Green investment schemes: financing energy-efficiency in CEE and a model for post-2012 climate mitigation finance?

Maria Sharmina, Central European University, Center for Climate Change and Sustainable Energy Policy Hungary
Andreas Tuerk , Joanneum Research, Austria
József Feiler, Office of the Parliamentary Commissioner for Future Generations, Hungary
Diana Ürge-Vorsatz, Central European University, Center for Climate Change and Sustainable Energy Policy Hungary

Keywords

green investment scheme, carbon trade, EU ETS, Emissions Trading System, hot air, flexible mechanism, Kyoto Protocol, international emissions trading (IET) energy efficiency, assigned amount unit (AAU)

Abstract

Green Investment Schemes (GIS) have been introduced to ensure the climate integrity of international emission trading (IET) involving first commitment period excess assigned amount units (AAUs) in former communist countries for the purpose of other countries’ compliance with Kyoto commitments. GIS could provide a new and significant source of GHG mitigation financing in the seller countries. The article investigates how the flexibility of GIS can be best utilized for maximizing benefits to climate and society, but also to ensure that environmental integrity is not compromised at the expense of its simplicity and flexibility. The paper demonstrates that improved energy efficiency, especially through thermal retrofitting of the old inefficient building stock, is the most optimal area where such benefits can be best maximised.

The paper identifies different architectural modalities of GIS, and how the choices in these affect its effectiveness. It then reviews the developments in GIS and characterizes different countries’ GIS architectures in the making. Learning from CDM/JI as well as other constraints related to GIS, recommendations are made for GIS architectures. The article emphasizes that GIS provides a unique opportunity for significant funds for abatement investments such as efficiency improvements. Optimally, these revenues could be targeted towards areas not easily reached by business-as-usual investments and policies, but fundamental for a long-term low carbon economy. Such areas in CEE include infrastructure investments, like retrofitting of old buildings or ensuring very low carbon footprints of new buildings, and certain bioenergy projects. To accomodate such long-term climate investments, it is crucial that the combination of allowable crediting period, greening ratio and AAU price ensures adequate bankability for investments with long payback times. The paper also proposes that more innovative and simpler M&V approaches than in CDM/JI are used, while additionality enforcement is crucial to ensure climate integrity.

The paper concludes that GIS’s significance goes beyond the first commitment period and the Kyoto Protocol. It outlines in which areas GIS could serve as a potential alternative carbon financing instrument to complement other mechanisms in order to better utilise energy-efficiency related opportunities.