Overall overview of GIS instrument, its developments and prospects for the Russian Federation Alexander Averchenkov World Bank, Consultant Moscow carbon Forum 2008 April 28-29, 2008

Outline Growing interest to GIS Growing interest to GIS GIS instrument concept and its development GIS instrument concept and its development GIS prospects in Russia GIS prospects in Russia Carbon Finance Development Project Carbon Finance Development Project

Recent news from Point Carbon Ukraine aims for 20-million AAU pilot deal by May… Ukraine aims for 20-million AAU pilot deal by May… Japan to buy Polish AAUs… Japan to buy Polish AAUs… Hungary sees rush of AAU buyers: EBRD suggested to by AAUs from the country… Hungary sees rush of AAU buyers: EBRD suggested to by AAUs from the country… Japan and Russia have agreed to start talks on an agreement concerning Japan’s purchases of some of Russia’s surplus AAUs… Japan and Russia have agreed to start talks on an agreement concerning Japan’s purchases of some of Russia’s surplus AAUs… Ukraine is leading in the rating on AAUs trading, followed by Czech Republic and Hungary… Ukraine is leading in the rating on AAUs trading, followed by Czech Republic and Hungary…

Important developments Hungary completed GIS legal frame –effective since January 1, 2008 Hungary completed GIS legal frame –effective since January 1, 2008 Latvia intends to sell 5-10 million of its AAUs in 2008 Latvia intends to sell 5-10 million of its AAUs in 2008 Ukraine published draft project selection criteria for GIS financing Ukraine published draft project selection criteria for GIS financing Romania signed MoA with the Netherlands Romania signed MoA with the Netherlands GIS sessions at Carbon Expo 2008, other carbon forums and conferences GIS sessions at Carbon Expo 2008, other carbon forums and conferences Research and analytical projects on GIS: REC, NDRC, Yale and New York Universities Research and analytical projects on GIS: REC, NDRC, Yale and New York Universities

The GIS concept origination National Strategy of the Russian Federation in GHG Gas Emission Reductions ( ) links AAUs trading to “green investments” National Strategy of the Russian Federation in GHG Gas Emission Reductions ( ) links AAUs trading to “green investments” Policy statement of the Russian delegation at COP- 6 (2000) on an intention to invest revenues from AAUs sale in climate friendly projects Policy statement of the Russian delegation at COP- 6 (2000) on an intention to invest revenues from AAUs sale in climate friendly projects

Key international studies on GIS concept development Climate Strategies: study on the Russian Green Investment Scheme (2002) Climate Strategies: study on the Russian Green Investment Scheme (2002) OECD and IEA: Green Investment Schemes: Options and Issues (2003). OECD and IEA: Green Investment Schemes: Options and Issues (2003). World bank: Options Study on Designing a Green Investment Scheme for Bulgaria (2004) World bank: Options Study on Designing a Green Investment Scheme for Bulgaria (2004) Regional Environmental Center: Developing a Green Investment Scheme in Romania (2006) Regional Environmental Center: Developing a Green Investment Scheme in Romania (2006) World bank: Options Study on Latvia’s Participation in International Emissions Trading (2006) World bank: Options Study on Latvia’s Participation in International Emissions Trading (2006) World bank: GIS Options Study for Ukraine (2006) World bank: GIS Options Study for Ukraine (2006)

Green Investment Scheme: G eneric outline Buyer Government Revenues earmarking Host Government GIS Legislative base $ AAUs Greening reports emission reductions/environmental benefits Energy supply Industry E Eff. buildings Other: “hard” and “soft” $ $ Verification Revenues allocation Criteria for project selection Instruments

National specifics in GIS design Design features Ukraine (GIS study) Latvia Hungary(Law) Russia Hypothesis Legal basis Law or Gov. resolution Law + Gov. resolution Inter gov. Agreement Revenues earmarking process budget process or budget fund budget process, special account in the Treasure special account in the Ministry special account Decision on revenues allocation Governmental agency Fund under a Ministry Minister Government+ Buyer/Intermedi ary Criteria on selection and “greening” softsofthard, legal and financial additionality hard Instruments To be defined Performance- based grants grantssubsidies Verification third party ISO 14064, or third party, or ministerial unit designated third party

Anticipated differences in consequence of actions In CEE countries and in Ukraine 1 step: Political decision on AAU management, approval of selection criteria 2 step: GIS establishment (Legal and institutional) 3 step: Search of Buyers 4 step: MoU and Forward ERPA 5 step: Selection of projects/programs for support from GIS revenues In Russia In Russia 1 step: Search of interested Partners/AAUs Buyers 2 step: Selection of companies or sectors for support from GIS revenues 3 step: MoU and ERPA approved by the Gov-t; 4 step: pilot GIS (bilateral) 5 step: Political decision on AAU management and GIS establishement

Managing AAUs Mln ton CO2E Kyoto target Surplus AAUs (potentially tradable) GIS or AAUs Banking Compliance Mandatory set- asides (non tradable Reserve JI projects New target

Managing AAUs through banking Mln ton CO2E Kyoto target Surplus AAUs (potentially tradable) AAUs Banking or GIS Compliance Mandatory set- asides (non tradable Limit for JI projects Reductions due to JI New target Reserve due to AAus banking

AAUs banking pros: Some consider AAUs banking for post-2012 period as more attractive than selling it now; Some consider AAUs banking for post-2012 period as more attractive than selling it now; Due to the high oil prices the Russian Government does not need new revenues at the moment; Due to the high oil prices the Russian Government does not need new revenues at the moment; AAUs banking is seen as automatic transfer of quota to the post-2012 period, which allows: AAUs banking is seen as automatic transfer of quota to the post-2012 period, which allows: - keeping opportunities for extensive economic growth; - keeping opportunities for extensive economic growth; -getting a better price; -avoiding implementation risks and mistakes in ET; -learning lessons from other countries;

AAUs banking cons Unclear prospects for the Kyoto Protocol and the Marrakesh Accords; Unclear prospects for the Kyoto Protocol and the Marrakesh Accords; Most probably, new post-2012 commitments will take into account “national circumstances”, i.e. they are to be fair, achievable, but demanding Most probably, new post-2012 commitments will take into account “national circumstances”, i.e. they are to be fair, achievable, but demanding Russia is unlikely to get such extra comfortable target as in Kyoto; Russia is unlikely to get such extra comfortable target as in Kyoto; AAUs banking does not provide any incentives for EE, RER development, and other low carbon measures; AAUs banking does not provide any incentives for EE, RER development, and other low carbon measures; AAUs banking could be seen as a temporary tool to continue energy-inefficient development AAUs banking could be seen as a temporary tool to continue energy-inefficient development

Managing AAUs through GIS Mln ton CO2E Kyoto target Surplus AAUs (potentially tradable) AAUs Banking or GIS Compliance Mandatory set- asides (non tradable Limit for JI projects Reductions due to JI implementation New target Reductions due to GIS implementation

Advantages of GIS for Russia Purchase of technologies, managerial and institutional knowledge, Purchase of technologies, managerial and institutional knowledge, Immediate facilitation of EE measures and RER development; Immediate facilitation of EE measures and RER development; GIS – instrument to lower a long-term energy demand in some sectors GIS – instrument to lower a long-term energy demand in some sectors Additional financial revenues Additional financial revenues

Structure of the Carbon Finance Development Project (CFDP) Module 1: Capacity Building of Focal Points for JI and IET Module 1: Capacity Building of Focal Points for JI and IET Module 2: Assessment of Russia's Potential for GIS Module 2: Assessment of Russia's Potential for GIS Module 3: Designing of a Green Investment Scheme (GIS) Module 3: Designing of a Green Investment Scheme (GIS) Module 4: Developing Expert Capacity and a Portfolio of Projects for GIS and JI Module 4: Developing Expert Capacity and a Portfolio of Projects for GIS and JI

Partners in CFDP implementation MEDT and other ministries and agencies, regional administrations MEDT and other ministries and agencies, regional administrations Russian financial institutions, banks, private companies and state corporations Russian financial institutions, banks, private companies and state corporations UNDP/EBRD: Umbrella Programme for Promoting Energy Efficient Technologies and Practices in the Russian Buildings Sector recently submitted to GEF UNDP/EBRD: Umbrella Programme for Promoting Energy Efficient Technologies and Practices in the Russian Buildings Sector recently submitted to GEF Natural Resources Defense Council/ Yale Uni and New York Uni: Study of GIS and Programmatic JI Natural Resources Defense Council/ Yale Uni and New York Uni: Study of GIS and Programmatic JI

To be competitive Russia’s AAUs must be “super greened” To be competitive Russia’s AAUs must be “super greened” Priority areas : Modernization and reconstruction of district heating systems Modernization and reconstruction of district heating systems  Energy Efficiency  Renewable energy development “Greening” Olimpic Games in Sochi ?

“Green Olympics” concept in China about 90% of all the hot water in the Olympic village will be solar heated about 90% of all the hot water in the Olympic village will be solar heated 80 to 90% of street lights around the Olympic venues will be solar powered; 80 to 90% of street lights around the Olympic venues will be solar powered; 130KW solar photovoltaic system for the main Olympic stadium. 130KW solar photovoltaic system for the main Olympic stadium. wind farms to supply power during the Olympics (~80 Mw) wind farms to supply power during the Olympics (~80 Mw)

Thank you very much for your attention!