Barriers to the Successful Implementation of Kyoto Mechanisms (JI/CDM) in CEE and CIS Countries Marina Shvangiradze Ministry of Environment Protection and Natural Recourses of Georgia National Agency on Climate Change 9 October, 2004 Almaty, Kazakhstan

Content of presentation Overview of CEE/CIS countries status in Convention process; Overview of CEE/CIS countries status in Convention process; CDM international process and barriers in CEE/CIS countries; CDM international process and barriers in CEE/CIS countries; CDM/JI national process and existing barriers; CDM/JI national process and existing barriers; Role of DNA and capacity needs; Role of DNA and capacity needs; Ongoing activities of international donors; Ongoing activities of international donors; Role of UNDP in CDM capacity building process (suggestions); Role of UNDP in CDM capacity building process (suggestions);

Overview of CEE/CIS Countries Status in Convention Process In total 32 countries are under consideration; In total 32 countries are under consideration; 27 countries with different status to the UNFCCC and Kyoto Protocol are from CEE; 27 countries with different status to the UNFCCC and Kyoto Protocol are from CEE; 5 countries in transition (CIS) are from Asia; 5 countries in transition (CIS) are from Asia; CEE is the only region from five regions identified by Convention comprising the countries with different obligations and eligible for the different mechanisms; CEE is the only region from five regions identified by Convention comprising the countries with different obligations and eligible for the different mechanisms;

(Cont.) (Cont.) 14 countries in transition from CEE are Annex-I Parties to the Convention and 13 of them (except Belarus) are Annex B Parties to the Protocol with the quantitative obligations on reduction of GHGs emissions in the commitment periods; 14 countries in transition from CEE are Annex-I Parties to the Convention and 13 of them (except Belarus) are Annex B Parties to the Protocol with the quantitative obligations on reduction of GHGs emissions in the commitment periods; These countries are eligible for all flexible mechanisms: ET, JI, CDM; These countries are eligible for all flexible mechanisms: ET, JI, CDM; They could be only investors in CDM projects; They could be only investors in CDM projects; They are potential investor or host countries in JI; They are potential investor or host countries in JI;

(Cont.) (Cont.) In the international process of JI they are still considered as host countries to be in need for outside assistance in building of national capacity; In the international process of JI they are still considered as host countries to be in need for outside assistance in building of national capacity; In 2003 attractiveness of CEE JI host countries were assessed according to the following indicators: potential project pipelines, political and institutional environment, general investment climate, past experience with AIJ/JI projects. (Norwegian Point Carbon) In 2003 attractiveness of CEE JI host countries were assessed according to the following indicators: potential project pipelines, political and institutional environment, general investment climate, past experience with AIJ/JI projects. (Norwegian Point Carbon) Countries have been ranged as follows: Countries have been ranged as follows:

Romania, Poland, Slovakia, Hungary, Czech Republic (Top half); Romania, Poland, Slovakia, Hungary, Czech Republic (Top half); Russian Federation and Ukraine (Bottom half): Huge potential and political interest; Weak institutional structure; Russian Federation and Ukraine (Bottom half): Huge potential and political interest; Weak institutional structure; Baltic States-JI market it rather small; Baltic States-JI market it rather small; Croatia and Slovenia had low score on all indicators; Croatia and Slovenia had low score on all indicators; 10 Countries in transition (Annex I and non- Annex I) from the region joined EU on 1 May, Now they are eligible and have to obey the EU Linking Directive. 10 Countries in transition (Annex I and non- Annex I) from the region joined EU on 1 May, Now they are eligible and have to obey the EU Linking Directive.

Beginning of 2003 Beginning of Romania 2. Slovakia 3. Czech Republic 4. Poland 5. Hungary 6. Bulgaria 7. Russian Federation 8. Estonia 9. Ukraine 10. Latvia 11. Lithuania 12. Slovenia 13. Croatia Beginning of 2004 Beginning of Romania 2. Bulgaria 3. Slovakia 4. Czech Republic 5. Hungary 6. Poland 7. Estonia 8. Russian Federation 9. Ukraine 10. Latvia 11. Lithuania 12. Slovenia 13. Croatia

The EU Linking Directive 10 countries are already EU members (three pending); 10 countries are already EU members (three pending); Final agreement: April 2004; Final agreement: April 2004; Accounting of CERs and ERUs in EU ETS; Accounting of CERs and ERUs in EU ETS; EU ET System doesn’t depend on ratification of Kyoto Protocol; EU ET System doesn’t depend on ratification of Kyoto Protocol; Restricted use of CERs/ERUs by operators (% defined in NAP; Restricted use of CERs/ERUs by operators (% defined in NAP; No nuclear, no sinks projects are eligible; No nuclear, no sinks projects are eligible; Use of CERs from 2005; Use of CERs from 2005; Use of ERUs from Use of ERUs from 2008.

Distribution of JI projects by host countries EE projects are most attractive. 11 CEE countries have reported AIJ projects on EE; EE projects are most attractive. 11 CEE countries have reported AIJ projects on EE; Fuel switch and Renewables are next after EE. 6 countries reported projects for these sectors; Fuel switch and Renewables are next after EE. 6 countries reported projects for these sectors; 2 countries (Russ., Czech.) have AIJ projects in A/R and forest preservation sectors. No agriculture; 2 countries (Russ., Czech.) have AIJ projects in A/R and forest preservation sectors. No agriculture; In total reported to the UNFCCC Secretariat AIJ projects 60 (30%)? Are from CEE region. In total reported to the UNFCCC Secretariat AIJ projects 60 (30%)? Are from CEE region. For 17 JI projects emissions transfer has been already agreed. Romania-5, Estonia-5, Hungary-2, Bulgaria- 1, Czech Republic-1, Latvia-1, Poland-1, Slovakia-1; For 17 JI projects emissions transfer has been already agreed. Romania-5, Estonia-5, Hungary-2, Bulgaria- 1, Czech Republic-1, Latvia-1, Poland-1, Slovakia-1;

13 countries in transition from CEE are non- Annex I Parties without any quantitative obligations on GHGs emissions reduction; 13 countries in transition from CEE are non- Annex I Parties without any quantitative obligations on GHGs emissions reduction; 5 CIS countries in transition from Asia are also non-Annex I Parties (Kazakhstan is special case); 5 CIS countries in transition from Asia are also non-Annex I Parties (Kazakhstan is special case); These countries are eligible only as host countries for CDM; These countries are eligible only as host countries for CDM; 19 countries of 32 mentioned (27-CEE/CIS and 5-Asia/CIS) have ratified Kyoto; Three countries have signed but not ratified yet. 19 countries of 32 mentioned (27-CEE/CIS and 5-Asia/CIS) have ratified Kyoto; Three countries have signed but not ratified yet.

(Cont.) (Cont.) Only 5 of 18 potential CDM host countries in the region have already Designated National Authority (DNA), which is one of the criteria for country’s eligibility in CDM; Only 5 of 18 potential CDM host countries in the region have already Designated National Authority (DNA), which is one of the criteria for country’s eligibility in CDM; No projects have been implemented in these 18 countries under the AIJ pilot phase launched in 1995; No projects have been implemented in these 18 countries under the AIJ pilot phase launched in 1995; No projects are yet submitted for registration as CDM project from the region; No projects are yet submitted for registration as CDM project from the region;

Key players in CDM process (Decision 17/CP.7, Modalities and Procedures) The COP/MOP shall further: (a) Review annual report of the executive board; (b) Review the regional and subregional distribution of designated operational entities and take appropriate decisions to promote accreditation of such entities from developing country Parties; (c) Review the regional and subregional distribution of CDM project activities with a view to identifying systematic or systemic barriers to their equitable distribution and take appropriate decisions, based, inter alia, on a report by the executive board;

International process: CDM Executive Board – A member and an alternate from CEE region. CDM Executive Board – A member and an alternate from CEE region. Methodological Panel- 2 seats for CEE. Region can not provide experts. Methodological Panel- 2 seats for CEE. Region can not provide experts. Roster of experts for assessment teams on baseline and monitoring issues. Only one expert from region (Meth. Panel member). Roster of experts for assessment teams on baseline and monitoring issues. Only one expert from region (Meth. Panel member). Accreditation Panel-2 seats for CEE. No aplication has been received from region. Accreditation Panel-2 seats for CEE. No aplication has been received from region.

Roster of experts for accreditation assessment teams. No application has been received from CEE/CIS; Roster of experts for accreditation assessment teams. No application has been received from CEE/CIS; Accreditation of Operational Entities (OE/DOE) for Validation, Verification & Certification. No application has been received from CEE/CIS; No application from CEE/CIS. Accreditation of Operational Entities (OE/DOE) for Validation, Verification & Certification. No application has been received from CEE/CIS; No application from CEE/CIS. Baseline and monitoring methodology submission. 3 of 64 Methodologies submitted are from CEE/CIS (2 Moldova and 1 Uzbekistan). Not approved yet. Baseline and monitoring methodology submission. 3 of 64 Methodologies submitted are from CEE/CIS (2 Moldova and 1 Uzbekistan). Not approved yet.

(Cont.) (Cont.) Working group on afforestation and reforestation. Only one application (Poland); Working group on afforestation and reforestation. Only one application (Poland); Working group on small-scale projects. Only one application (in first round). Working group on small-scale projects. Only one application (in first round).

Barriers to CDM at international level in CEE/CIS Lack of technical experts in baseline and monitoring methodology; Lack of technical experts in baseline and monitoring methodology; Low awareness and not enough experience among the private companies, potential OE; Low awareness and not enough experience among the private companies, potential OE; Lack of experts with significant experience in accreditation procedures; Lack of experts with significant experience in accreditation procedures; Access to internet and other communication facilities; Access to internet and other communication facilities; Language. Language.

National Process: Eligibility Criteria for country’s participation in CDM: Eligibility Criteria for country’s participation in CDM: (a) Party to Kyoto Protocol (a) Party to Kyoto Protocol (b) Designated National Authority (b) Designated National Authority (c ) Voluntary Participation (c ) Voluntary Participation Eligibility Criteria for project as CDM project: Eligibility Criteria for project as CDM project: (a) Contribution in sustainable development (a) Contribution in sustainable development (b) Additionality (b) Additionality (c) Report on stakeholder comments (c) Report on stakeholder comments (d) Assessment of Environmental Integrity (d) Assessment of Environmental Integrity

Barriers to JI host countries GHGs national inventory is required for track 1 JI; GHGs national inventory is required for track 1 JI; For track 2 JI are eligible CEE countries until they have not established strong national systems for GHGs inventory; For track 2 JI are eligible CEE countries until they have not established strong national systems for GHGs inventory; Track 2 JI requires Supervisory Committee and similar procedures as CDM. CDM barriers existing at international level will be the same for JI; Track 2 JI requires Supervisory Committee and similar procedures as CDM. CDM barriers existing at international level will be the same for JI; Absence of national procedures for project national approval; Absence of national procedures for project national approval; Not attractive investment environment; Not attractive investment environment; Capacities of JI national focal points. Capacities of JI national focal points. Lack of bankable JI projects. Lack of bankable JI projects.

Role of DNA and capacity needs Provide project participants (PP) with host country approval letters that: Project contributes in host countriy’s sustainable development; Project contributes in host countriy’s sustainable development; Country’s participation in project is voluntary; Country’s participation in project is voluntary; In case if country participate in project through public/private entity the entity shall be authorized by country. In case if country participate in project through public/private entity the entity shall be authorized by country.

DNA should enable the environment for flexible, effective and successful implimenation of CDM projects: Selection of CDM priority sectors Selection of CDM priority sectors Establishment of SD criteria Establishment of SD criteria Monitoring of EIA for each CDM project Monitoring of EIA for each CDM project Providing the national guidelines to present PIN and PDD Providing the national guidelines to present PIN and PDD Issuance of approval letters Issuance of approval letters Facilitation of the process of signing the MoU with different bilateral and multilateral CDM programmes. Facilitation of the process of signing the MoU with different bilateral and multilateral CDM programmes.

Barriers to the private sector when developing the project Lack of in-country information and experience on the state-of– the-art renewable energy and energy efficient technologies Lack of in-country information and experience on the state-of– the-art renewable energy and energy efficient technologies Lack of in-country capacity to develop “bankable” investment proposals, feasibility studies and business plans Lack of in-country capacity to develop “bankable” investment proposals, feasibility studies and business plans Data gaps and access to the necessary information Data gaps and access to the necessary information Lack of an adequate legal and regulatory framework to support energy efficiency and renewable energy investments Lack of an adequate legal and regulatory framework to support energy efficiency and renewable energy investments Lack of approved and functioning strategies and programs at the Government level for the long term, sustainable development of the economy sectors Lack of approved and functioning strategies and programs at the Government level for the long term, sustainable development of the economy sectors

Financing problems faced by project developers Relatively small size of the projects, which make them less attractive to big, international financing organizations (high transaction costs) Relatively small size of the projects, which make them less attractive to big, international financing organizations (high transaction costs) High perceived risks of developing and financing projects in Georgia, leading to high interest rates, short pay-back periods and difficulties in getting access to the financing in general High perceived risks of developing and financing projects in Georgia, leading to high interest rates, short pay-back periods and difficulties in getting access to the financing in general Weak financial status of the local companies and problems in meeting the strict guarantee and collateral requirements of the possible financiers Weak financial status of the local companies and problems in meeting the strict guarantee and collateral requirements of the possible financiers

On-going international projects on capacity building for CDM/JI in CEE/CIS TACIS (Armenia, Azerbaiuan, Georgia, Moldova) TACIS (Armenia, Azerbaiuan, Georgia, Moldova) Canada-CIDA(Azerbaijan, Kazhakhstan, Uzbekistan) Canada-CIDA(Azerbaijan, Kazhakhstan, Uzbekistan) Eastern Climate Change Network (ECCN) Project (11 countries: JI countries -7, CDM countries-4) Eastern Climate Change Network (ECCN) Project (11 countries: JI countries -7, CDM countries-4) WB NSS- Study on CDM Capacity Building (Uzbekistan) WB NSS- Study on CDM Capacity Building (Uzbekistan) Regional project on inventory(12 countries CEE/CIS) Regional project on inventory(12 countries CEE/CIS)

Suggestion for UNDP future response Strengthening the capacity of DNA Strengthening the capacity of DNA Improving the coordination while implementing the strategic programmes (such as EDPRS, MDG, long and short term programmes for renewable energy sector, EE measures, etc.) Improving the coordination while implementing the strategic programmes (such as EDPRS, MDG, long and short term programmes for renewable energy sector, EE measures, etc.) Strengthening the links between CDM and poverty reduction, public private participation programmes, Strengthening the links between CDM and poverty reduction, public private participation programmes, Establishing the CEE/CIS regional training center (cources) for the experts: Establishing the CEE/CIS regional training center (cources) for the experts: -technical experts on methodological and accreditation issues; -technical experts on methodological and accreditation issues; -negotiators for international political and project level processes; -negotiators for international political and project level processes; -priority should be given to experts already applied for different CDM bodies and been rejected because of lack of experience. -priority should be given to experts already applied for different CDM bodies and been rejected because of lack of experience.

Investigation of barriers and potential of CDM in CEE/CIS region Investigation of barriers and potential of CDM in CEE/CIS region Increasing the assistance for improvement of data gathering systems, statistics and monitoring; Increasing the assistance for improvement of data gathering systems, statistics and monitoring; Implementation of plans developed in the framework of capacity needs self-assessment programmes is also very important; Implementation of plans developed in the framework of capacity needs self-assessment programmes is also very important; Promote the participation of private sector in CDM public awareness; Promote the participation of private sector in CDM public awareness; Facilitate the stakeholder participation in decision making process. Facilitate the stakeholder participation in decision making process.