The existence of externalities, market failures, and complex transboundary and transgenerational issues linked with environmental challenges means that public sector institutions have an important role to play in environmental management. Public expenditures and their effective management are key aspects of a country ' s environmental policy, regulatory, and institutional framework. As part of country-level environmental analysis, this report examines the definitions and classification frameworks for environmental expenditure that have been used outside and within the World Bank, reviews experience with PEERs, and outlines a methodological framework for carrying out PEERs . Among the international tools reviewed are the pollution abatement and control (PAC) framework developed by the Organization for Economic Co-operation and Development (OECD), the Creditor Reporting System (CRS), and the Eurostat Classification of Environmental Production Activities and Expenditure (CEPA). In addition, the report summarizes findings of a review of 10 World Bank PEERs. The report provides a definition for PEER, and discusses the principal recommendations regarding procedures for conducting a PEER and some of the methodological issues and problems likely to be encountered. Issues covered include policy priorities, the spending envelope, expenditure allocation, magnitudes and trends, international and regional comparisons, expenditure efficiency and quality, program-level and project-level analysis, potentially environmentally damaging subsidies, and foreign aid. The report concludes with a list of suggested areas for further work.
