Central Europe Review: politics,
society and culture in Central and Eastern Europe
Vol 2, No 8
28 February 2000

Clear skies ahead?C L I M A T E:
Cashing in on Climate Change

Paul Csagoly

Countries in Central and Eastern Europe (CEE) could gain major benefits in their efforts to battle climate change at home as long as they tie their actions to reduce greenhouse gas emissions in with participation in the mechanisms created during the 1997 Kyoto climate change conference. Some countries have already begun.

This is one of the main conclusions of a recent report entitled "Capacity for Climate: Economies in Transition after Kyoto," co-produced by the World Resources Institute (WRI) and the Regional Environmental Centre for Central and Eastern Europe (REC). The report takes stock of progress made by nine Central and Eastern European (CEE) countries, Russia, Ukraine and Kazakhstan - all economies in transition (EITs) under the United Nations Framework Convention on Climate Change (UNFCCC).

The report shows that the EITs are in a unique position relative to other Annex I countries (a designation covering Western Europe, US, Canada, Japan, Australia and New Zealand) which signed the UNFCCC and the Kyoto Protocol.

Ahead of the game

Why? First, current emission levels of most of the 12 EIT countries are far below their base-year emission levels. The Kyoto Protocol legally binds Annex 1 countries to reaching emission targets - calculated as decreases from certain base years, usually 1990 - between the years 2008 to 2012. The average drop in emissions for all CEE countries in 1995, relative to their base years, was 30 percent, with Lithuania taking the lead with a 62.5 percent drop.

Second, the Protocol makes special provisions for EITs. For example, "a certain degree of flexibility" was granted to EITs when selecting their base years: Bulgaria (1988), Hungary (1985 to 1987), Poland (1988) and Romania (1989). On average, carbon emissions in these base years are almost 22 percent higher than 1990 levels, making the meeting of their reduction requirements for the future much easier.

Third, carbon intensities (measured as tons of carbon emitted per million US dollars GDP spent) remain about three times higher in CEE than in the EU, although some reductions have been made - there was about a 16 percent drop on average for the nine CEE countries from 1990 to 1996. This translates into many opportunities for future carbon reductions. Furthermore, the Kyoto mechanisms for emissions trading and Joint Implementation (JI) could help translate these reduction opportunities into major economic, environmental and financial benefits.

For example, joint implementation could help transfer energy-efficient and cost-effective new technologies from the West to EITs, especially in the power, heating, transport and industrial sectors. Kyoto mechanisms will help to improve air quality and health. And emissions trading could bring in large financial flows from countries needing to sell carbon emissions that exceed their national Kyoto targets.

No guarantee

This unique position does not, however, guarantee future benefits. Domestic priorities and policies must be linked with climate objectives to truly foster sustainable development. And much more work needs to be done in this area.

Projections show that EITs may not actually be able to meet Protocol targets. Since 1994, emission levels have begun to recover along with economic growth and changing consumption patterns. In fact, it appears that Estonia and Slovenia have now surpassed their base levels.

Restructuring of the energy sector is probably the most effective policy for reducing emissions and carbon intensities and increasing energy efficiency. One approach is to commercialise the energy sector and fuel distribution network and encourage competition. For example, the Czech Republic, Hungary and Latvia have begun to decentralise heat generation and transfer district heating facilities to local governments.

Another approach is to liberalise prices for fuel, electricity and heat. Most CEE governments have begun to increase prices and eliminate or reduce subsidies to adjust energy prices to their real costs.

Finally, privatisation of the energy sector has begun in a few countries, primarily the faster reformers in the region such as the Czech Republic and Hungary.

Sky-high objectives

CEE countries are combining the above three restructuring strategies in different ways. Evidence from Western and Eastern Europe shows, however, that improving price liberalisation and competition - by breaking down energy monopolies - is more important than privatisation when it comes to providing incentives for efficiency and emission reductions.

Unfortunately, contrary to what the report suggests, CEE countries rarely assess energy reform strategies against climate and development objectives. Furthermore, privatisation and the removal of subsidies can lead to price increases that could result in severe social costs and national instability. Recognising this, the Czechs have proposed eliminating heating subsidies in concert with social support programs for individual households in need of help.

Regarding energy efficiency, many countries have created related programs or legislation - such as the Latvian National Energy Program or the Czech Energy Saving Lighting Program. The report shows that local governments and non-governmental organisations (NGOs) actually appear to be more active in energy conservation and renewable energy projects. For example, the Polish private sector along with NGOs created the Efficient Lighting Program to build consumer demand for energy-efficient lighting.

Energy efficient projects, including the European Bank for Reconstruction and Development's Thermal Energy Conservation Project in Romania, are also motivated by the drive to reduce local air pollution and risks to health.

The report shows, however, that there are no examples of large-scale energy efficiency projects in the nine CEE countries. A main barrier is that EITs and banks are not willing or able to make the long-term investments needed for energy efficiency actions. There is also a lack of awareness among the general public as to the benefits, thereby blocking innovation and investment into energy-efficient products.

CEE countries have been actively taking part in Activities Implemented Jointly (AIJ), a program created in 1995 to help countries gain experience with the Kyoto Joint Implementation mechanism before it becomes operational in 2008. Like JI, AIJ involves projects that reduce greenhouse gas emissions or sink carbon from the air.

The report shows that the three Baltic states have hosted 49 of the 72 AIJ projects in the region and that most AIJ initiatives have related to energy efficiency and renewable energy. Having recognised the importance of AIJ to in attracting foreign investment, some countries have taken steps to support AIJ development. One such step has been the development of an AIJ/JI project preparation committee in Bulgaria. However, this applies to only a few countries, and where AIJ committees do exist, they are often weak and unable to match projects with funds.

Overall, implementing the Kyoto Protocol will require a new set of policies and regulatory arrangements in EITs. These could include emission limits, taxes or subsidies.

The overall lack of experience with market-based environmental policy and the historical preference for command-and-control measures in EITs, however, may block the ability of private and public institutions to implement the Protocol. But the report emphasises that implementing the Kyoto mechanisms is currently beyond the scope and complexity of any regulatory policy ever implemented, even in advanced economies.

Aside from the difficulties, the creation of an effective policy framework to deal with reducing emissions will be important for CEE countries wishing to join the European Union, given that the EU wants to implement the Protocol under a joint framework for all EU member states.

More importantly, in all national sectors - from energy to transportation - climate objectives need to be considered now.

Paul Csagoly, 28 February 2000

Paul Csagoly is information director for the Regional Environmental Centre for Central and Eastern Europe. This article originally appeared in The Bulletin (Vol 8, No 3), a quarterly magazine published by the Regional Environmental Centre for Central and Eastern Europe. For more information see http://www.rec.org.



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