A new window for a new instrument: Can and will GREEN INVESTMENT - PowerPoint PPT Presentation

A new window for a new instrument: Can and will GREEN INVESTMENT SCHEMES unlock the high efficiency potentials in Eastern Europe? Diana Ürge-Vorsatz Aleksandra Novikova Central European University

Outline  Background: What is GIS?  The size of the “goldmine”: prospects for GIS   Why should EE be the top priority for GIS in CEE? Benefits for the selling country  Benefits for CC mitigation  Benefits for EE   If it is all so good, what are the challenges?  GIS design options favouring EE  Conclusion

Background: GIS Most former communist countries have substantial  “hot air” Most other Annex-I countries have difficulties with  meeting their Kyoto commitments, even if CDM and JI prosper in the remaining time to 2012 However, meeting Kyoto commitments through hot air  is not palatable with the public opinion of most potential buyers Therefore, GIS is designed to “green” hot air.  Thus, GIS = sale of AAUs, tied to certain criteria that  ensure that the carbon revenues will result in emission reductions. Major opportunity of GIS: no formal rules – entirely  flexible. Its architechture depends on the agreement between the selling and buying parties. However, that is the greatest risk as well. 

Background: How “deep is the goldmine”? 1.  CDM and JI will be unable to fill in the compliance gap alone -> IET will be needed  Gassan-zade (2006) estimates the compliance gap for 2008 – 2012 at 5.6 billion tCO2eq  The supply of AAUs is likely to be higher Gassan-zade, O. 2006. Market potential for AAU trading. Presentation at the IEA-IETA-EPRI Emissions Trading Workshop in Paris, September 27, 2006

Estimated supply and demand for AAUs summary of high and low estimates, 2008 - 2012 The global market reserves of AAUs are appr. 6.1 – 7.3 billion tCO2eq., whereas the maximum demand for AAUs might be 2.0- 4.8 billion tCO2eq . DEMAND FOR AAUs DURING 2008-2012 ACCORDING TO LOW AAUs SUPPLY DURING 2008-2012 PERIOD ACCORDING TO LOW AND HIGH ESTIMATES REPORTED BY VARIOUS AGENCES AND HIGH ESTIMATES REPORTED BY VARIOUS AGENCIES Russia Luxemburg million tCO2eq. Ukraine Portugal Poland Belgium Czech Republic Netherlands Lithuania West. Europe Finland Estonia exc. EU-15 & Austria New Zealand Slovakia Bulgaria Italy Romania Spain Hungary Canada Slovenia million tCO2eq. Japan Latvia -2000 -1500 -1000 -500 0 0 500 1000 1500 2000 2500 3000 3500 Note: The two colours distinguish lower and upper estimates, for bars with a single colour no range was located Sources: Urge-Vorsatz et al ECEEE 2007

CO 2 emissions in 2004 and projections for 2010 compared to the Kyoto target [1] For all countries, the base year is 1990, except for Hungary (1985-1987), Poland (1988) and Slovenia (1986). Country Change, Baseline 2010 Baseline 2010 Difference to target in 2010: base High scenario Low scenario Low scenario [1] - year (existing (additional High scenario (additional 2004 (%) policies & policies & (existing policies policies & measures), measures), & measures), measures), mil tCO2eq. mil tCO2eq. in % of limit in % of limit Czech -25.0% 145 141 -18% -20% Republic Estonia -51.0% 19 17 -53% -57% Hungary -31.8% 87 87 -24% -24% Latvia -58.5% 14 13 -41% -44% Lithuania -60.4% 25 25 -46% -46% -31.2% 438 438 -6% -6% Poland Slovakia -30.4% 56 54 -16% -18% Slovenia -0.8% 21 20 14% 7% -57.2% 91 83 -25% -32% Bulgaria Romania -47.0% 147 141 -39% -42% Source: Ürge-Vorsatz et al forthcoming Climate Policy + UNFCCC NC 4 Bulg & Rom

How deep is the goldmine: potential revenues from GIS Source: Urge-Vorsatz and Novikova, ECEEE 2007 [1] For all countries, the base year is 1990, except for Hungary (1985-1987), Poland (1988) and Slovenia (1986). Change, base Revenues Revenues, Sellable AAUs year [1] - 2004 @5 EUR/tCO 2 eq. @20 EUR/tCO 2 eq. Country Million tons % Billion EUR Billion EUR CO 2 eq. Czech -25.1 167.2 Republic 0.84 3.34 Estonia -50.0 89.5 0.45 1.79 Hungary -32.0 91.8 0.46 1.84 Latvia -58.5 65.4 0.33 1.31 Lithuania -60.1 116.1 0.58 2.32 Poland -31.6 731.1 3.66 14.62 Slovakia -30.3 81.7 0.41 1.64 Slovenia -0.8 9.3 0.05 0.19 Romania -47.0 73.2 0.37 1.46 Bulgaria -57.6 103.5 0.52 2.07 Ukraine -57.2 2560 12.80 51.20 Total 4089 20.44 81.77

How deep is the goldmine: some comparisons Type of Country Fund Credit/grant/loans [1] Reference fund German Coal-Aid 54.9 million EUR starting from 1991 (3.4 Hungary International Molnár (2006) Fund million EUR annually on average) [2] PHARE credit 28.0 million EUR starting from 1999 (2.8 Hungary International Molnár (2006) program million EUR annually on average) UNDP/GEF Fund for 0.9 million EUR starting from 2001 (0.15 Hungary International Molnár (2006) municipalities million EUR annually on average) 26.6 million EUR starting from 2001- 2002 Hungary National Széchenyi Plan Molnár (2006) (4.8 million EUR annually on average) NEP National Energy 19.2 million EUR starting from 2003-2004 Hungary National Molnár (2006) Saving Program (5.5 million EUR annually on average) KIOP Environmenal Protection and 23.8 million EUR in 2004-2006 (7.95 Hungary National Molnár (2006) Infrastructure million EUR annually on average) Program Estonia National KredEx App. 1.1 million EUR in 2005 Adler (2006) Thermal Mazurkiewicz Poland National 28.8 million EUR in 2005 Modernisation Fund (2006) Czech Bubeník National Czech Energy Agency App. 0.11 mil EUR in 2005 Republic (2006) Bulgarian Energy Gerginov Bulgaria National App. 3.75 - 4 mil EUR in 2006 Efficiency Fund (2006) European Investment EU-25 International 2.2 billion EUR annually Beck (2006) Bank

So how to use the gold? What should GIS revenues be spent on?

Potential criteria to choose priority areas for GIS  Cheap(est) emission reductions  National priority areas  Failure or limitation of other instruments in the sector  Interests of buyer  others

A potential target area for GIS: improved building energy efficiency 1.  Buildings represent app. 1/3 of national CO2 emissions  Energy-efficiency improvements in buildings supply the largest cost-effective and low-cost CO2 mitigation potential  E.g. specific energy consumption in the existing Bulgarian panel building stock is about 200kWh/m2/a, app. 250kWh/m2/a in Hungary vs. 70kWh/m2/a in Austria (sources: Stoyanova 2006, Molnar 2007)

Emission Reduction by Technology Area IEA Energy Technology Perspectives ACT Map Scenario Source: Dolf Gielen, IEA presentation Sep 21, 2006, Seoul MAP Scenario – 2050 Industry 10% 32 Gt CO 2 Reduction Energy & feedstock efficiency 6% Materials & products efficiency 1% Pocess innovation 1% Cogeneration & steam 2% Coal to gas 5% Buildings 18% End-use efficiency Nuclear 6% Space heating 3% Air conditioning 3% Fossil fuel gen eff 1% 45% Lighting, misc. 3.5% Power Gen CCS 12% Water heat. cooking 1% 34% Appliances 7.5% Hydro 2% Biomass 2% Transport 17% Other renewables 6% Fuel economy in transport 17% CCS in fuel transformation 3% CCS in industry 5% Biofuels in transport 6% Fuel mix in building 5% and industry 2% Improved energy efficiency most important contributor to reduced emissions AGENCE INTERNATIONALE DE L’ENERGIE INTERNATIONAL ENERGY AGENCY

Estimated potential for GHG mitigation at a sectoral level in 2030 in different cost categories Cost categories, US$/tCO2eq. Gton CO2eq. 6 <20 <0 0-20 20-50 50-100 20-100 5 4 3 2 1 0 Energy Transport Buildings Industry Agriculture Forestry Waste supply Source: constructed based on IPCC 2007, Chapter 11

Eurima (2005) findings on en-ef potentials in NEU-8 buildings  Technical potential from measures in building envelope: esp. insulation of walls, roofs, cellar/ground floor,  windows with lower U-value  62 mil tCO2 in 2015 as comp. to frozen- efficiency baseline Note: NEU-8 are Hungary, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Poland, the Czech Republic. Reference: Petersdorff et al. 2005

A potential target area for GIS: improved building energy efficiency 2.  Improving EE in the residential sector increases social welfare; helps the population cope with increasing energy prices (e.g. Hungarian unrest)  Reduced energy bills in the public sector reduce budget deficits  Reduced energy consumption helps energy security  …among many other co-benefits  There are few instruments that have worked in these two areas, especially the residential sector

A potential target area for GIS: improved building energy efficiency 3. ESCOs may work in the public sector, but carbon  revenues could help enhance cost-effectiveness of projects JI has not been working in the buildings sector  (energy-efficiency projects have been limited) due to high transaction costs and other reasons Most regulations target new construction;  retrofit of existing buildings is hard to influence (EPB dir) Several finance/subsidy programs have been  operating (successfully) in the region targeting (building) energy efficiency, but overall funds are limited Several potential buyers expressed interest in  GIS targeted to building EE