OECD Presentation: Turning NDCs into investment plans: Way forward in countries of Eastern Europe, the Caucasus and Central Asia
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Presentation by Mr. Takayoshi KATO at COP22
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OECD Presentation: Turning NDCs into investment plans: Way forward in countries of Eastern Europe, the Caucasus and Central Asia
- 1. Takayoshi KATO Policy Analyst, Environment Directorate, OECD COP22, Bab Ighli, Marrakech, Morocco 11 November 2016 Turning NDCs into investment plans: Way forward in countries of Eastern Europe, the Caucasus and Central Asia
- 2. • The OECD has supported countries of Eastern Europe, the Caucasus and Central Asia (EECCA) to reconcile their environment and economic goals since 1990s. • Rebranded this year from the EAP Task Force to the GREEN Action Programme Task Force. • Planned work areas for 2017-2018* – National green economy dialogues and strategies – Green finance and investment, and – Integrating environmental, economic and sectoral policies for green growth, and – Strengthening water management 2 About GREEN Action Programme (hosted by the OECD) *subject to approval
- 3. • Objectives: – Improve clarity on how 11 EECCA countries and their development co-operation partners are working together to finance climate action in the countries; and – Explore how these countries can assess readiness to access various climate finance sources. 3 OECD work on financing climate action in countries of EECCA (Eastern Europe, Caucasus and Central Asian) NEW: OECD(2016), Financing climate action in Eastern Europe, the Caucasus, and Central Asia, OECD publishing, Paris, [LINK]
- 4. 4 Scope of analysis Bilateral donors (DAC Members) Multilateral Development Banks Climate funds (CIF, GEF etc) Domestic budget (Public) Private sector investment EECCA countries Committed in 2013-14 Co-financed with international public finance INDC targets Priority sectors Institutional arrangements Country analysis Climate policies Analysis of finance flows
- 5. 5 Significant amount of (public) climate-related development finance* committed to EECCA (2013-2014) EECCA receives USD3.3bln /year) Global: USD 47.3bln/y 2013-2014 Mitigation vs Adaptation (USD bln/y) Sources: OECD (forthcoming) Financing climate action in EECCA, based on OECD-DAC Creditor Reporting System Note(*): The financial flows are delivered through bilateral (mainly DAC members) and multilateral channels and calculated as a two-year average between 2013 and 2014.
- 6. 6 Comparison across the regions (Finance committed vs GDP per capita) Annualfinancecommitted(USDbln peryear:averagein2013and2014) Sources: OECD (forthcoming) Financing climate action in EECCA, based on OECD-DAC Creditor Reporting System GDP per capita PPP (USD: 2014)
- 7. 7 Large difference in amount of finance committed to each country Annual climate-related development finance and GDP per capita PPP (2-year average between 2013 and 2014) Source:OECD(forthcoming)FinancingclimateactioninEECCA,basedonOECD-DAC CreditorReportingSystem;WB(2016)WorldDevelopmentIndicators 0 10 20 30 40 50 60 70 0 200 400 600 800 1000 1200 Mitigation Adaptation Both Total per capita (USD mln) (USD per capita)
- 8. 8 Largest amount committed to energy sector, reflecting high infrastructure investment needs Annual climate-related development finance by sector (2-year average between 2013 and 2014) (USD Million, 2013-price) Sources: OECD (forthcoming) Financing climate action in EECCA, based on OECD-DAC Creditor Reporting System 0 500 1000 1500 Energy generation and supply Agriculture, Forestry and Fishing Water Supply and Sanitation Industry, Mining, Construction, Trade Policy… Banking, financial and business services Transport and storage Multi sector
- 9. 9 Potential to mainstream climate-consideration into development finance in some sectors Climate-related development finance as a share of total bilateral and multilateral development finance (2-year average between 2013 and 2014) (%) Sources: OECD (forthcoming) Financing climate action in EECCA, based on OECD-DAC Creditor Reporting System
- 10. 10 But, still large financing gap to achieve EECCA’s climate targets
- 11. 11 Seizing opportunities in the evolving climate finance landscape is a complex practice… National priorities and needs Updated info. on sources of support In-country coordination Pipeline development Monitoring, evaluation and learning Clear picture of finance flows within the country
- 12. • They need to: – Be stable and predictable – Provide a strong price on carbon, so that low carbon investments are competitive with carbon intensive technologies (e.g. coal) – Provide strong regulatory support in areas where price signals are not efficient, such as in energy efficiency measures – Provide targeted support for low-carbon technologies 12 Core climate policies are necessary for mobilising finance…
- 13. Mitigation (Un- conditional) Mitigation (Condition-al) Adaptation Needs for support quantified Armenia YES YES YES Azerbaijan YES Belarus YES YES Georgia YES YES YES (Adaptation) Kazakhstan YES YES Kyrgyzstan YES YES YES YES Moldova YES YES YES YES Tajikistan YES YES YES Turkmenistan YES YES Ukraine YES 13 Most EECCA countries submitted INDCs INDC elements
- 14. Intended Nationally Determined Contributions Nationally Appropriate Mitigation Actions Low Emission Development Strategy National-level adaptation strategy National- level climate strategy ARM AZE BLR GEO KGZ KYG MDA TJK TKM UKR UZB 14 Good deal of national-level climate policy documents already exist/planned in EECCA Intended Nationally Determined Contributions Nationally Appropriate Mitigation Actions Low Emission Development Strategy National-level adaptation strategy National- level climate strategy ARM AZE BLR GEO KGZ KYG MDA TJK TKM UKR UZB Approved/submitted Being developed Sources:OECD(forthcoming)Climate-relateddevelopmentfinancein EECCA,basedonthecountries’INDCs
- 15. • “Rushed” process of developing INDCs and other climate policies often undermined translation of targets into implementation strategies over the years. • Policy targets are set, but often lack secondary legislations/ by-laws/ technical specifications. • Limited capacity in implementation and access to finance from domestic and international sources. • An INDC does not necessarily line up with the country’s infrastructure investment plans. 15 Challenges in implementation of climate policies: cases from EECCA e.g. Renewable energy • Stability of government support • Price level of feed-in-tariff and indexing to foreign exchange rates • Transparency in power purchase agreements • Conflict with energy-sector development that focuses more on fossil fuels
- 16. FUEL and ENERGY Also, it’s NOT just climate policies that affect climate targets… TECHNOLOGY COMPETITION FISCAL SOCIAL TRANSPORT INVESTMENT CLIMATE 16
- 17. • Fiscal policies: • Environmentally harmful subsidies and incentives • Existing budgeting rules not allowing public agencies to benefit from energy savings achieved • Investment promotion policies: • Difference in the ease of accessing finance between small and medium sized entities and larger enterprises such as state- owned entities (SOEs). • Overly strict requirement for collaterals • Lack of regulatory stability on financial markets • “Shallow” financial markets • High political risks that limit investors interests 17 Misalignments between policies exist in EECCA (and most countries across the world)
- 18. • Energy sector policies: • Competition between renewable energy and development of offshore oil and gas fields. • Enhancing energy access through coal fire power plants. • Transport sector policies: • Well connected transport network, coming with heavy reliance on fossil fuels and internal combustion engines. • Competition policies: • A lack of fair and transparent competition between the state- owned enterprises producing or using fossil fuels and independent producers of clean energy. 18 Misalignments between policies exist in EECCA (and most countries across the world)
- 19. Experiences from the EU’s Eastern Partnership countries (i.e. ARM, AZE, BLR, GEO, MDA and UKR) • All major subsidy types exist in the countries (direct budget transfers, tax expenditure, transfer of risk to government and induced transfers), but the scales vary across the countries. • Most of the (quantified) fossil fuel subsidies in the region aim to benefit residential consumers. Often, such subsidies are seen as social measures. • Under-taxing certain fuels, and reduced VAT and excise taxes (or tax exemptions) on energy carriers: leading to substantial drain on government budgets. • Government support to energy efficiency measures and renewables is still limited and largely incomparable to the subsidies conferred to fossil fuels. 19 Energy subsidies negatively affecting both public budget and low-carbon development Source: OECD (forthcoming), Energy Subsidies in the Eastern Partnership countries
- 20. 20 Planned OECD work for enhancing climate finance readiness of EECCA countries OECD work on policy assessment Others’ work on climate finance readiness Climate policies Non- Climate policies Targets Natl’ strategies Policy instruments Energy Transport Water Agriculture Effectiveness, coherence and misalignments Fiscal/Investment Country programming Pipeline development Analytical input to identify constraints Feasibility studies Proposal development
- 21. 21 The report accompanied by 11 country reports
- 22. • Greening finance – Reforming energy subsidies – Facilitating access to private-sector finance for green investments (e.g. environmental lending) – Better financial planning in the public sector • Greening industry • Water resource management and green growth • Measuring green growth 22 More work under the GREEN Action Programme See also our latest Brochure https://issuu.com/oecd.publis hing/docs/from_eap_to_gree n_action_programme_?e=30 55080/36192948 See website http://www.green-economies-eap.org/
- 23. Thank you. Contact: Takayoshi Kato Takayoshi.KATO@oecd.org http://www.oecd.org/env/outreach/eap-tf.htmhttp://www.oecd.org/environment/
Editor's Notes
- Understanding of national needs, priorities and strategies; Obtaining and managing updated information on various climate finance sources; Operating a country co‑ordination mechanisms; Programming and developing a project pipeline; Facilitating project development and funding by national sources within the country; and Monitoring and evaluating the effectiveness of climate actions, and learning from results.
- Achieving climate targets is not only about climate policies but affected greatly by the other policy domains too. Examples include… Misalignments exist everywhere including in many of the OECD countries. Fiscal policies: Environmentally harmful subsidies and incentives (e.g. fossil fuels) have been barrier to scaling up green finance in many countries. FUEL and ENERGY: Energy sector development plannig may be in favour of fossil fuel and contradict with renewable promotion. (Kaz: possible competition between offshore oil and gas developments and renewables) Competitiion policies: In the power sector, there is not fair and transparent competition between the state-owned enterprises producing or using fossil fuels and independent producers of clean energy Investment policies: (Kaz: There are different levels of ease to access finance between small and medium sized entities AND larger enterprises and State-owned entities). Transport: Both in developed and developing countries, the well connected transport network has come with heavy reliance on fossil fuels and internal combustion engines. We need to design the transport systems so that it can reduce unnecessary travel, shift to low-emission transport modes, and improve technologies for fuels and vehicles.
- Fiscal policies: High environmentally harmful subsidies and incentives (e.g. AZE, KAZ, TKM, UKR) Restrictive budgetary process: Existing budgetary rules generally do not allow public agencies (central government agencies and municipalities) to benefit from energy savings they achieve, since each year’s budget allocation is based on the previous year’s expenditures (GEO) Investment promotion policies: Different levels of ease to access finance between small and medium sized entities and larger enterprises such as State-owned entities. Requirement for substantial assets to be pledged as collateral, and banks unwilling or unable to offer debt financing esp. to public agencies, because it is very difficult to collateralise public assets for debt financing. Sometimes lack of regulatory instability of financial markets
- Energy sector policies: Competition between renewable energy and development of offshore oil and gas fields. Enhancing energy sector access through coal fire power plants. Transport sector policies: Well connected transport network is essential for economic development, but often comes with heavy reliance on fossil fuels and internal combustion engines. (Georgia? To check) Competition policies: There is not fair and transparent competition between the state-owned enterprises producing or using fossil fuels and independent producers of clean energy.
- Most countries in the region are net energy importers (except for Azerbaijan) and this circumstance largely determines the structure of subsidies in the countries, with a focus on support to consumers. Preliminary analysis shows that government support to fossil fuels varies significantly across the six countries, from USD 45 mln in Armenia to about USD 7 bln in Ukraine, in 2015. Ukraine has, by far, the highest level of energy fossil fuel subsidies in the region but these have decreased significantly compared to previous years (e.g. in 2014, subsidies totalled at about USD 17 billion). The study also shows that all major subsidy types (direct budget transfers, tax expenditure, transfer of risk to government and induced transfers (income or price support)) are present in the countries. However, most of the quantified fossil fuel subsidies in the region are aimed at benefiting residential consumers. The bulk of fossil fuel subsidies comes in the form of regulated residential prices of natural gas, electricity, heat and petroleum products (particularly diesel). Often, such subsidies are seen as social measures introduced to protect households from electricity and gas tariffs rising beyond perceived affordability levels. Governments in the region often forgo revenue by under-taxing certain fuels (e.g. diesel) or the consumption of natural gas and electricity. Reduced VAT and excise taxes (or tax exemptions) on energy carriers are the second most significant subsidy scheme employed by governments in the region which represents a substantial drain on government budgets. Moldova is among the countries with the highest tax expenditure in the energy sector. In most of the countries, government support to energy efficiency measures and renewables is still limited and largely incomparable to the subsidies conferred to fossil fuels. Energy subsidy reform in the EaP countries is not yet high on the political agenda. Energy subsidies are mostly discussed in the context of gas and electricity tariffs and rarely linked to the climate change debate.