Kyoto Flexibility Mechanisms in an enlarged EU: will they make a difference?

Panel: Panel 7. New economic instruments

Authors:
Aleksandra Novikova, Central European University
Diana Ürge-Vorsatz, Central European University

Abstract

Many indicators and market evidence suggest that there are still sizable potentials for cost-effective investments into energy efficiency in the eight post-communist new EU member states. However, as long as the governments of these countries still struggle with economic revival and huge budget deficits, it is unlikely that a generous amount of state funds will be directed towards tapping these potentials. Market-based instruments, therefore, offer an attractive alternative to deliver energy efficiency as opposed to hard-to-obtain subsidies.

A study commissioned by the European Parliament and executed by Central European University has examined, among others, the role and potential role of new economic instruments in promoting sustainable energy pathways in the new member states. The present paper explores the effect flexible mechanisms under the Kyoto Protocol may have on energy efficiency, fuel switch and the development of renewable energy sources in this region. These eight countries are chief candidates for hosting Joint Implementation projects and for participating in International Emission Trading schemes, which may assist the implementation and financing of energy efficiency, renewable energy, and fuel switching projects. The article reviews the potentials and barriers to Joint Implementation, and the conditions under which International Emission Trading can influence the energy use of the selling country. The research has also examined the different strategies the host countries chose to adopt towards the application of these instruments, and the impact of the strategies on short- and medium term energy sustainability. The paper concludes that the flexibility mechanisms may play a positive but rather limited role in the sustainable energy development of the region, and that due to the barriers to JI the emphasis may shift towards emission trading. If emission trading transactions are carried out through innovative mechanisms tied to sustainable development goals, it may play an important role in mobilising the energy efficiency potentials of these countries.