Green Investment Scheme in Romania: lessons learnt and challenges ahead Maria Khovanskaya Climate Change Department REC Kiev,Ukraine 6 April 2007

Presentation outline 1.Brief overview of the development of the GIS in CEE 2.Position of Romania vis-à-vis GIS 3.First problems identified by the legal experts 4.First solutions found 5.Challenges ahead Eligibility Institutional framework - which institution to chose Balance of potential buyers’ needs and Romanian interests Asset management over two Kyoto commitment periods

GIS in Central and Eastern Europe Latvia – Law on GIS is under interministerial consultation till 16 April 2007 Hungary – Law on the Implementation of the Kyoto Protocol is submitted for the Parliamentary approval. There is a provision for GIS there Czech Republic Romania – Governmental Decision on GIS is under preparation

Position of Romania vis-à-vis GIS AAU expected surplus in the first Kyoto commitment period – 80 ml tons of CO 2 eq. per year Adopted National Strategy on Climate Change and National Action Plan on Climate Change with provisions for GIS On the way to acquire eligibility for the IET (GIS) Currently existing institutional framework prepared to accommodate GIS Experience with the other flexible mechanism – JI Experience with the other funds (Structural, Cohesion)

First problems identified Ambiguity of the legal nature of AAUs Consolidated state budget: Timing - the budget (income and spending) is adopted in the previous year when the price of AAUs hasn’t yet been negotiated. The Parliament cannot set the price in advance since it is the breach of contractual rights Public procurement issue Tax issues Accounts at the National Treasury All the potential recipients of the GIS money should have had the accounts within the National Treasury State Aid/Competition issues

First Solutions found Legal nature of AAUs – “rights”, not “goods”. The requirement to channel all the revenues from the selling of the state owned asset applies only for “goods”. Opportunity to channel revenues from AAU transactions to a GIS fund, not to consolidated state budget Amendment of the legislation: potential recipients of GIS funds/project developers can receive it now through the commercial banks system

Priority areas for GIS “Hard greening” projects: investments in equipment and activities leading directly to quantifiable GHG emissions reductions: energy projects: energy efficiency, renewable energy, specific waste management projects (methane capturing) non-energy projects: forestry, agriculture, transports, etc “Soft greening” projects: capacity-building, awareness raising, education and other types of projects where GHG emissions reductions cannot be quantified: information dissemination about GIS, projects calls consultancy on climate change activities (NSCC, NAPCC) training for public authorities experts, education in schools seminars and conferences on climate change issues

Challenges ahead (1) To acquire eligibility: Initial Report National System to estimate the emissions of GIS (GD under interministerial approval process) For the Ministry of Environment and Water Management to acquire a mandate from the President to be the institution to negotiate GIS transactions Governmental Decision for establishing the GIS in Romania To sought the official opinion of both national Competition Council and one in Bruxelles regarding the application of the state aid-related legislation for GIS funding

Challenges ahead (2): cooperation with the buyers Cooperation with potential buyers – decision on concluding bilateral agreements for every transaction or an MoU with a buyer as a framework agreement for all transactions Terms of contracts Traded goods/rights Proceeds from the GIS transactions Contract type and structure Government’s obligations Buyer’s obligations Establish the negotiation terms regarding the price and amounts of AAUs to be transferred, the timing of the payments, monitoring and reporting procedures

Challenges ahead (3): institutions To finalize the governmental reform To assess the benefits and drawbacks of the institutions as the potential hosts of the GIS Fund: National Environmental Protection Agency (NEPA) National Environmental Fund Administration Special project unit within the MOEWM Procedures, regulations, TORs

Challenges ahead (4) Carefull management of AAU surplus Commitment for the second Kyoto period is unclear Romania is a EU member-state: will take part in burden sharing in the 2 nd commitment period No flexibility at the moment in the 2 nd commitment period Dilemma to be solved To sell some AAUs now – invest in GHG reducing technologies – have less GHG emissions in future Risks: insufficient amount of AAU in future Benefits: sustainable economic growth on the basis of advanced technologies; Parallel fulfillment of EU Directives requirements To keep all the AAUs – to bank the surplus for the 2 nd commitment period

Designing GIS: Issues to be considered What domestic (EU – not relevant for Ukraine) legislative framework is in contradiction with GIS concept? Any significant amendments to be done? What institutional set up is necessary? Can existing institution(s) be utilised to manage the fund? (Again not relevant for Ukraine – Ecological Investment Agency) How to accommodate different AAU purchasers’ requirements/preferences while satisfying host country’s needs? How the whole process can be simplified compared to JI while keeping the environmental integrity? How the proceeds from AAU sale can be managed in a transparent manner?

Designing GIS: Capacity needs Development of necessary legislation and rules Development of responsible institution, task allocation Training of fund manager Capacity for project development and implementation Training for monitoring and reporting of implemented projects

I would like to thank Mr. Jozsef Feiler (National Focal Point, Hungary), Ms. Veronica Toza (Consilium Consultant, Romania), Mr. Vlad Trusca (National Focal Point, Romania) for their kind help in preparation of this presentation. Thank you for your attention!