1. Financing climate-friendly projects in 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 FLOWS IN 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 – CO 2 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.