Green Investment Schemes:Maximizing their Benefits to Society and

Climate

Dr. Diana Ürge-VorsatzBudapest

24th April. 2008

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Outline

Background: additional challenges and opportunities

Criteria to optimise GIS and to choose target areas

The influence of GIS architectures on effectiveness in target areas

Further research needs

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Further challenges and opportunities

GIS: unregulated, as compared to other flexible mechanisms Risk of failure or misperformance Opportunity: freedom in its design; could potentially

overcome challenges by CDM/JI Opportunity: testing ground for post 2012 flexmex?

(programmatic CDM?) Highly under-researched Little window left to develop Could GIS become the flex mex of choice for

buyers?

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Criteria for the optimisation of GIS Significant revenue locked in the surplus AAUs in EIT

countries How to spend this best to maximise benefits for climate and

society? Potential criteria for target areas:

Cost-effectiveness Interest of the buyer National social/political interests Areas with strategic potentials but not easily supportable by other

mechanisms Selection of such areas in CEE:

Retrofit of old buildings stock Renewable heat (biomass heat?) Awareness raising, institution and capacity building, training, etc.?

Learning experiences from JI/CDM: optimise GIS based on lessons to be learned from JI/CDM E.g. why do they fail in selected strategic areas such as energy

efficiency in buildings

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Target Areas for GIS: national interests

Sellers side: Criteria reflecting national interests may include:1. cost-efficiency of investments;

2. Maximising gains towards national social, political and regional development priorities, and

3. Focus on important but are difficult to foster by BAU policies Buyers Side: prefer such combination of greening types that

Most of the revenues are used through hard greening And only a minority is channelled through soft greening

Buyers are flexible in regards to GIS target areas but prefer Retrofit of old buildings stock Expanding biomass production and use Promotion of new buildings with ultra-low specific energy consumption

(ex. Passive house)

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Potential target for GIS: retrofit of old buildings stock

Benefits of the retrofiting of old buildingsCost-effective/low-cost potential for GHG savings in

buildings is the largest as compared to that of other sectors

Mitigation of this potential offers co-benefitsA clearly demonstrable spending

Barriers for Retrofit of the old building stockMarket-based instruments do not work: payback times

are long; disperse ownership of EE makes ESCOs hardly work; other mechanism, such as JI failed in this area;

Regulatory policies hardly work too: The EPB Directive for large buildings and especially hard in CEE countries; population groups with the least access to self-financing or to capital markets

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Implications for GIS architecture optionsArchitecture of GIS have a major impact on its

effectiveness in different target areasBetter if a limited amount of target areas to be

supported; and fitting the GIS design carefully to the specific needs of the particular target area

Basic modalities of design: Type of greeningProject or Program/policy-based GIS Distribution of fundsSelection of target areas Institutional arrangements

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GIS architecture modalities Notes

Type of greening

Hard greeningRequirement for verifiable emission reductions additional to what would happen in the absence of the project

Soft greening No verification of emission reductions required

Hard and Soft greening

Project or policy-based

Project-based Implementation of individual projects and project bundling

Policy-basedImplementation of policy based activities (e.g. development and introduction of EE standards and labelling)

Project/ program selection

Top-downPre-defined programs for directing investments into prioritized sectors and measures

Bottom-up Project-proposals from organ-ns, individuals & local authorities

CombinationFunds allocated to several prioritized sectors and project selection within each sector

Funds distribu-tion

Grants Amount corresponding to the quantity of reduced emissions

Soft loansLoans with below-market interest rates & longer repayment periods

Soft loans and grants

Credit guarantees Guarantees for credits granted by other institutions

Equity for projectsGIS finances projects, taking an equity share and a corresponding share of the revenues

Benefici-aries

Firms & Non-profit organizations

Central and local authorities Applying for funding also for capacity building programs

Physical persons

Time-frame

Short During the first Kyoto commitment period (2008-2012)

Long May extend beyond the first Kyoto commitment period

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Options in the GIS architecture

Target areas for support

Thermal retrofit of existing

buildings

Support of renew-able

heat

Other residential or public sector measures

(inc. Standby consumption reduction)

Information dissemination,

awareness raising,

educational

Type of greening

Hard greening - - + Variable: -- to + - -

Soft greening + + + + +

Hard and Soft greening + + 0 + + -

Project or policy/program-based

Project-based + + + + Variable: - to + -

Policy/program-based

+ + + + + + +

combination + + + + 0

Project/ program selection

Top-down - - + +

Bottom-up + + + +

Combination + + + + + + + +

Funds distribution [1]

Grants + + + + + + + +

Soft loans + + 0 -

Soft loans & grants + + + + 0 -

Credit guarantees 0 + - - -

Revolving funds + + - - -

Equity for projects - + - - - -

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Options in the GIS architecture

Target areas for support

Thermal retrofit of existing

buildings

Support of renew-able

heat

Other residential or public sector

measures (inc. Standby

consumption reduction)

Information dissemination,

awareness raising,

educational

Beneficiaries

Firms & Non-profit organizations

+ + + + + + +

Central and local authorities

- / +Institutions

operating on public budgets

+ + + +

Physical persons

+ +Dwelling owners

Owner associations

ESCOs

+ + 0

Timeframe

Short-term (until 2012)

0 + + +

Long term (beyond 2012

+ +[2] 0[3] 0 0

Notes:[1] The authors of this paper are not financial experts, therefore the evaluations in this row should especially be viewed as indicative rather than assertive, and can change subject to a more profound analysis of financial criteria and options.[2] Depends on the size of GIS revenues. In case the revenues are substantial, it is advisable that it is disbursed over a loger period, because retrofitting a very large number of buildings in a short period may prove challenging due to capacity constraints. In addition, a gradual retrofit schedule better leverages the natural retrofit cycle of buildings.[3] Depends on the GIS revenue size. If the income can be effectively utilised until 2012 without meeting capacity constraints, it is better to focus the support for a shorter period.

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Conclusion from previous research For the CEE countries, the priority areas for support are:

Retrofitting the old building stockPromoting ultra-low energy new constructionSupporting biomass-based heatingStandby, low-power mode & idle electricity consum.

reduction Education, training and awareness raising

Architecture of GIS is important for its effectivenessNot to rely on very strict hard greeningNot an extension of JI. A small role of soft greening is also advisable

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Thank you for your attention!

Diana Ürge-Vorsatz:

vorsatzd@ceu.hu

Environmental Sciences & Policy Dept

Central European University

Tel: +36-1-327-3095

Fax: +36-1-327-3031

http://www.ceu.hu/envsci