitoring and sampling must be updated and improved, including automation and mobile sampling capabilities. Countries should continue creating and improving existing PRTRs.

    • Self-monitoring mechanisms must be promoted and ensured by conducting checks of regular self-monitoring reports. The repost should be more frequently used in compliance assurance policy.

  • penalties for non-compliance to increase their dissuasive effect, as well as to improve transparency about their use:

    • Penalties for non-compliance must have a sufficient deterrent effect on polluters. Environmental fees must be index-linked to inflation.

    • Comprehensive enforcement policy documents should be drawn up and made publicly available to ensure the consistency and transparency of penalties for comparable offences. They should include information on assessment and determination of offences and application of penalties, as well as any required follow-up.

  • Improve environmental liability legal provisions and application:

    • Eastern Europe and Caucasus countries should continue adopting environmental liability provisions in their legislation to establish the responsibility of polluters to remediate environmental damage. They must also continue creating a market for financial security instruments.


[9] Botta, E., M. Griffiths and T. Kato (2022), “Benefits of regional co-operation on the energy-water-land use nexus transformation in Central Asia”, OECD Green Growth Papers, No. 2022/01, OECD Publishing, Paris, https://doi.org/10.1787/7fcec36c-en.

[19] EU4Environment (2021), The environmental compliance assurance system in Armenia: Current situation and recommendations, (brochure), EU4Environment, https://www.eu4environment.org/the-environmental-compliance-assurance-system-in-armenia/.

[17] EU4Environment (2021), The environmental compliance assurance system in the Republic of Moldova: Current situation and recommendations, (brochure), EU4Environment, https://www.eu4environment.org/the-environmental-compliance-assurance-system-in-the-republic-of-moldova/.

[18] European Commission (2016), “Study to assess the benefits delivered through the enforcement of EU environmental legislation”, Final report, European Commission, Brussels, https://op.europa.eu/en/publication-detail/-/publication/219e8506-9adf-11e6-868c-01aa75ed71a1.

[7] Europen Council (2023), European Council conclusions on Ukraine, the membership applications of Ukraine, the Republic of Moldova and Georgia, Western Balkans and external relations, 23 June 2022, The Council of the EU and the European Council (Press release 23 June 2022), https://www.consilium.europa.eu/en/press/press-releases/2022/06/23/european-council-conclusions-on-ukraine-the-membership-applications-of-ukraine-the-republic-of-moldova-and-georgia-western-balkans-and-external-relations-23-june-2022/ (accessed on 30 August 2022).

[20] Ministry of Environmental Protection and Natural Resources of Ukraine (2021), “Ministry of Environmental Protection presented the National Register of Emissions and Transfer of Pollutants”, News, Government of Ukraine, https://mepr.gov.ua/news/38200.html (accessed on 20 May 2022).

[5] OECD (2022), U4Environment - Water Resources and Environmental Data : Programme description, https://issuu.com/oecd.publishing/docs/eu4env-water_data_leaflet (accessed on 20 August 2022).

[4] OECD (2021), Developing a Water Policy Outlook for Georgia, the Republic of Moldova and Ukraine, OECD Studies on Water, OECD Publishing, Paris, https://doi.org/10.1787/512a52aa-en.

[2] OECD (2021), Sustainable Infrastructure for Low-carbon Development in the EU Eastern Partnership: Hotspot Analysis and Needs Assessment, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/c1b2b68d-en.

[8] OECD (2021), “The use and management of water resources in Central Asia”, Policy Perspectives, GREEN Task Force, OECD, Paris, https://issuu.com/oecd.publishing/docs/central_asia_water_management-web.

[1] OECD (2019), Sustainable Infrastructure for Low-Carbon Development in Central Asia and the Caucasus: Hotspot Analysis and Needs Assessment, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/d1aa6ae9-en.

[14] OECD (2018), Facilitating the Reform of Economic Instruments for Water Management in Georgia, OECD Studies on Water, OECD Publishing, Paris, https://doi.org/10.1787/9789264281776-en.

[16] OECD (2018), Strengthening Shardara Multi-Purpose Water Infrastructure in Kazakhstan, OECD Studies on Water, OECD Publishing, Paris, https://doi.org/10.1787/9789264289628-en.

[13] OECD (2017), Reforming Sanitation in Armenia: Towards a National Strategy, OECD Studies on Water, OECD Publishing, Paris, https://doi.org/10.1787/9789264268982-en.

[6] OECD (2016), Reforming economic instruments for water management in EECCA countries, https://issuu.com/oecd.publishing/docs/policy_perspective_economic_instrum (accessed on 20 August 2022).

[15] OECD (2016), Reforming Economic Instruments for Water Resources Management in Kyrgyzstan, OECD Studies on Water, OECD Publishing, Paris, https://doi.org/10.1787/9789264249363-en.

[3] OECD (2016), Water Policy Reforms in Eastern Europe, the Caucasus and Central Asia Achievements of the European Union Water Initiative, 2006-16, OECD, Paris, https://www.oecd.org/env/outreach/EUWI%20Report%20layout%20English_W_Foreword_Edits_newPics_13.09.2016%20WEB.pdf.

[12] OECD (n.d.), Work country programmes and National Policy Dialogues on water in Eastern Europe, Caucasus and Central Asia, https://www.oecd.org/environment/outreach/euwi/npd-water-eecca.htm.

[11] Oshakbaev, D., Z. Akisheva and A. Martoussevitch (2021), “Developing a national water security indicators framework in Kazakhstan”, OECD Environment Working Papers, No. 177, OECD Publishing, Paris, https://doi.org/10.1787/9ce9aa8c-en.

[10] Pohl, et al. (2017), Rethinking Water in Central Asia: The costs of inaction and benefits of water cooperation, Bern: Swiss Agency for Development and Cooperation, https://www.adelphi.de/en/project/rethinking-water-central-asia-costs-inaction-and-benefits-water-cooperation.


← 1. EECCA countries include Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Republic of Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.

← 2. Central Asian countries are: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

← 3. The Eastern Europe countries include Belarus, Moldova and Ukraine and the Caucasus countries include Armenia, Azerbaijan and Georgia

← 4. www.oecd.org/env/outreach/euwi/.

← 5. This section covers only Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine, since no analyses on this subject were carried out in Central Asia.

← 6. Armenia’s Comprehensive and Enhanced Partnership Agreement with the European Union (signed in 2017, into force in 2021); the other countries have Association Agreements with the European Union: Georgia (signed in 2014, into force in 2016); Moldova (signed in 2014, into force in 2016); Ukraine, including a Deep and Comprehensive Free Trade Area (signed in 2014, into force in 2017). Azerbaijan and the European Union are developing a comprehensive agreement to replace the 1996 partnership and co-operation agreement.

Metadata, Legal and Rights

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Extracts from publications may be subject to additional disclaimers, which are set out in the complete version of the publication, available at the link provided.

© OECD 2022

The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at https://www.oecd.org/termsandconditions.