The changing incentives that a market economy introduces should foster more efficient production, better use of resources, and increased community input. The advanced reformers of the Central and Eastern European (CEE) countries proved this to be the case. They improved energy efficiency and reduced emissions intensity of pollutants. The slower-reforming countries of the Newly Independent States (NIS) also experienced lower pollution. However, that downturn coincided with the economic decline, which shut down many major polluters. This report reviews progress in environmental trends since transition began. It looks at air and water pollution and health indicators in the trends and in light of the environmental issues identified in the Environmental Action Programme for Central and Eastern Europe. It continues and builds on the World Bank's work in analyzing the environmental effects of transition, restructuring, and privatization with a view to identifying priority areas for investment and policy initiatives.