Energy Efficiency 2000: The Starting Point
The UNECEs Energy Efficiency 2000 Project, which ended on 31 May 2000, has been notably successful in leveraging modest resources to achieve its stated objectives. Not only has EE 2000 produced direct results that are way beyond what might be expected from the resources available, but it has also been a catalyst for additional bilateral, multilateral and private initiatives, the most recent being the UNF/UNFIP Project for Energy Efficiency Investment for Climate Change Mitigation (ECE-CIS-99-043).
EE 2000 had five components:
a. exchange of information;
b. achieve practical and tangible results in energy efficiency demonstration zones through innovative mechanisms to reduce investor risks and improve attractiveness of energy efficiency projects;
c. share and disseminate lessons and results from demonstration zones within each country and among the ECE Transition Economies;
d. build capacity to start and develop energy efficiency businesses (e.g., training, institutional reform guidelines, financing mechanisms);
e. reduce or remove market barriers (e.g. sources of capital, norms, standards and labelling).
Developments since 1997
As the report of May 1999 EE 2000 Steering Committee meeting shows, necessity has given birth to a range of innovative mechanisms to reduce investment risks in the financing of energy efficiency projects. Even where private capital cannot be attracted, effective use is being made of scare budget resources at the local level to start projects.
The reports from the Demonstration Zones all speak of progress in defining and implementing projects, and in one case a demonstration zone project is being used as a pilot scheme for sharing carbon emission reductions between the U.S. and the Czech Republic (Decin Project; Danish and Czech Government support and a zero interest loan from three U.S. electric power utilities).
During the past years, there have been major developments in the Central and Eastern European Transition Economies, and a review of these trends, some positive and others less positive, helped guide the design of EE 21. The situation with regard to investment risk in the Transition Economies has changed during the final phase of EE 2000 and it is no longer possible to generalise about investment risk across all the Transition Economies. For the purpose of this report the Transition Economies are divided into two groups because of the diverging trends in these two groups: the CIS countries and the Other Transition Economies (OTEs) of Central and Eastern Europe.
The OTE group of countries consists of the Central and Eastern European (including Baltic) countries, most of which are, at the time, on the path to joining the European Union. All of the EU Accession countries have embarked on rapid and comprehensive reforms of their energy sectors including corporatisation and privatisation, legal and regulatory systems, and banking sector reforms, to bring them to a situation of parity with EU norms and standards. All of the Accession Countries were prepared for the single markets in electricity and gas that they became part of, once their accession was achieved. Non-monetary settlement systems and non-payments have been drastically reduced, and in some countries, eliminated. The OTEs are reforming their fuel and energy complexes along market-oriented lines, some more rapidly than others.
In the largest CIS countries there had been virtually no progress in addressing the continuing problems with the banking systems, legal reform, non-monetary payment systems, non-payments, and uncertain corporate governance, which have made foreign private investors more cautious than they were before August 1998. In addition, the Asian financial crisis and the Russian financial crisis of August 1998 had made global investors generally much more cautious about emerging markets. These factors were compounded by delays in reforming the CIS energy sectors, with the result that at the present time foreign private investors were not prepared to invest in non-export energy efficiency projects because when national governments have already defaulted or are close to default, regional government guarantees do not provide sufficient comfort.
The Kyoto Protocol and Financing Energy Efficiency Investments
The quantitative potential for improving energy production and end use efficiencies throughout the region has been well documented and does not require re-stating. The fact that energy efficiency does not "sell itself" even in many sectors of the ECE market economies, is compounded by a set of major problems in the CIS countries that are now well understood but that are still intractable, such as lack of domestic capital, the now well entrenched non-monetary settlement systems, non-payments, lack of enforceable commercial law and governance problems. In our view, until these problems are resolved, little or no private investment will flow into energy efficiency because the risk-return equation is unfavourable.
However, the Committee on Sustainable Energy has focussed on what will probably be the most important single driver for action on energy efficiency in the Transition Economies, namely, global climate change mitigation. The Kyoto Mechanisms provide the Transition Economies, and particularly those with unused allowances to sell, with a potentially very large source of new funds originating in the developed countries where the cost of emission reductions will be far greater - up to 10 times greater - than the costs in the Transition Economies.
