Financing climate-friendly projects in the Balkan region

1. Financing climate-friendly projectsin the Balkan region DAC PROJECT CAPACITY BUILDING IN BALKAN COUNTRIES IN ORDER TO DEAL WITH CLIMATE CHANGE Prepared by: Stelios Psomas

2. OVERVIEW OF POTENTIAL FINANCIAL FLOWSIN THE CONTEXT OF CLIMATE CHANGE • Domestic savings provide by far the major financial resource for investments in climate-friendly projects. • The role of Official Development Assistance (ODA) is likely to be rather limited in the context of climate change. • The majority of the new investment opportunities will be taken up by the private sector. • The role of the public sector in relation to investments should first and foremost be the creation of an enabling environment for private sector investment in support of sustainable development. • Public funding, in particular official development finance and GEF, will be supplementary to private funding. Public investment, whether domestic or foreign, can play a role in those areas where it has a clear comparative advantage, and where additional social benefits are to be expected.

3. NEW AND ADDITIONAL FINANCIAL RESOURCES • Activities Implemented Jointly (AIJ) will continue (as decided in Marrakech COP7). EU funding for AIJ is anticipated. • Immediate start of Clean Development Mechanism (CDM). CDM projects can generate certified emission reductions (CERs) retroactively as from 1-1-2000. • Institutional framework for Joint Implementation (JI) has been established giving way for an effective implementation. • New and additional funding will be provided through: • Increased GEF replenishment • A Special Climate Change Fund (SCCF) • A Least Developed Countries Fund (LDCF) • An Adaptation Fund (AF) • Bilateral and multilateral sources

4. CAPACITY FOR JI-CDM IN THE BALKAN REGION • Reliable and predictable rules are crucial for the development of the CDM and JI as valuable tools. • Institutional infrastructure is needed that: • provides transparency and accountability, • fosters closer co-operation between energy and environment agencies, and • supports market activity. • Criteria for JI-CDM projects – The view of the NGO community • Funds should be provided in the form of grants rather than loans. • Projects should not be accepted for JI-CDM if they are commercially feasible. • Projects should not be accepted for JI-CDM if they only help to offset government subsidies which encourage greenhouse gas emissions. • No projects should be approved which merely implement existing regulations.

5. Criteria for JI-CDM projects (continued) • JI-CDM projects should be in accordance with countries’ sustainable development strategies. • Environmental impact assessment should be carried out for all JI-CDM projects. • No nuclear projects should be approved. • No JI-CDM sink projects should be approved before the adoption of the IPCC methodology. • Full public access to information should be provided. • Baselines should be reviewed every 5 years. • Credits should be limited to 10 years. • No advance credits given. • Possibilities for using projects with fixed CO2 reduction should be used for comparison of baselines. • No replacement of foreign aid should be allowed.

6. INTRODUCING NEW FINANCIAL TOOLS • The ESCO concept – Third Party Financing (TPF) • Tradable Green Certificates • Energy – CO2 Taxation

7. KEY STEPS TO BE TAKEN • Liberalization of energy markets guaranteeing at least three things: • Energy producers (either public or private) are given fair access to the grids. • Legislation(e.g. in the form of feed-in laws)is put in place guaranteeing fair and secured prices for clean energy. • Clean renewable energy is given priority and incentives. • Political commitment and national targets for renewable energy as well as greenhouse gas emissions reductions are needed within fixed timeframes. • Demand Side Management should be given priority and incentives, as energy efficiency and savings are the best options for both the economy and the environment.