One approach to developing indicators is to link them explicitly to the project cycle, by defining indicators for every stage in the project cycle. For example, a loan to control PM-10 emissions from diesel buses may specify the following input indicators (to monitor the project-specific resources to be provided), output indicators (to measure goods and services produced), outcome indicators (to measure the immediate results of the project), and impact indicators (to monitor the longer term results).
• input: financial and/or technical assistance
• output: the number of new engines installed
• outcome: reduced PM-10 emissions from buses
• impact: reductions in ambient concentrations of PM-10 in the central city, or reduced health problems from respiratory diseases
Traditionally, the monitoring of Bank projects has focused on the first two categories. Aside from being unduly rigid, such a project-centric approach also risks focusing attention too narrowly on the process of implementing projects rather than on its results. Since the Bank's emphasis is on monitoring impacts and the attainment of development objectives, the emphasis of this note is on outcome and impact indicators, and less so on input and output indicators. Increasingly, it is being realized that the ultimate assessment of the performance or success of a project should be based on the immediate and longer term effects on the environmental issue addressed. Since projects are not ends in themselves but means to an end, an ideal approach should emphasize impacts on the environmental issue. Such an approach also has the advantage of being more directly comparable to broader, national- or sectoral-level monitoring efforts such as those discussed in Monitoring Environmental Progress: A Report on Work in Progress (ESD, 1995). Outcome and impact indicators should, therefore form an integral part of assessing the success of an environment sector project. Indeed, many task managers are recognizing and incorporating this approach in their work. See Annex 2 (Lithuania Environmental Project) for an interesting application of this approach.
Input indicators can be specified in terms of overall funds earmarked, specific tasks to be funded, (such as new equipment, training), and funding agencies (IBRD, national government). Output indicators relate to specific actions taken (such as rehabilitation of water supply network, hectares of forest area designated as protected, introduction of substances with low or zero ozone depleting potential, switching the fuel used in power plant) and these would evolve from the design phase of the project.
Formulating outcome and impact indicators, however, is a greater challenge. Considerable theoretical work has been done to come up with a coherent framework within which to assess the positive or negative effect of any action on the environment. These general efforts must be adapted to suit the specific requirements of Bank task managers. The relevant question is: What immediate and long term impact is the project going to have on causal factors (pressures) and the condition (state) of the environmental problem? The ultimate development impact relates to improvements in ambient air concentrations of pollutants, nutrient balance in soil and such, while the immediate outcome would relate to reduced emissions of air pollutants, reduced soil erosion rates, and so on. It is important to look at immediate outcomes that reduce pressures as well as the longer term impact, otherwise the project may be incorrectly blamed (or credited) for a worsening (improvement) in the state of the environmental resource.
As such, the input-output-outcome-impact project-centered framework is closely linked to the widely used OECD (1994) pressure-state-response framework (PSR). In this framework project outcomes and impacts can be measured by looking at changes in pressure and state indicators. The PSR framework is depicted in Figure 1. In this framework, three different aspects of environmental problems are distinguished: the pressure that causes the problem (for example, emissions of SO2); the state of the environment that results from the pressure (for example, ambient concentrations of SO2 in the atmosphere); and the response to the problem (for example, regulations requiring the use of low-sulfur coal to reduce SO2 emissions and ambient air pollution levels). The PSR framework can be applied at the national level, sectoral level, community level, or individual firm level. Since the PSR framework is so widely used, it is worthwhile describing the variables in some detail.
The pressure variable describes the underlying cause of the problem. The pressure may be an existing problem (for example, soil erosion in cultivated uplands, air pollution from buses) or it may be the result of a new project or investment (for example, air pollution from a new thermal power plant, loss of a mangrove forest from port development). Whatever the cause, pressures affect the state of the environment and then may elicit responses to address these issues.
The state variable usually describes some physical, measurable characteristic of the environment. Ambient pollution levels of air or water are common state variables used in analyzing pollution (for example, particulates concentrations in micrograms per m3 of air, BOD loads to measure water pollution). For natural or renewable resources other measures are used: the extent of forest cover, the area under protected status, the size of an animal population, or grazing density. Most EPIs relate to easily measured state variables.
The response variables are those policies, investments, or other actions that are introduced to solve the problem. Bank projects that have important environmental components can be thought of as responses to environmental problems. As such, they can affect the state either directly by way of ex-post clean-up activities or by acting on the pressures at work (for example, by providing alternative income sources for farmers who would otherwise clear forests). This is illustrated in Figure 2. In some cases, projects also seek to improve the responses to environmental problems (for example, by increasing the institutional capacity to monitor environmental problems and enforce environmental laws). Because Bank projects are themselves considered to be responses to environmental problems, the following discussion focuses on the use of pressure and state indicators to monitor project outcomes and impacts. Some aspects of the response dimension are discussed in the section on institutional issues.
