LEGAL FRAMEWORK FOR A GREEN ECONOMY

WITHIN THE BSEC MEMBER STATES

REGIONAL REVIEW AND DIALOGUE

ON SYSTEMS AND PERSPECTIVES

Joint BSEC-GIZ Project

BLACK SEA ECONOMIC COOPERATION

Federal Ministry for theEnvironment, Nature Conservationand Nuclear Safety

Supported by;

LEGAL FRAMEWORK FOR A GREEN ECONOMY WITHIN THE BSEC MEMBER STATES

REGIONAL REVIEW AND DIALOGUE ON SYSTEMS AND PERSPECTIVES

This project is part of the International Climate Initiative (ICI). The German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative on the basis of a decision adopted by the German Bundestag.

Translator Ms. Maria Beat

2012

BSEC PERMIS cannot be held liable for the accuracy and correctness of this publication’s

data.

Impartiality and accuracy of the contents as well as any opinions reflected in this publication

are the sole responsibility of the authors.

Reproduction is authorized provided the source is acknowledged.

CONTENTS 

 

 

Introduction                                                                                                                                               1 

Study into Legal Framework of Green Economy Development in Ukraine Particularly in the Field of Energy Efficiency and Renewable Energy                        7  Brief Study of the Framework Conditions for Promoting Green Economy in the Republic of Azerbaijan                                                                                   45  Brief Study into Development of Framework of Green Economy in the Russian Federation                                                                                          93      

 

Participants of the enlarged final Meeting of the Coordinating Group for the joint BSEC‐GIZ project   “Legal Framework for a Green Economy within the BSEC Member States – Regional Review     

and Dialogue on Systems and Perspectives at the BSEC Headquarters in Istanbul on 4 December 2012 

1

INTRODUCTION

On pathways towards a

LEGAL FRAMEWORK FOR A GREEN ECONOMY

WITHIN THE BSEC MEMBER STATES

The Organization of the Black Sea Economic Cooperation (BSEC) representing 12 countries of

the BSEC Region has carried out the project “LEGAL FRAMEWORK FOR A GREEN ECONOMY

WITHIN THE BSEC MEMBER STATES – REGIONAL REVIEW AND DIALOGUE ON SYSTEMS AND

PERSPECTIVES”. It has been supported by the Deutsche Gesellschaft für Internationale

Zusammenarbeit (GIZ) on behalf of the German Federal Ministry for the Environment in the

framework of its International Climate Initiative. The writer of these lines has been engaged

by GIZ as an international consultant for Green Economy, and particularly energy and

resource efficiency.

The project had a pilot character and aimed at contributing to develop a common position of

BSEC countries and promote the ideas and concepts of a Green Economy in its member

States. One main result of the project are country reviews based on studies of framework

conditions and options of creating incentives for a Green economy in three pilot countries –

Azerbaijan, Russia and the Ukraine (see BSEC website).

In addition to the regional studies the present synthesis document wants to give general

advice to BSEC and its Member States about practical steps towards a Legal Framework for a

Green Economy.

What makes a Green Economy? A Green Economy is the opposite of a so-called Brown

Economy, which is the traditional form of economy since the beginning of the industrial age.

A Brown Economy in its simplest expression is high carbon, wasting resources and socially

exclusive. A Green Economy can be thought of as one which is low-carbon, resource efficient

and socially inclusive (definition of UNEP’s Green Economy Initiative). In the kick-off

workshop of the project it was agreed to focus on energy and resource efficiency and

renewable energies as central issues of a Green Economy.

2

Against this background the following general statements and recommendations can be

made to establish a Green Economy within the BSEC Member States.

1. Green Economy is not an option, it’s an obligation for all countries and all states that

are willing to provide a sustainable future for their citizens. This also applies to all BSEC

Member States. It may be possible to prolong the Brown Economy for some more decades,

but only at high cost for the environment and the quality of human life, especially for future

generations. We know that all fossil energy sources are finite and use is harmful for the

climate. Burning fossil fuels at efficiencies of 20% (cars) or 35% (oil fired power plants) is not

only extremely eco-inefficient, it is also antisocial to our descendents. We have plenty of

alternatives and the scientific, technical and financial means to bring about an energy

transition. Energy transition means three things: saving energy wherever possible, increasing

energy efficiency as much as possible and changing from fossil to renewable energy sources

as soon as possible. The EU and especially Germany are on a transition path with ambitious

quantified targets for the next decades. The sooner the BSEC Member States join the

international energy transition community, the better. Economies and countries that start

transition too late will face severe disadvantages.

2. To promote a resource-efficient and low-carbon economic development and to

control the transition process there are three types of instruments available:

- command-and-control instruments (strict law) like administrative orders and sanctions,

prohibitions, emission limit values or licensing procedures;

- economic instruments (market oriented law) like green taxes and environmental

fiscal reform, certificates (tradable permits) or liability rules, green subsidies and

promotion schemes as well as the elimination of subsidies that are harmful for the

environment (e.g. subsidies on fossil fuel prices);

- voluntary instruments (soft law) like information, management systems, exchange

of experience rounds or voluntary agreements between government and business

associations (Green Pacts or Alliances).

In the EU and Germany all three kinds of instruments are applied in building the legal

framework for a Green economy. Also for the BSEC Member States an instrument mix

3

should be the right way.

3. Best-practice examples for strict law in the EU:

- Regulation 2007/715/EU of 20 June 2007 on type approval of motor vehicles

with respect to emissions from light passenger and commercial vehicles (Euro

5 and Euro 6) and on access to vehicle repair and maintenance information.

- Directive 2010/30/EU of 19 May 2010 on the indication by labelling and

standard product information of the consumption of energy and other

resources by energy-related products.

- Directive 2010/31/EU of 19 May 2010 on the energy performance of buildings:

Member States shall ensure that: by 31 December 2020, all new buildings are

nearly zero- energy buildings; and after 31 December 2018, new buildings

occupied and owned by public authorities are nearly zero-energy buildings.

4. Best-practice examples for economic incentives in the EU:

- Energy taxes. In the EU 27 energy taxes account for almost 72% of total

environmental taxes. The amount in Euro was about 220 billion or 1.8% of GDP.

- Feed-in tariffs for renewable energies – See Renewable Energy Sources Act

(EEG). The German EEG has become model for many countries. Worldwide 41

states have taken the feed-in tariffs as a model, 19 of which are in the EU.

- CO2 building rehabilitation program in Germany to support efficiency

measures such as insulation, double-glazed windows, replacement of inefficient

heating technology, use of 3enewable, optimum measurement and control

technology etc.

- Tradable emission permits – Kyoto Protocol. With emissions trading the German

government is successfully implementing an instrument for achieving ambitious German

emission reduction targets. In the second emissions trading period from 2008 to 2012,

installation operators must cut greenhouse gas emissions by 57

million tons annually. Compared with the level of emissions released by

installations covered by emissions trading in the first trading period 2005 to 2007,

the amount allocated was reduced by more than 7 percent. In the second trading

period further types of installations were included in emissions trading, primarily

4

crackers in the chemicals industry, processing installations in the steel industry and

installations producing soot.

5. Best-practice examples for soft law in the EU:

- Information Center for Green Economy/Green Business (webbased) – Best

practice example: Infocenter Environment/Economy (IZU) in the Bavarian

Environment Agency (LfU) – see www.izu.bayern.de.

- Green Guidelines – Best-practice examples: see www.izu.bayern.de “Branchen-

leitfäden”.

- Green Business (Environmental) Management systems – Best-practice

examples: Eco-Management and Audit Scheme (EMAS) – see

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32009R1221:EN:NOT

and ISO 14001 Environmental management systems – see

http://www.iso.org/iso/iso_catalogue/catalogue_tc/catalogue_detail.htm?csnumber=

31807 and ISO 50001 Energy management systems – see

http://www.iso.org/iso/catalogue_detail?csnumber=51297 and “ECOlogical PROject

For Integrated Environmental Technology” (Ecoprofit) – see

www.oekoprofit.com/about/.

- Voluntary Agreements (Green Pacts or Alliances) between governments and

business organizations – Best-practice example: Environmental Pact of Bavaria

(Umweltpakt Bayern), the “mother of Green Pacts” – see www.stmug.bayern.de/

umwelt/wirtschaft/ umweltpakt/ index.htm (with an English version of the Pact

2005-2010. Meanwhile all Federal States in Germany have adopted similar alliances.

- Exchange of experience rounds – Best-practice examples: green ecoprofit group

audits and working forums within the Environmental Pact of Bavaria (Climate and

Energy, Integrated Product Policy and Resource Efficiency, Management

Systems, Energy Efficient Buildings, Environmental Cluster Bavaria).

6. The current BCEC-GIZ project so far has worked out proposals that might be elements

of the legal framework for a Green Economy in theory and with reference to best-practice

examples. You might say it has produced profound papers. What ultimately matters is the

implementation into practice. Therefore the next steps to go by BSEC Member States should

5

be practical. It should be examined whether a follow-up-project can be realized which the

objective of implementing concrete measures of the above shown policy mix in the BSEC

Member States. Even if not all measures can be implemented on a whole and each member

state has to find its own way to Green Economy the project should have delivered enough

ideas and best-practice examples to choose one or the other. The advantage of soft law

measures – such as voluntary agreements – is that there is no need of time-consuming

parliament decisions and they are usually associated with cost reductions.

7. The very next step to go by BSEC could be an attempt to establish the framework for

voluntary agreements between business organizations and governments like the ones

agreed in the German Federal States with the Bavarian Environmental Pact as a benchmark.

It also would make sense that BSEC accompanies and promotes the transition process

towards a Green Economy and plays an active role in Rio+20.

Herbert Köpnick, Munich Head of Department

Integrated Product Policy and Resource Management Bavarian State Ministry of the Environment and Public Health;

B.A.U.M. Senior Advisor

(German Association of Environmental Management e.V.)

6

Workshop in Kiev 17 June 2011

STUDY INTO LEGAL FRAMEWORK OF GREEN ECONOMY DEVELOPMENT IN UKRAINE PARTICULARLY IN THE FIELD OF ENERGY EFFICIENCY AND RENEWABLE ENERGY IN

Prepared by Ukrainian Charitable Fund "Ukraine Environmental" (ВСЕУКРАЇНСЬКИЙ БЛАГОДІЙНИЙ ФОНД «ЕКОЛОГІЧНА УКРАЇНА»)

Done by

T. Galushkina E.Fedorenko O.Bondar V.Pojarsky O.Shevchenko

Kiev, Ukraine - 2012

8

Table of Contents

List of abbreviations 9

Introduction 10

1. Green Economy in international dialogue: origins and initiatives 10

1.1. Origins and grounds of Green Economy 10

1.2. Prerequisites for a Green Economy development in Ukraine 17

2. Study in the field of energy efficiency and renewable energy in Ukraine 19

2.1. Ukrainian energy sector and the СО2 emissions 19 2.2. Legal framework for energy efficiency and renewable energy in Ukraine 22 2.3. Schemes of promotion and stimulus, and barriers for development of energy efficiency in Ukraine 26

2.4. Promotion of Green Electric Power in Ukraine 30 2.5. Current and potential initiatives 33

3. Conclusions and recommendations 38

List of reference sources and literature cited 41

9

List of abbreviations UN UNEP UNDP IMF OECD WTO EU GIZ ⃰ NKRE CMU NAER Нацэкоинвестагенство

Organization of the United Nations United Nations Environment Program United Nations Development Program International Monetary Fund Organization for Economic Co-operation and Development World Trade Organization European Union Deutsche Gesellschaft für Internationale Zusammenarbeit National Commission on Regulation of Electric Power Industry Cabinet of Ministers of Ukraine National Agency for Providing Efficient Utilization of Energy Resources National Agency for Ecological Investment

____________________________________________________________ ⃰ GTZ until January 1, 2011

10

INTRODUCTION

This study is prepared under the project of the Black Sea Economic Co-operation Organization, BSEC entitled the Legal Framework For a Green Economy Within the BSEC Member States - Regional Review and Dialogue on Systems and Perspectives. The project has gained support of the German Agency of International Co-operation, GIZ rendered by the German Federal Ministry for Environment Protection within the framework of the Global Climate Initiative.

The project targets promotion of Green Economy in the BSEC member states. It incorporates a regional study into structure and selection of a Green Economy stimulus in three countries, namely Azerbaijan, Russia and Ukraine.

The following tasks were assigned to the authors of the study:

to specify current and future policies, and legal framework for a Green Economy;

to examine legal framework of energy efficiency and renewable energy in Ukraine (schemes of promotion and stimulus, and barriers);

to analyze Ukrainian recent and potential initiatives for promotion of Green Energy and energy efficiency;

to develop recommendations for improving conditions to promote a Green Economy development in Ukraine.

1. GREEN ECONOMY IN INTERNATIONAL DIALOGUE: ORIGINS AND INITIATIVES

1.1. ORIGINS AND GROUNDS OF GREEN ECONOMY

«We have witnessed three economic transformations in the past century. First came the Industrial Revolution, then the technology revolution, then our modern era of globalization. We stand at the threshold of another great change: the age of green economics».

Ban Ki-moon UN Secretary General

The Washington Post daily December 3, 2007

Since recently, the international community has started devoting an increasing attention to the Green Economy ideas. On the one hand, an increased attention to a Green Economy concept results from the growing disappointment in the economic models existing in our society due to continuous crises and market mechanisms malfunctioning. On the other hand, signs have arrived of a new economic model emergence to save the mankind from paying for new material benefits by means of higher risks on environment and depletion of natural resources.

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The mentioned signs as well reveal that a Green Economy transition has sound economic and social grounds. In this regard, the state faces a task of upgrading the game rules for the Green Products by cutting short the out-of-date subsidizing practices, reforming its policies and creating new incentives, strengthening market infrastructure and mechanisms, as well as by relocating public investments and moving to Green Public Procurement. On its part, private sector faces a task of duly appreciating and using the opportunities provided by a Green Economy shift in certain key sectors, as well as reacting to political reforms and price hikes by allocating additional funds and investments1.

‘Green Economy’ as a term was for the first time mentioned by the Blueprint For a Green Economy publication (1989) to substantiate economic grounds of the sustainable growth concept. After the launch of the UN environmental program entitled the Green Economy Initiative to become one of the nine anti-crisis initiated measures, the concept gained the status of universally received. Its arrival has initiated a great number of definitions and interpretations of a Green Economy jointly with emergence of new terms, such as Green Growth and Greening of Economy. These terms are interchangeable and could be applied to the constantly growing number of fields (energy, water resources, agriculture) and sectors (transport, consumption, tourism). Green Economy (Green Economics in English) is an economic science trend to have come into being during the past two decades and that regards economy as a dependent component of the natural environment wherein it exists, while being its integral part. The Green Economy concept incorporates philosophical and other scientific trends and ideas, such as, ecological economy, economy of natural environment, and the theories of anti-globalism and international relations. The Green Economy theory is based on three fundamental truths, i.e., that

an endless expansion in a limited space is not possible;

with limited resources is impossible to continue meeting a constantly growing demand;

everything on the Earth surface is interconnected.

Under a Green Economy, employment and income growth are generated by public and private spending to reduce pollution and carbon emissions, increase the energy and resources efficiency, and prevent biodiversity from loss. These investments need to be catalyzed and supported by the goal-oriented public funding, political reforms and the regulation changes. Such a development would preserve, increase and – if required – revive the natural capital as the major economic asset and resource of social wellbeing for the poor population strata, in particular those whose income generation and protection depend upon nature.

1 Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication - A Synthesis for

Policy Makers, UNEP, 2011.

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Since recently, governments of different countries have launched proactive economic policies by making the economic rehabilitation packages. Comparing of Green Components of the packages is quite difficult, since no common opinion exists, what components could be qualified as green. Creation of a mature system for economy regulation could result in establishing the rights and stimulus to give boost - in their turn – to a Green Economy transition, as well as to lift the existing barriers for Green Investment. The regulation system would make it possible to restrict the most harmful activities incompatible with sustainable development or establish their minimal standards, or fully forbid some of them. More so, an adequate regulation system would reduce risks of changes into the national legislation and it would contribute to investors trust to the markets. A positive addition to the public legal regulation system could become the industries self-regulation and practice of voluntary agreements between the national governments and private companies. Through voluntary agreements, companies would undertake responsibilities to increase efficiency of energy resources utilization and introduce energy-saving projects into production. The EU practice envisages the two following approaches for implementation of the voluntary agreements to increase energy efficiency:

countries apply a ‘mandatory approach’ to justify a СО2 tax exemption for discharges of the energy-intensive production branches;

a ‘voluntary approach’ is applied by the countries that run programs for an energy auditing of enterprises that – in their turn – provide the enterprises with opportunity to create more efficient projects to attain goals in the energy saving field.

Among the advantages to be gained from the voluntary agreements the following should be mentioned: decrease of production costs, access to subsidies or reduction of tax burden, and acquiring an image of a company to care about environment protection. At the same time, conclusion of the voluntary agreements provides for – bearing in mind specifics of a particular company – selection of the energy-saving targets and mechanisms, and timeframes for reaching the targets. Regardless of how efficient the market instruments could be, the administer-by-command measures could be required in certain situations due to their higher potential to secure an implementation. For the RES sector projects in a short term, it’s easier to establish the new efficiency standards and remove the planning and receiving permission obstacles than to create a carbon emissions market and remove the fossil fuel procurement subsidies. Requirement standards applied to constructions or production specific elements, or their working characteristics could be efficient instruments to ensure the ecology sector targets and establish the stable commodities and services markets. In particular, obligatory standards may efficiently contribute to reaching the targeted results.

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Still, the present standards fail to duly stimulate activities and improvements beyond their established requirements unlike of other market instruments with a potential to become an improvement constant stimulator.

UN initiatives including UNEP’s

In response to the 2008 global financial and economic crisis, the United Nations Environment Program, UNEP called-up for a ‘new global amicable agreement’ in order to restore the world economy and increase levels of employment, while fostering the climate change mitigation, and combating environment degradation and poverty. In 2008, the UN Secretary General jointly with the UN Chief Executives Board for Coordination launched a UN ecological program of the Green Economy Initiative, GEI. It’s been aimed at assistance to the national governments in their Economy Greening effort through re-channeling the politics, investment and spending for a number of sectors, such, as the ecologically-clean technologies, renewable energy sources, water supply, green transport, waste management, green buildings, sustainable agriculture and forestry. One of the first GEI results became a New Global Green Deal. The announced New Global Green Deal was defined as the pathway to development to recover stability for the global economic and financial systems2. The overall tasks and objectives posed by the Global Green New Deal are expected to contribute to the multilateral and national effort to overcome the financial crisis social, economic and ecological aftereffects. At the same time, it envisages mitigating the climate change and resolving the food supplies, fuel and water resources shortages. It’s worth mentioning as well that in December 2009, the UN General Assembly took decision to include Green Economy as a key topic into agenda of the UN Conference on Sustainable Development in 2012 (Rio+20, 2012). In its Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication report (2011), the UNEP has defined a Green Economy as a mechanism to improve people’s wellbeing and ensure social equality while substantially reducing the risks for surrounding environment and depletion of resources3. The mentioned definition provides an understanding of how important the links between a Green Economy and sustainable development are. A Green Economy concept does not replace a sustainable development concept, while an assumption has become increasingly widespread today that achieving sustainability fully depends upon creation of the ecologically oriented economy4.

2 UNEP: New Global Green Deal report, 2009. 3 Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication - A Synthesis for

Policy Makers, UNEP, 2011. 4 Ibid

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For transition to a Green Economy, favorable conditions have to be created. Such conditions include presence of the required national regulatory instruments, policies, subsidies and incentives, as well as the world market, legal framework, protocols on trade turnover and financial assistance5.

The UNEP report applies a macroeconomic simulation to substantiate an assumption that just two per cent of the world GDP investment would be required into ten key economic sectors to launch transition to a low-carbon Green Economy of efficient utilization of natural resources. The ten sectors referred to by the UNEP report as the key for the Economy Greening include agriculture, public utilities, energy, fisheries, forestry, industry, tourism, transport, waste utilization and recycling, and the water resources management. The ground-laying concept, e.g., the process launching through means of a tax-and-budget stimulus package was borrowed from the UN appeal for a Global Green New Deal. As well, the report incorporates global indicators for evaluating the progress based on respective priorities and their links with GDP, as well as examples of global good practices.6 EU initiatives In 2006, the EU approved its renewed Sustainable Development Strategy, SDS for 2005-2010. The SDS aims were defined as environment protection, promotion of social equity and cohesion, and economic prosperity, as well as meeting international responsibilities by the EU as a whole, and by its member states in particular. Within the SDS framework, the key challenges were specified as follows:

climate change and clean energy;

sustainable transport;

sustainable production and consumption;

management of natural resources;

global poverty and sustainable development challenges. The adopted in 2000 Lisbon Strategy incorporates as well the Economy Greening elements. Also, it has to be mentioned that the strategy were twice revised, i.e., in 2005 and 2010, and every time with accent on a Green Economy. In 2010, the European Commission started implementing its new strategy grounded on Green Growth and entitled “Europe-2020: Strategy for Smart, Sustainable and Inclusive Growth”. Its objective is to take the economy out of crisis and prepare the EU economy for sustainable development, efficient use of resources and for ageing population. The strategy is based on three correlated priorities, e.g.:

5 Ibidem 6 Edward B. Barbier, Global Green New Deal, Department of Technology, Industry of Economy of UNEP, February 2009.

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Smart growth: economic development based on knowledge and innovation that are the key elements of competitiveness; Sustainable growth: building a more competitive low-carbon economy that makes efficient, sustainable use of resources; Inclusive growth: a high-employment economy delivering economic, social and territorial cohesion. The European Parliament could initiate the rapid funding specialized programs. In their turn, these mechanisms would open the way for the Green Structural Interventions to increase productivity of resources utilization by industry and infrastructure7. As well, a number of the EU adopted innovation programs have been contributing today to Economy Greening in its member countries. On October 24, 2006, the European Parliament adopted its Competitiveness and Innovation Program, CIP for 2007-2013. The program has become primarily aimed at assistance to the newly-launched small and medium enterprises, and promotion of co-operation and innovative activities. Support and market promotion of the best productions of environmental innovations are among the program activities. The program environmental technology innovations component envisages support and market promotion of products and services of ecological enterprises that have high potential for Europe and contributes to the existing barriers reduction8. Another sector of activity of the Competitiveness and Innovation Program is development of smart power generation in Europe. It provides for funding of activities required for more efficient production and consumption modes of energy utilization, and for introduction of new renewable energy sources. These activities target modification of legislative and social conditions required for initiating the necessary changes (the legislation optimal introduction and preparation). In 2007, the EU launched implementation of the Seventh Framework Program for Research, Technological Development and Demonstration that brings together all the EU science and research related initiatives targeting implementation of the EU Lisbon Strategy9. The program covers the 2007-2013period and consists of four basic components to have several work programs each. Thus, a work program for environment protection is focused at deepening our knowledge about the links of biosphere, ecosystems and human activity with development of new

7 The European Green Deal. The green modernization under crisis, Report of the Wuppertal Institute for

Climate, Environment and Energy, Belgium, 2009. 8 Ibid. 9 The European Green Deal. The green modernization under crisis, Report of the Wuppertal Institute for

Climate, Environment and Energy, Belgium, 2009.

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technologies, and instruments and services for an integrated resolution of the global environment protection problems. A work program for the nano-production sector is focused on transition from a resource-intensive to the knowledge-intensive economy and envisages support for scientific research and technological development. A work program for energy sector targets transformation of the currently existing energy system by reducing dependence from imported fuels and increasing the energy resources diversification and energy efficiency. Utilization of renewable energy sources is a priority direction for development of the energy system. A work program for food, agriculture and bio-technology is focused at research related to sustainable production and management of land, forest and water resources. In January 2004, the European Commission initiated the Environmental Technology Action Plan targeting stimulation of the eco-technologies development and introduction. It is aimed at removal of financial, economic and organizational barriers existing in this field. The plan consists of 28 activities incorporated into nine blocks, i.e.:

science and research, and project design;

technological platforms, and public and private partnerships;

technologies verification, i.e., establishment of the testing centers network and compilation of the eco-technologies catalogues;

determining the efficiency planning indicators based on the ecological efficiency improvement indicators;

finance mobilization;

economic instruments to employ market mechanisms;

procurement of clean technologies;

providing information to enterprises and consumers through means of target-oriented training;

global-scope activities: promotion of clean technologies in the developing countries and countries in transition.

OECD initiatives In June 2009, ministers of the Organization for Economic Co-operation and Development, OECD member countries adopted a Declaration on Green Growth. Its objective has become maximization of social and ecological value added of financial packages developed to assist the member countries in overcoming financial and economic crisis. OECD has defined Green Growth as a mechanism to assist modern economy in transiting to a balanced economy10. Green Growth means encouragement of economic growth and development, reduction of pollution and the greenhouse gases emissions, minimization of wastes and inefficient

10 Green Growth: Overcoming the Crisis and Beyond, OECD, 2009

17

utilization of natural resources, and preserving of bio-diversity and strengthening of energy security. Green Growth is a mechanism for stimulating the economy growth and development while ensuring that natural assets continue delivering the natural resources and services our wellbeing depends from. For this, it has to serve as a catalyst of innovation and investment to make a base for sustainable growth and result in emergence of new economic opportunities11. The declaration mentions inter alia that the Green Growth strategy is built on the mutually supporting aspects of economic and environmental policies, while taking into consideration the overall value of natural capital as a production factor jointly with its role in the growth process. It points out to the profitable ways to decrease the burden on environment in order to proceed to the new schemes of growth that do not exceed the critical local, regional and global ecological thresholds. The Green Growth concepts emphasize importance of integration of the policy economic and ecological aspects in such a way that the possibilities for new sources of economic growth become revealed without ‘unstable’ pressure on the natural resources quality and quantity. The measures include such economic instruments as taxes, schemes for emissions trading and abolition of subsidies, such levers of legislative regulation as standards fixing and such non-economic measures as voluntary actions and instruments built on information. 1.2. PREREQUISITES FOR A GREEN ECONOMY DEVELOPMENT IN UKRAINE For a long time, Ukraine’s economic development went hand-in-hand with the natural resources unbalanced exploitation. The aftermath of these economic activities keep negatively affecting the natural environment to result in depletion of resources potential, increase in spending on protection of population and territory, treatment of emergencies aftereffects and reconstruction of natural balance. High levels of energy consumption in relation to GDP have resulted from lack of investment into the industries modernization after the Soviet Union collapse. Shortage of the energy-saving technologies introduction curtails Ukraine’s competitiveness at international markets. Waste storage facilities do not largely meet the eco-security requirements and remain as such a prime source for environment pollution. For the main sources of waste production, should be named enterprises of the mining, metal smelting and chemical, machine building, fuel and energy, construction and agro-industrial sectors. By levels of industrial, agricultural and residential consumption of water resources, Ukraine is one of the first among the European countries. Volumes of non-treated waste waters discharged into the water bodies annually reach around one per cent of the overall average outflow. The self-recovering ability of the water eco-system appears to be insufficient for neutralizing its experienced negative impact and restoring the eco-balance.

11 Ibid

18

Arable lands account for the largest part of Ukraine’s land structure to have resulted from extensive methods of the lands cultivation. Lands degradation has increasingly become a burning issue. In recent years Ukraine has been rapidly losing its land potential resulting from continuous decrease in soil productivity indicators. More so, due to the land cultivation low culture, around 0.6-1 ton of humus are lost per every hectare of land. Ukraine continues being the world ‘number one’ by intense utilization and exploitation of mineral resources. Due to experienced increase in price of energy resources and worsening of mining-and-geological and ecological conditions of mineral reserves exploration, exploitation of these resources has been losing its economic efficiency. The better part of mining regions presently experience serious socio-economic and ecological problems. Unmeasured forest exploitation in Ukraine has resulted in substantial change in their structure, worsening of the natural complexes status, degradation of vegetation cover and depletion of the forest raw material resources. Natural resources, to include the animal and plant world species, have a clear tendency for depletion in Ukraine. In should be mentioned that since recently a Green Growth necessity has been continuously emphasized in Ukraine, and at the high political level as well. On December 21, 2010 was adopted the Law of Ukraine “On the basic principles (strategy) of national eco-policy for the period till 2020”. According to the document, the national eco-policy strategic goal shall be stabilization and improvement of environmental situation for the benefit of people’s health and safe living, as well as a practical introduction of an eco-balanced system for management of natural resources.12 The main mechanism for the Strategy implementation shall be the National Environment Protection Action Plan for the period of 2011-2015 adopted through a CMU Instruction on May 25, 2011.13 The Strategy and National Action Plan are important prerequisites for receiving the EU budgetary support by the Ukrainian nature protecting sector. They embed into the national environmental policy of Ukraine the main principles of Green Development. Strategy defines the following priority activities:

protection of atmospheric air;

protection of water reserves;

protection of lands and soils;

forest protection;

protection of geological environment and mineral reserves;

12 Law of Ukraine “On the basic principles (strategy) of national eco-policy for the period till 2020” dated 21.12.2010. 13 CMU Instruction “On adoption of the National Environment Protection Action Plan for the period of 2011-2015” dated 25.05.2011.

19

risk-free management of wastes and hazardous chemical substances;

ensuring biological security;

introduction of cleaner productions;

infrastructure development for the eco-clean means of transport;

energy- and resource-saving in industry and by private sector;

eco-oriented agricultural technologies;

ecological and Green Tourism.

Strategy envisages the following main instruments for the national eco-policy implementation:

public-private partnership and involvement of the interested parties;

improvement of permissions system in the field of nature protection;

eco-expertise;

eco-auditing, system of eco-management, eco-marking;

eco-insurance;

technical regulation, standardization and accounting in the field of nature protection;

adoption of the legal regulation acts required in the field of nature protection;

economic and financial mechanisms. It’s envisaged to reach the Strategy goals in two stages. First stage till 2015: Stabilization of the eco-situation, slowing down the rate of increase of anthropogenic burden for environment, creating conditions for improving the eco-security levels for population, launch of transition to the EU nature protecting standards and development of appropriate legal regulation acts, and raising social activity in the environment protection field. Second stage from 2016 to 2020: Division of environment protection and economic functions in the field of natural resources exploitation, implementation of the EU ecological norms and standards, eco-system planning, introduction of economic mechanisms for stimulating the eco-oriented structural transformations, establishing balance between the socio-economic needs and assignments in the field of environment protection , arranging an eco-efficient partnership of the state, economic operators and the public. STUDY IN THE FIELD OF ENERGY EFFICIENCY AND RENEWABLE ENERGY IN UKRAINE 2.1. UKRAINIAN ENERGY SECTOR AND THE СО2 EMISSIONS One of the main important conditions for sustainable development is solution to the problems of energy intensity of production and energy supply for economy that have threatened Ukraine’s economic security for the last years.

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Ukrainian energy infrastructure accounts to 24,015 power plants. Of them, 13,947 are thermal plants, 4 – nuclear and 64 are hydropower plants14. Ukraine belongs to those countries that are just partially provided for by conventional energy resources and have to import them. Ukraine’s energy dependency from deliveries of fossil fuels reaches 55-60 per cent and this level of dependency has a tendency to decrease, though supply sources of the energy carriers, primarily oil, natural gas and nuclear fuel lack their diversification.

Table 1

Forecasted balance of electric power generation in Ukraine by 2030, ml kWh (baseline scenario)

Indicators 2010 2015 2020 2030

Total generation of electric power, rate of increase from the previous period, percentage including:

210,200 13.5%

251,000 19.4%

307,000 22.3%

420,100 36.8%

1) power plants of general purpose including:

200,290 239,450 294,100 404,600

а) TPPs and CHPs, percentage to totally generated

86,590 41.2%

114,350 45.6%

118,600 38.6%

167,000 39.8%

b) HPPs, percentage to totally generated

10,300 4.9%

11,400 4.5%

12,700 4.1%

14,100 3.4%

c) PSPPs, percentage to totally generated

2,200 1.0%

3,200 1.3%

3,900 1.3%

4,500 1.1%

d) NPPs, percentage to totally generated

101,200 48.1%

110,500 44.0%

158,900 51.8%

219,000 52.1%

2) isolated generating plants and other sources, percentage to totally generated including by:

9,910 4.7%

11,550 4.6%

12,900 4.2%

15,500 3.7%

а) isolated generating plants 9,775 10,665 11,300 13,400

b) RES-fed power plants (excluding small HPPs)

135 885 1,600 2,100

including: other local sources 85 85 100 100 Source: Energy Strategy of Ukraine till 2030, http://www. zakon.rada.gov.ua

The rate of energy consumption per unit of national GDP is taken for a general indicator of fuel and energy resources efficient utilization by a country.

Ukraine’s GDP energy intensity exceeds the world average by 2.6 times. The main reason of high energy intensity is unmeasured industrial consumption of energy carriers for per-unit production that triggers Ukrainian import increase of respective hydrocarbons. The Ukraine’s GDP high energy intensity results from substantial technological lagging largely experienced by the branches of economy and the residential utilities sector, unsatisfactory structure of the national economy branches and import-export operations.

14 National Report on the Status and Prospective Implementation of the National Policy of Energy Efficiency in 2008.

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In Ukraine, the natural environment burden exceeds by 4-5 times similar parameters in other countries, while by levels of pollution and environment degradation Ukraine is one of the first among the post-Soviet countries. While Ukraine’s national territory accounted for 2.7 per cent of the Soviet Union, the ratio of hazardous emissions to atmosphere today stands at 18 per cent, the waste waters discharge into the surface basins – at 12 per cent and the waste annual storage – at 19 per cent of the former USSR overall indicators15. It may be mentioned that the greenhouse emissions in Ukraine went down substantially right after 1990 (by 50 per cent) due to decreased economic activity during that period. Still, emissions resumed their growth during the further period and Ukraine keeps remaining today as one of the least energy-efficient countries in the world, as well as one of those where the greenhouse emissions level per the GDP unit remains the highest among the CIS countries. Per capita emissions account to 9.45 tons of CO2 equivalent per year. For comparison: the per capita annual emissions in the USA stand at 19.78 tons, in Germany – at 10.4 tons and in Russia – at 12 tons. Thus, Ukraine is the 19th among the world largest greenhouse emissions producers16. According to the 2010 data provided by the National Statistics Agency of Ukraine, the СО2 emissions amounted to 198.2 ml t.17 The main air polluters in Ukraine are producers of electric power, natural gas and water (39 per cent of emissions), and enterprises of processing (33 per cent) and mining (21 per cent) industries. According to the data of the National Statistics Agency, the carbon dioxide emission (СО2) increased during the 2011 first quarter by 9.6 per cent in comparison with the relevant 2010 period and reached 53.02 ml t. Besides, the stationary sources emission into atmosphere of polluting substances (compounds of nitrogen, sulfur, methane) went up by 5.5 per cent and sustained 1.14 ml t. Increase in emissions was going in parallel with production rates decrease in the energy sector and industry. While in 2010 the sector production went up by 9.5 per cent and 11.2 per cent accordingly, in January-March 2011 the rates went down by 4.4 per cent and 1.5 per cent respectively.18 Experts explain the emissions increase by active exploitation of outdated production technologies. The increase, in the light of the growth rates reductions in the key economy sectors, results from the fact that during the crisis period no producer could make investment into the energy-saving ventures and had to exploit the outdated technologies.

15 S.Bevz, B.Bondarenko, O.Butkevich, Energy-efficient and renewable energy resources, ed. by A.Shidlosky, Kiev, 2007. 16 A. Shevtsova, ed., Prospective for the Ukrainian energy supply in the context of global tendencies, Monograph, D, NISI, 2008, p 208. 17 http://www.ukrstat.gov.ua 18 http://www.ukrstat.gov.ua

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Table 2 Greenhouse gas emissions dynamics in Ukraine till 2015

Source: The Climate Change Initiative information center, http://www.climate.org.ua

2.2. LEGAL FRAMEWORK FOR ENERGY EFFICIENCY AND RENEWABLE ENERGY IN UKRAINE

Discovering the new energy sources is the hottest issue on the agenda in Ukraine. At present its power-producing system suffers from an acute energy shortage and the energy utilization low efficiency. Besides, energy crisis in the national economy and critical ecological situation in the rural and industrial regions demand a stricter integrated assessment of power supply and an energy-saving policy. Firstly, Ukraine does not apply any systematic approach for resolution of the energy efficiency problems. Practically no legal framework exists today to ensure implementation of the fully-fledged and diversified energy policy. The prime legal document to regulate the energy sector relations is the Law of Ukraine “On Energy Saving” adopted back in 1994. Besides, links between the various legal instruments to regulate ecology, power generating, energy saving and energy efficiency are rather weak. The energy legislation regulations quite often contradict each other. In Ukraine, the necessity exists to develop new legislation in the field of energy efficiency. In 2006, the country adopted the Energy Strategy of Ukraine till 2030. According to the document, development of RES and nonconventional energy sources is to be considered as a must for the energy security level increase and reduction of anthropogenic impact of energy on the natural environment19. More so, the Energy Strategy of Ukraine envisages certain ways for strategic development of renewable energy sources, RES and nonconventional energy sources to contribute to the overall effort of the European community energy sector and meet the prime criteria of the Green Paper “Towards a European strategy for the security of energy supply”. 19 CMU Instruction «On approving Ukraine’s Energy Strategy for the period till 2030» of 15.03.2006

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In Ukraine, prospective for the RES and nonconventional energy sources development are considered to be bio-energy, extraction and utilization of coal-mine methane, utilization of the energy derivatives, wind and solar energy, the natural environment thermal energy and development of the economically viable hydropower potential of the Ukrainian small rivers. For the strategy strength, should be taken its posed goal to reduce dependence on the natural gas consumption and increase the energy efficiency. Among its weaknesses, would be its focus on the nuclear power development and increase of coal consumption by electric power plants. Ukraine has a substantial potential of nonconventional energy (Table 3) assumed to reach 100 ml tons of conditional potential, but its share in energy balance is insufficient, though the country has a substantial raw material base.

Table 3. The nonconventional energy reserves in Ukraine, mW per year

Theoretical potential

Utilization Technical potential

Realistic volumes of utilization

Energy source

Helio-energy resources 720x109 81x103 0.13x109 (30+40)х109

Wind-power resources 965x109 0.8x103 0.36x109 (4.8+8.4)x106

Geo-thermal resources

5,128x109 0.4x103 14x109 2,800х106

Bio-energy resources of agricultural waste

12.5x106 0.14x103 6.1x106 6.1x106

Hydropower resources 42.4x106 10.2x106 21.5x106 21.5x106

Source: F.V. Stolbergom, Ecology of the City (Стольбергом Ф. В. Экология города)

Review of Ukrainian legislation in the field of RES The principal legal acts to regulate the Ukrainian alternative energy sources, AES are:

Law of Ukraine «On power energy» of 16.10.1997;

Law of Ukraine «On alternative types of liquid and gas fuels» of 14.01.2000;

Law of Ukraine «On alternative energy sources» of 20.02.2003;

Law of Ukraine «On introduction of change into certain Ukrainian laws on the feed-in tariff introduction» of 25.09 2008;

Law of Ukraine «On introduction of change into certain Ukrainian laws on RES » of 01.04.2009;

Law of Ukraine «On introduction of change into certain Ukrainian laws on assistance to production and utilization of certain types of bio-fuel» of 21.05.2009.

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According to the Law of Ukraine «On alternative energy sources», solar energy, wind energy, geo-thermal energy, the energy of waves and tides, hydro energy, the bio-mass energy, gas from organic waste, gas produced by the sewerage processing stations, bio-gas and energy derivatives to cover blast-furnace and coke gas, coal-mine methane gas and processed energy wastes of technological processes are considered to be the AES20. According to the Law of Ukraine «On alternative types of fuel», as nonconventional sources and types of energy resources should be considered raw materials of natural origin, wastes, solid flammable substances and other natural and man-made reserves and types of energy resources to include the oil, gas, gas-condensate, and oil- and gas-condensate depleted, non-industrial and man-made deposits, as well as heavy oils, natural bitumen, gas-saturated waters, gas-hydrates, etc., whose production/extraction and processing requires new technologies and that are not utilized for the traditional fuels production/extraction21. The Ukrainian Cabinet of Ministers took on 19.02.2009 its Decision No 126 to recommend to the National Commission on Regulation of Electric-Power Industry, NKRE deciding that owners of the AES facilities to produce electric power whose installed capacity does not exceed 10 mW are permitted to carry out activities related to generation of electric power without having a respective license. Still, NKRE provided certain clarifications into its published Decision No 126 by specifying an obligation for the mentioned owners of generating facilities to obtain a respective license for conducting trade transactions at the power wholesale market at a Feed-in (Green) Tariff, if they want to sell their produced electric power. A license for electric power generation is obligatory for these business operators, since

acquiring a status of participant in the wholesale market operations and by this an opportunity to trade the generated power at this wholesale market becomes possible when the electric power generation license is available, and

receiving from a market participant all the documents required for the Feed-in Tariff approval, control over targeted allocation of the Feed-in Tariff investment funds, regulating relations of the wholesale market participants during the generation, transmission and delivery of electric power subject to the Feed-in Tariff are possible only, if the very market participant is a NKRE license bearer.

Thus, the license-free electric power generation is possible for internal consumption, when the installed capacity of the AES generating facilities does not exceed 10 mW. According to Article 7 of the Law of Ukraine «On AES», introduction of the alternative fuels sectorial standards is aimed at determining the integrated regulations, rules, requirements and indicators for those fuels production/extraction and consumption technologies, as well as for their quality, ecological security and safety and human health and labor22. Classification of an AES fuel is done based on the fuel identification certificate issued by the National Agency for Providing Efficient Utilization of Energy Resources according to the CMU 20 Law of Ukraine “On alternative energy sources” of 20.02.2000. 21 Law of Ukraine “On alternative types of fuel” of 14.01.2003 . 22 Law of Ukraine “On alternative energy sources” of 20.02.2000.

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established rules and procedures. The mentioned rules and procedures were approved by the CMU Decision No 1307 «On the order of issuing certificates for the AES fuel classification» of 5.10.2004. Grounds to issue a certificate classifying the fuel as an AES fuel, would be an expert analysis carried out in accordance with the rules and procedures approved by the Order «On approving the rules and procedures to recognize the fuel as an AES fuel» issued by the Ukrainian National Committee on Energy Saving on 10.12.2004. Out of the AES, bio-energy has a high potential. For its development, in 2003 the Presidential Decree “On measures for development of fuel production from biological raw materials” was issued in Ukraine. To utilize the bio-mass prospective energy potential, from 1996 Ukraine has elaborated several programs in science and technology, i.e., the Program to Support the Nonconventional Energy Sources Development in Ukraine, Program to Support the Bio-diesel Production Development in Ukraine and Program to Develop Bio-gas Utilization in Ukraine. Based on introduction of these programs, were developed new technologies bio-mass utilization for energy purposes. In the meantime, the bio-energy legal regulation in Ukraine is currently limited by general provisions. The aforementioned laws incorporate provisions on government control and regulation of the sectorial activities, potential benefits, etc. Presently, the bio-fuels sales opportunities are curtailed by lack of the national standards elaborated. In accordance with the CMU Instruction No 383-р «On approving plan of activities aimed at implementation of priorities for the Ukrainian Cabinet of Ministers activity in 2008» of 27.02.2008, Ministry for Agricultural Policy was expected to arrange production of bio-fuels (bio-ethanol, bio-gas, bio-diesel) and develop their respective national standards no later than by December 2008. As of March 2011, no standards mentioned were approved. Through 2009-2010, CMU adopted several legal regulations of relations in the fields of RES and energy efficiency including: CMU Instruction «On measures to utilize the AES» of 04.02.2009; CMU Instruction «On certain issues of the national policy implementation in the field of efficient utilization of fuel and energy resources» of 11.02.2009; CMU Instruction on the «Matters of organization of the bio-gas production and utilization» of 12.02.2009; CMU Instruction «On specifics of connecting to transmission networks the power producers that generate the AES electric power» оf 19.02.2009; CMU Decision on the «List and quantity of energy-saving materials, equipment and components released from duties and VAT» of 30.07.2010.

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Legal regulations adopted to control the process of the Kyoto Protocol provisions implementation in Ukraine to be referred to separately: CMU Decision «On approval of the rules and procedures for consideration, approval and implementation of the goal-oriented ecological projects (Green Investments) for the validity period of the country’s commitments under the Kyoto Protocol to the UN Framework Convention on Climate Change» of 22.02.200823. The mentioned legal regulations determine the projects to be developed based on international agreements for the partial emissions transmission by the interested executive power bodies, local self-government authorities and economic operators independently or through involvement of a specialized project-design agency and to be submitted for consideration by the National Agency for Ecological Investment. The rules and procedures for preparation, consideration, approval and implementation of the projects aimed at the anthropogenic greenhouse gases emissions reduction were approved by the CMU Decision of 22.02.2008, while the instruction on implementation of projects of joint introduction was approved by Order of the National Agency for Ecological Investment on 18.12.200824. 2.3 SCHEMES OF PROMOTION AND STIMULUS, AND BARRIERS FOR DEVELOPMENT OF ENERGY EFFICIENCY IN UKRAINE Mechanisms for implementing policy of energy efficiency are a political activity or market mechanisms to reduce energy consumption and stimulate production of energy-efficient goods and services. In Ukraine, presence should be mentioned of economic stimulus provided for by its national legislation and aimed at implementation of the energy efficiency policy in the country. The Law of Ukraine «On energy saving»25 provides for the power saving stimulation by means of а) granting tax benefits to producers of the energy-saving equipment, technical means and materials, and for measurement, control and management of fuel and energy resources spending, as well as to producers of equipment for utilization of RES and nonconventional energy sources, and AES fuels; b) granting tax benefits to the enterprises using equipment working on RES, nonconventional energy sources, and AES fuels; c) prioritized crediting (by the state banks) of activities to provide for rational utilization and saving of the fuel and energy resources (rules and procedures for granting soft loans to

23 CMU Instruction «On order of preparing, considering, approving and implementing the projects targeting reduction of emission of anthropogenic greenhouse gasses» of 22.02.2008. 24 Order of the National Agency for Ecological Investment« On approving Instruction for implementing projects of joint introduction of national procedure» of 18.12.2008. 25 Law of Ukraine «On energy saving» of 01.07.1994.

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implement investment projects on introduction of energy saving technologies and AES production were approved by the CMU Decision No 695 of 18.05. 2006); d) applying the enhanced standards for amortization of the energy-saving fixed assets. List of the energy-saving equipment subject for enhanced amortization standards is compiled by CMU; and e) government action grants and other subsidies, and irrevocable grants for science and research in the field of energy-saving technologies and nonconventional energies, and for production and introduction of new energy-saving techno-technologies. Rules and procedures of the government subsidies and irrevocable grants allocation are established by the Ukrainian Cabinet of Ministers. Ukrainian legislation envisages certain tax benefits for the activities related to development, introduction and utilization of the energy-saving activities and energy-efficient projects. Ukrainian Internal Revenue Code, effective from January 1, 2011, envisages specific provisions for taxing the enterprise profits generated through introduction and utilization of the energy-efficient technologies. In particular, the Ukrainian Internal Revenue Code envisages tax relief for profits of enterprises generated from trading transactions in Ukraine and the VAT tax exemption for the following in-house production goods:

energy-efficient equipment and materials, and goods to provide for saving and rational utilization of the fuel and energy resources; and

tools for measurement, control and management of spending on fuel and energy resources.

The Ukrainian Internal Revenue Code also envisages tax relief for 50 per cent of profit generated from the energy-saving activities and the energy-efficient projects implementation by enterprises included into the National Registrar of Enterprises and Organizations that introduce, implement and apply energy-efficient activities and projects. The National Registrar of Enterprises and Organizations that introduce, conduct and apply energy-efficient activities, and projects incorporates enterprises and organizations included into the energy efficiency sectorial programs subject to the expertise results on conformity with the energy-efficient criteria of the energy-efficient activities and energy-efficient projects26. According to the Law of Ukraine «On a single customs tariff» exemption from duties is granted to the following equipment and materials:

energy-saving equipment and materials; and

tools for measurement, control and managing the spending on fuel and energy resources27.

26 Ukrainian Internal Revenue Code of 02.12.2010. 27 Law of Ukraine “On a single customs tariff” of 05.02.1992.

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Barriers in the field of energy-efficiency increase in Ukraine

Barriers for increase of energy-efficiency greatly differ by nature: they may be financial and price; related to structure and organization of economy and market; institutional, social, cultural, behavioral, etc. Summing up, it could be said that all the factors directly or indirectly affecting the process of taking decision about energy utilization could potentially become barriers to increase of energy efficiency. Interconnected, they usually accelerate the back-pedaling impact of each other. 1. Lack of motivation

• Unstable general economic situation. An unstable economic situation in the country increases risks for budgetary and private investment into the energy-saving projects, and triggers funds allocation to those ventures only that generate a return on investment in a short period of time. • Stereotypes of managerial behavior. Stereotypes of the centralized planning era hardly contribute to the search for energy-efficient decisions. Today, interests of powerful energy producers continue dominating in the process of these decisions taking. • Lack of competition. The heat and power energy market is basically a byword for lack of competition, and such a market kills any interest in the energy expense reduction. A lack of competition allows to shift the energy growth expense from one consumer to another and undermines incentives to carry out the energy-saving activities. • Tariff design and pricing. The energy carriers tariff design and pricing keep facing a lack of methodological clarity, i.e., what level of expense is to be taken for grounded. In the past decade, no single tariff scheme to motivate producers to lower their expenses and losses was introduced. • Lack of technical means for regulation and devices to measure the heat energy consumption. Application of heat payment system based on design loads (calculated for 1 м3, or 1 м2, or per one resident) is not economical. More so, consumers lack technical means to reduce their consumption in response to price hikes. That is why consumer’s reaction to a non-affordable increase in tariff rates often becomes their bills non-payment and not the energy efficient consumption. The introducing of economic motivators for residents is impeded by expense on devices to register residential heat, as well as by inadaptability of the existing single-tube drop system to the mentioned system of assessment and regulation. • Subsidies to population. Up till now, the prime burden of payment for the energy carriers rests on the enterprises and organizations, while the residents receive substantial subsidies. Low payment collection from population coped with low quality of the central heating systems impede the abolition of subsidies and reduce efficiency of measures aimed at electric power saving by population. Strange as it may seem, subsidies for population strengthen the other consumers interest to energy saving. When subventions are available, local authorities have an economic interest

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to carry out projects to increase energy efficiency, since it allows reduction of budgetary expenses on the residential heating subventions. If residents are to fully pay for residential utilities, while the underdeveloped market relations system remains without a change, the local authorities and heat supplying enterprises have no economic interest to increase the energy efficiency. • Lack of economic interest for increase of energy efficiency. Today, material bonuses for reduction of energy consumption are practically not applied, thus making energy saving unprofitable both for the energy system operators and its consumers. Measuring devices are occasionally installed at selected budgetary utilities, though no measures are taken to reduce the heating consumption. As a result, only a one-time (sometimes substantial, though) saving becomes possible. Still, during a regular tariff revision the earlier approved expenses are divided by the lower volumes of distributed heat, and the tariffs go up in the result. 2. Lack of information

Though since long, discussions about importance of saving energy have become crucial, the society still lacks concrete and practical information for different groups of consumers. Lack of modern professional information base, i.e., published regulations and instructions, guidelines, equipment catalogues, data bases, simple methods of economic efficiency calculation, monitoring, etc. impede development and implementation of measures to increase the energy efficiency. Substantial contribution to information support for the programs on energy efficiency and to developing an “energy-efficient mentality” should be provided through the overall monitoring of the projects under implementation in order to assess their real economic impact; savings should be accumulated for compensation of expense, loan repayment, staff motivation and further implementation of the energy-efficient activities.

3. Lack of financial resources

• Underfunding of maintenance of the energy-supply system. Attempts to achieve the local deficit-free budgets have resulted in decrease in funding of residential housing and utilities, and refusal to recognize and fully cover the required expenses. • Lack of financial support from the regional and district budgets to the energy efficiency increase. Without this support, activity to increase energy efficiency goes very slow. • Lack of mechanisms to fund small projects and reward consumers for investing in energy saving. Banks do not want to deal with high number of small projects. The overhead expense for assessment of these projects is relatively high in comparison to expected scale of investment. The population and selected agencies are in no position to allocate initial funding for procurement of the energy-saving equipment and materials. Lack of micro-crediting system or leasing diminishes the opportunities to implement many economically high-efficient projects.

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4. Lack of organization and coordination

The mentioned barrier is present at every level of decision making. The problem with increase of energy efficiency results from assumption that it’s hardly the means to solve different economic and ecological problems. Lack of synchronization between different fields of legislation is apparent: city building is not linked to the energy systems development; the public procurement legislation does not incorporate requirements for energy efficiency, etc. 2.4 PROMOTION OF GREEN ELECTRIC POWER IN UKRAINE

Introduction of a Feed-in Tariff: According to the Law of Ukraine «On power energy» (the September 25, 2008 edition), a Feed-in Tariff is a special tariff applied for procurement of electric power generated by the power sector producers working on the AES energy (excluding the blast-furnace and coke gases, and including hydropower produced by small HPPs only)28. Also, power generated by these producers could be directly traded to consumer, while the wholesale market is obliged to pay a Feed-in Tariff for electric power generated by these producers and not sold at a market price directly to consumer or energy supplier engaged with economic activity to deliver electric power at a regulated tariff. On 01.04.2009, the Law of Ukraine «On introduction of change into the Law of Ukraine «On power energy» related to stimulating the AES utilization» was adopted. The law substantially changed the Feed-in Tariff approval system. The law has specified that the Feed-in Tariff rate is determined for every economic operator that produces AES electric power and in regard to every type of alternative energy and every electric power facility. The Feed-in Tariff rate is determined by multiplying a B class voltage consumer retail tariff rate applicable for January 2009 (for facilities producing power energy from the energy of solar radiation and generated by small HPPs – by applying a tariff coefficient valid for the peak periods) by a special Feed-in Tariff coefficient applicable for every type of alternative energy.

The Feed-in Tariff coefficient fluctuates from 0.8 (for electric power generated by small HPPs) to up to 4.8 (for electric power generated from the energy of solar radiation by the land power plants).

28 Law of Ukraine «On power energy» of 16.10.1997.

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Table 4. Rates of Feed-in Tariffs as of June 2011 (NKRE Decision No 922 of 26.05.2011)

Sources of electric power generation Feed-in Tariff rates, kop/kWh

electric power generated by wind energy 128.46

electric power generated by energy of biomass 140.70

electric power generated from solar energy:

- ground plants 528.52

- roof-mounted plants 484.48

electric power generated by small HPPs 88.08

The Feed-in Tariff coefficient for power energy generated by the power plants put into operation (or substantially modernized) after 2014, 2019 and 2024 is to be reduced respectively by ten, twenty and thirty percent of its base value. In Ukraine, a Feed-in Tariff is adopted for the period till 01.01.2030. The mentioned above practice to stimulate the AES electric power production is applicable, if starting from January 1, 2012 the share of Ukraine-originating raw materials, goods, fixed assets, works and services in construction cost of a respective energy facility to produce the AES electric power is no less than 30 per cent, while from January 1, 2014 this share should account to at least 50 per cent29. An additional condition to approve the Feed-in Tariff applicable for the solar radiation energy utilizing producers would be the use of their generating plants - starting from January 1, 2011 – the solar modules whose production cost includes a no less than 30 per cent share of Ukrainian-origin goods and raw materials. On January 22, 2009 the NKRE took the Decision «On approval of rules and procedures for establishing, revising, and terminating a Feed-in Tariff application by economic operators». Taking into consideration that after adoption of the Law of Ukraine «On introducing change into the Law of Ukraine «On power energy» in regard to stimulation of the AES utilization» the rules and procedures were substantially changed, the NKRE worked out the changes into the aforementioned Decision No828 of 16.07.200930. In line with the aforementioned rules and procedures, a tariff correction formula was developed and according to it, the tariff got a potential to increase only and not to go down. The mentioned revision takes place at every date of fixing up the consumer retail tariffs. Also, the Decision determines the order for submitting applications for both fixing up a Feed-in Tariff and its terminating.

29 Law of Ukraine «On introduction of change into the Law of Ukraine «On power energy» related to stimulating the AES utilization» of 01.04.2009. 30 NKRE Decision No828 «On approving changes to the order of fixing, revising and terminating the Feed-in Tariff application by economic operators » of 16.07.2009.

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On February 19, 2009 the Ukrainian Cabinet of Ministers took Decision No 126 «On specifics of connecting to the energy transmission lines the AES electric power producers» to become effective on 03.03.2009. It was also determined that owners of power generators could sell their electricity produced in excess of demand at an electricity wholesale market either to supplier at a regulated tariff, or directly to consumers in a legally established order and based on the AES power purchasing agreement. According to the changes to the Law of Ukraine «On power energy» introduced on April 1, 2009, the power suppliers transmitting electricity through their own networks were put in no position to deny access to these networks to the economic operators generating AES power and became obliged as well to envisage in their investment programs potential expenses for such connections. As well, the Ukrainian Cabinet of Ministers has recommended to the NKRE to envisage compensation for the license bearers expense on power energy transmission by local networks arriving from administrative and technical arrangements to connect the power generating plants with the networks, as well as for the loss incurred in result of direct acquisition of AES power from an energy generator at a Feed-in Tariff through including the mentioned expense into this power transmission tariffs. Problems related to a Feed-in Tariff application in Ukraine: (1) The legislation currently in force in Ukraine suffers from discrepancies in the ‘bio-mass’ definition. In line with the Law of Ukraine «On alternative types of fuel», ‘bio-mass’ is a biologically renewable substance of organic origin with inherent biological decomposition (wastes produced by agriculture, forestry and the technologically related production sectors), as well as an organic component of communal and industrial waste. In its turn, the Law of Ukraine «On power energy» limits the bio-mass notion by defining it as a product fully or partially composed by the organic origin substances. In line with Article 17-1 of the Law of Ukraine «On power energy», a Feed-in Tariff rate is fixed up for the economic operators generating electric power from bio-mass, while the bio-mass in its turn is a product fully or partially composed by the organic-origin substances. Based on this, raw materials from the bricks produced from the organic-origin substances would be considered as bio-mass, while the economic operator would be entitled to sell his generated electric power at a Feed-in Tariff. (2) In accordance with Item 1.2 of the approved on 16.07.2009 Rules and Procedures for Fixing up, Reviewing and Terminating the Feed-in Tariff Validity for Economic Operators, the established order does not cover the economic operators producing power at the plants utilizing both alternative and conventional energy. This creates a problem of applying a Feed-in Tariff by the economic operators generating electric power from a raw-material mix. (3) The legislation does not regulate the issue of applying a Feed-in Tariff by the economic operators utilizing for power generation the gas of organic wastes and sewerage collectors, bio-gases and methane gas from the coal mines.

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(4) The Law of Ukraine «On power energy» determines that a Feed-in Tariff could be applied, if starting from a specific date the Ukrainian-origin raw materials, goods, fixed assets, works and services sustain a certain share of a respective power plant construction cost. Despite that this standard is present, the rules and procedures for calculating the mentioned construction cost share have not been worked out yet. (5) As of today, the general rules for connecting producers to the power networks are absent in Ukraine to result in difficulties for the energy generators to practically implement the regulations envisaged by legislation. The Law of Ukraine «On power energy» envisages that the network users could build the networks and facilities required for connection and be potentially compensated for expense incurred during the construction. Unfortunately, the expense compensation order has not been worked out yet. Tax benefits: The Ukrainian Internal Revenue Code envisages tax exemption of the enterprises profits received from trading the goods within the territory of Ukraine and the VAT exemption for goods of in-house production, i.e.:

equipment working on AES;

materials, raw materials, equipment and spare parts designed for AES power generation; and

equipment for production of AES fuels. 2.5 CURRENT AND POTENTIAL INITIATIVES Energy sector is crucial for Ukraine-EU co-operation and it’s reflected in the Ukraine-EU Action Plan. In the process of plan implementation, a Memorandum of Understanding, MoU was signed on Ukraine-EU energy co-operation. The MoU with its roadmaps has defined Ukraine’s energy market progressive integration into the EU energy market as its overall strategy. In 2008, a roadmap on energy efficiency and RES development was included into the MoU. In accordance with the MoU signed by Ukraine and the Energy Community, the 2001/77/EEC Directive to Promote Electricity from Renewable Energy at domestic power market and the 2003/30/ЕС Directive for Promotion of Biofuel and Other Renewable Fuels Use in Transport were to be approved by July 201131. In 2006, Ukrainian National Agency to Ensure the Energy Resources Efficient Utilization, NAER was established with a status of a special central executive power body authorized to ensure the national policy implementation in the field of efficient utilization of energy resources and energy saving.

31 National report on the status and prospective implementation of the national policy of energy efficiency in

2008.

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Among the NAER prime tasks are:

to implement an integrated government policy in the field of the energy resources efficient utilization and energy-saving;

to increase the energy market share of AES fuels;

to establish a national system of monitoring production, consumption, export and import of energy carriers, and improve registration and control over energy resources consumption.

In accordance with CMU Decision of 04.04.2007, Ukrainian National Agency on Environmental Investment (Нацэкоинвестагентство) was established. Provisions on Ukrainian National Agency on Environmental Investment approved by the CMU Decision of 30.07.2007 assigned the following prime tasks to the national agency: • to participate in development and ensure implementation of national investment policy in the field of environment protection, and national policy in the field of regulating a negative anthropogenic impact on climate change; • to meet the requirements of the UN Framework Convention on Climate Change and introduce the mechanisms envisaged in its Kyoto Protocol including implementation of projects targeting environment protection, and to attract investment for environment protection; and • establish and ensure functioning of the national system of registration and assessment of anthropogenic emissions and the greenhouse gases absorption. In line with Presidential Decree No 1085/2010 of 09.12.2010, Ukrainian National Agency on Environmental Investment was reorganized into Ukrainian State Agency on Environmental Investment. On December 17, 2008, CMU issued Instruction «On programs to increase energy efficiency and reduce energy consumption»32. According to this instruction, the Ministries of Coal Industry, Transport and Communications, Agrarian Policy, Regional Development and Construction, Industrial Politics and the Residential Utilities Infrastructure were assigned to approve by July 1, 2009 sectorial programs for increase of energy efficiency in 2010-2014. Somewhat later, on March 1, 2010 CMU approved National Target-Oriented Economic Program of Energy Efficiency for 2010-2015. Among the priorities determined by the 2010-2015 program, the following should be pointed out:

introduction of new technologies for production and consumption of energy resources, and cogenerating technologies;

utilization of solar and geo-thermal energy;

production and utilization of the coal-mine methane gas as AES fuel;

32 CMU Instruction «On programs to increase energy efficiency and reduce energy consumption» of 17.12.2008.

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production and utilization of bio-fuel;

development of wind energy;

legal regulation of reductions into the GDP energy-intensity levels and optimization of the national energy balance structure, adaptation of national legislation on energy efficiency, energy saving and alternative energy to the EU legislation;

creation of favorable conditions for attracting investment into the fields of energy efficiency and energy saving in order to optimize the national energy balance and reduce the pollutants emission;

establishing a national system for monitoring and control over efficient utilization of fuel and energy resources, and implementation of sectorial and regional programs of energy efficiency;

structural reorganization of enterprises to reduce the energy intensity of production; and

improvement of funding mechanisms for programs requiring governmental support and targeting reduction of the GDP energy-intensity levels, and increase in utilization of AES and energy derivatives33.

In 2009, a sectorial program to increase energy efficiency in construction sector was adopted for 2010-2014. The program has incorporated analysis of ensuring energy efficiency in construction sector and based on it, were specified priorities for the national energy saving policy implementation and ways for the sector maximal utilization of the fuel and energy resources saving reserves, and was established a complex of organizational, technical and economic activities targeting increase in energy efficiency in construction sector. The sectorial program envisages as well integrity of the European approaches to the natural resources saving, their rational utilization and implementation of activities related to the Kyoto Protocol implementation. The Ukrainian Ministry of Regional Development, Construction and the Residential Utilities Infrastructure ensures improvement of the standards and methodology base for new constructions and housing reconstructions to provide for energy efficiency in the course of facilities construction and future modernization of the buildings elements and engineering systems. Creation of conditions to introduce the energy resources modern levels of consumption by construction ventures through improvement of legislative, and standards and methodology base would provide for substantial reduction of energy resources consumption nationwide and optimize consumption structure in the light of national goals on priorities of utilization of existing energy-generating capacities. In line with the mentioned program, activities are envisaged within the national sectorial policy on establishing and developing domestic markets of final consumption goods by stuffing them with the locally-made construction materials and high-quality goods that

33 CMU Decision «On approval of National Target-Oriented Economic Program of Energy Efficiency for 2010-2015».

36

require rather lower energy-intensity levels of per unit production and fuel and energy resources expense in the process of construction and exploitation of construction facilities in comparison with modern levels of developed countries, as well as reducing expenditures of every level budget34. Starting from 2007, the Ukrainian and German governments have been engaged with implementation of Ukrainian-German co-operation project entitled «Energy efficiency of buildings». By instruction of German Federal Ministry for Economic Co-operation and Development, German Agency for International Co-operation, GIZ has been implementing the project jointly with Ministry for Regional Co-operation, Construction and Residential Utilities of Ukraine. 35 The project target is to support development of national strategy in the field of energy efficiency and to improve the buildings energy efficiency in the cities of Ukraine. Besides, German Agency for International Co-operation, GIZ jointly with Ministry for Regional Co-operation, Construction and Residential Utilities of Ukraine have been implementing a pilot project entitled «An energy-efficient housing». The project target is to use on practice and promote principles and activities of energy efficiency and resource saving in the process of planning and applying modern technologies in construction sector of Ukraine.36 Among the public associations initiatives, should be pointed out «Ukraine’s energy-efficient cities» association37 that from 2006 has been pursuing the following directions of activity:

upgrading the citizens knowledge about energy efficiency, energy security and global climate change; and

building energy policy of local communities by applying basics of sustainable development, reduction of conventional fuel consumption and decrease of environment pollution

In 2009, Ukrainian Ministry of Industrial Policy adopted as well sectorial program on energy efficiency and energy saving for the period till 2017. The program has given consideration to problematic issues, ways and directions for the energy efficiency increase in the mining, chemicals and the oil chemicals and machine building sectors, since they are of priority for the national economy both in terms of energy resources consumption and ensuring the resource preservation problems. The sectorial program of energy efficiency and energy saving targets reduction of products energy-intensity through development and introduction of progressive energy saving technologies and equipment, increase in efficiency of the fuel and energy resources

34 Order of Ministry of Regional Development and Construction of Ukraine «On approval of sectorial program for energy efficiency in construction» of 30.06.2009. 35 http://www.eeib.org.ua/page/about/uk 36 http://www.gtz.de/de/dokumente/GTZ_in_Ukraine_June_web_2010.pdf 37 http://www.enefcities.org.ua

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utilization, optimization of the energy-saving structure, and increased utilization of nonconventional energy sources and energy derivatives38. It should be noted, that a sectorial program to introduce energy saving and AES fuels utilization at transport was under implementation in Ukraine in 2006-201039. The program was primarily aimed at substantial reduction of expense related to all types of energy resources, ensuring rapid utilization of energy-saving reserves and introduction of AES fuels in every transport sector. Among the program priority tasks, the following should be pointed out:

ensuring structural transformation of transport infrastructure in compliance with demand in production development and by social sectors;

techno-technological modernization of fixed production assets at transport;

optimization of the railway vehicles structure in order to increase the passenger and cargo turnover efficiency; and

improvement in exploitation characteristics of transportation routes, increase of transport energy efficiency, increased utilization of RES and AES fuels.

A major step forward in developing renewable energy in Ukraine has become adoption in 1997 of the Program for National Support of the Nonconventional Sources and the RES, and Small HPPs and TPPs Development. Unfortunately, the actual level of traditional energy resources replacement with RES reached only 10 per cent from the planned. This may be explained by financial restraints and lack of clear strategy and motivators for renewable energy development in Ukraine. As well, Ukrainian Parliament (Verhovnaya Rada) is in the process of considering the following draft laws: «On energy auditing», «On modifications to the Law of Ukraine «On power energy», and «On regulations in the energy-saving field». Improvement of legal base of the residential utilities sector targets the introduction of mechanisms for implementing investment projects through attracting public and private funds, and the soft loans mechanisms for pilot projects. These would be the projects to introduce into practice devices for the energy-carriers consumption registration, housing heat saving, buildings automated lightening, modernization and reconstruction of the heat distribution networks, and the heat supply optimal decentralization. In the mentioned context, it’s envisaged to adopt the Laws of Ukraine «On uniting co-owners of the multi-apartment buildings» new edition, «On the houses energy efficiency» and «On the residential utilities services» new edition, as well as to improve rules and procedures for fixing up residential tariffs.

38Order of Ministry of Industrial Policy of Ukraine «On approving sectorial program of energy efficiency and energy saving by 2017». 39Order of Ministry of Transport and Communications of Ukraine «On approving of sectorial program of energy efficiency and introduction of alternative fuels at transport in 2006-2010» of 09.02.2006.

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3. CONCLUSIONS AND RECOMMENDATIONS

CONCLUSIONS:

Threatened by the climate change, while impacted by the food and financial crisis, many international organizations and UN institutions have activated research into the quality of economic growth and search for alternative models to provide for harmonic development of man and nature. A Green Growth concept is one of these models to envisage a qualitative change of production and consumption model, and integration of principles of environmental sustainability (“Green Principles”) into the system of strategic planning and budgeting, and greening of business infrastructure. Introduction of Green Economy in Ukraine is targeted at preparing the national economy for transition to a sustainable development trajectory to require - under present conditions – a gradual surrender from extensive consumption of natural resources and a search for more progressive and innovative models of economic activity. It should be mentioned, that present Ukraine faces such barriers and obstacles impeding its effective introduction and fostering the Green Economy concept as:

poorly attractive investment climate of Ukraine;

shortage of internal financial resources;

presence of subsidies that are harmful for the environment ;

lack of infrastructure required for broad introduction of modern technologies; and

lack of the up to-date legal framework supportive of greening the national economy. As an outcome, the present study has resulted in recommendations elaborated by the authors for promoting a Green Economy in Ukraine. RECOMMENDATIONS:

1. to introduce a Green Economy concept into the long-term national strategies and establish the required Legal Framework, i.e.:

changes in the Law of Ukraine “On main principles (strategy) of national environmental policy for the period till 2020”;

a step-by-step harmonization of national eco-legislation with the EU legislation;

to develop a long-term program of structural transformation of Ukrainian economy to envisage reducing the Ukrainian economy’s share of raw-material and energy-intensive branches of industry, a step-by-step export reduction of products of resource-extracting and energy-intensive industrial sectors, introduction of resource-saving and waste-free technologies in the sectors of industry, transport, agriculture and residential utilities;

to modify the Ukrainian Internal Revenue Code (for its compliance with the principles of sustainable development in order to create the required Legal Framework, and financial and economic stimulating mechanisms);

to modify the Law of Ukraine «On public-private partnership» (rules of procedure of the Green Voluntary Agreements made by business and the government authorities);

to modify the Ukrainian Code of Administrative Offence (introduction of administrative offence for irrational exploitation of natural resources); and

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to modify the Law of Ukraine «On government procurement» ( introduction of environmental procurement by public sector);

2. to build national infrastructure of eco-auditing and strengthen control over nature exploitation;

3. to introduce advanced clean technologies in public and private sectors of economy;

4. to terminate step-by-step subsidies damaging the ecology;

5. to introduce an eco-labeling system;

6. to improve the waste management system including their recycling; and

7. to improve the system of government control over environment and eco-statistics. Despite of certain positive developments in the field of promoting Renewable Energy Sources and implementing policies to increase energy efficiency, the necessity is present to ensure Ukraine’s transition from its declared desire to change the situation in the field to taking real steps and accomplishing positive results.

RECOMMENDATIONS IN THE FIELD OF ENERGY EFFICIENCY INCREASE:

1. to adopt the grounds-laying legal and regulatory documents to improve national regulation mechanisms and government control in the energy-efficiency field, i.e.:

Law of Ukraine «On energy efficiency»;

Law of Ukraine «On energy auditing»;

Law of Ukraine «On energy efficiency in buildings»;

to modify the enforced Law of Ukraine «On power energy» (simplifying procedures of the Feed-in Tariff access for power generators);

2. to create by the government the economic stimulus for enterprises to introduce energy-efficiency technologies and modern equipment; 3. to strengthen economic stimulus for RES exploitation; 4. to create special financial instruments for attracting investment into energy saving, energy efficiency and RES development through:

partial compensation by government authorities the interest rates on loans granted for energy saving projects;

granting government subsidies to implementation of energy-saving projects of nation-wide importance;

co-operation with international financial institutions funding the energy-efficiency programs;

actively employing the Kyoto protocol mechanisms for funding projects in the field of energy efficiency;

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5. to develop and introduce regulatory mechanisms, and activities in the field of energy efficiency by:

developing and adopting the national energy standards;

introducing the energy-consuming products and devices marking in line with their energy-efficiency levels;

introducing government assessment of energy saving at production facilities; 6. to stimulate electric power consumers to save energy and to consult the population about

energy saving and energy efficiency.

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LIST OF REFERENCE SOURCES AND LITERATURE CITED:

1. UNEP: Report. Global Green New Deal, 2009. 2. 2003/30/ЕС Directive for Promotion of Biofuel and Other Renewable Fuels Use in

Transport. 3. 2009/28/ЕU Directive on support to the RES energy utilization. 4. Law of Ukraine «On introducing change into certain Laws of Ukraine on fixing the Feed-in

Tariff » of 25.09 2008. 5. Law of Ukraine «On introducing changes into certain Laws of Ukraine related to AES» of

01.04.2009. 6. Law of Ukraine «On introducing changes into certain Laws of Ukraine related to

facilitation of production and utilization of biological types of fuel» of 21.05.2009. 7. Law of Ukraine «On combined production of heat power». 8. Law of Ukraine «On alternative types of fuel» of 14.01.2003. 9. Law of Ukraine «On alternative energy sources» of 20.02.2000. 10. Law of Ukraine “On a single customs tariff” of 05.02.1992. 11. Law of Ukraine «On basic principles (strategy) of national ecological policy for the period

till 2020» of 21.12.2010. 12. Law of Ukraine «On power energy» of 16.10.1997; 13. Law of Ukraine «On energy saving» of 01.07.1994. 14. Ukrainian Internal Revenue Code of 02.12.2010. 15. National report on the status and prospective implementation of national policy of

energy efficiency in 2008. 16. Ukraine-EU Action Plan оf 12.02.2005. 17. Action Plan on Energy Efficiency: Realization of Potential, EC COM (2006)545. 18. CMU Decision «On Adoption of Government Goal-Oriented Economic Program of Energy

Efficiency for 2010-2015» оf 01.03.2010. 19. CMU Decision «On approving Provisions on Ukrainian National Agency on Environmental

Investment» of 30.07.2007. 20. CMU Decision «On approving Order for considering, approving and implementing the

goal-oriented ecological (green) investments during the period of obligations validity of the Party to the Kyoto Protocol of the UN Framework Convention on Climate Change» of 22.02.2008.

21. CMU Decision on the «List and volumes, and energy-saving materials, equipment and parts exempt from duties and VAT» of 30.07.2010.

22. CMU Decision «On the Order of preparing, considering, approving and implementing the projects targeting reduction of anthropogenic emissions of greenhouse gases» of 22.02.2008.

23. NKRE Decision «On approving changes to the order of fixing up, revising and terminating the Feed-in Tariff application for economic operators » of 16.07.2009.

24. Order of Ministry of Industrial Policy of Ukraine «On approving sectorial program of energy efficiency and energy saving till 2017».

25. Order of National Agency for Ecological Investment «On approving instruction for implementing projects of joint introduction of national procedure» of 18.12.2008.

26. Order of Ministry of Regional Development and Construction of Ukraine «On approval of sectorial program for energy efficiency in construction» of 30.06.2009.

27. Order of State Committee of Ukraine on Energy Saving «On approving the order of conducting expertise to determine a fuel as an alternative fuel» of 10.12.2004.

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28. Order of Ministry of Transport and Communications of Ukraine «On approving sectorial program of energy efficiency and introduction of alternative fuels at transport in 2006-2010» of 09.02.2006.

29. Draft Law of Ukraine «On regulation in the field of energy saving» of 07.10.2007. 30. Draft Law of Ukraine «On energy efficiency of building» of 25.05.2010. 31. Draft Law of Ukraine «On energy auditing» of 27.11.2007. 32. Draft Law of Ukraine «On energy efficiency» of 23.07.2009. 33. Draft Law of Ukraine «On introducing changes into the Law of Ukraine «On uniting co-

owners of the multi-apartment buildings» of 30.04.2009. 34. Draft Law of Ukraine «On introducing changes into the Law of Ukraine «On power

energy» of 28.01.2011. 35. CMU Instruction «On certain issues of national policy implementation in the field of

effective utilization of fuel and energy resources» of 11.02.2009. 36. CMU Instruction «On the programs to increase energy efficiency and reduce energy

consumption» of 17.12.2008. 37. CMU Instruction «On approving Ukraine’s Energy Strategy for the period till 2030» of

15.03.2006. 38. CMU Instruction «On measures of AES utilization» 04.02.2009. 39. CMU Instruction «On specifics of connecting to transmission lines the power-energy

facilities generating electric power from AES utilization» of 19.02.2009. 40. CMU Instruction «On approving National Action Plan for Environment Protection for

2011-2015» of 25.05.2011. 41. CMU Instruction «Issues of organization of production and utilization of bio-gas» of

12.02.2009.

Literature:

1. S.Bevz, B.Bondarenko, O.Butkevich, Energy-efficient and renewable energy resources, ed. by A.Shidlosky, Kiev, 2007.

2. А. Kuznetsova, Е. Kutsenko, Bio-gas and the Green Tariffs in Ukraine (the German-Ukrainian agrarian dialogue), К., 2010.

3. RES introduction: Principles of efficient policy and strategies, summary, OECD/IEA, 2010. 4. Green Book: the European strategy of sustainable, competitive and safe energy,

Brussels, 2006. 5. The European Green Deal. The green modernization under crisis, Report of the

Wuppertal Institute for Climate, Environment and Energy, Belgium, 2009. 6. E. Maslukovskaya, Using the CO2 tax as an instrument of energy saving in

Ukraine//Economy of natural resources exploitation and environment protection, Collection of Scientific Works, К., Ukraine, 2007.

7. E. Maslukovskaya, Strategy of support for the Green Business for the private sector associations focused on steel and mining industries, К., 2011.

8. Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication - A Synthesis for Policy Makers, UNEP, 21 February 2011, www.unep.org.

9. Ensuring the Energy Efficiency, the Energy Charter Secretariat, 2007. 10. The EU survey of legislature policy and measures to improve the energy efficiency and

renewable energy, the Tacis regional program, 2006-2009. 11. A. Shevtsova, ed., Prospective for the Ukrainian energy supply in the context of global

tendencies, Monograph, D, NISI, 2008.

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12. The energy efficiency policy: recommendations, IEA, 2009. 13. O. Suhodolya, The national economy energy efficiency: The research methodology and

implementation mechanisms, Monograph, К., the NADU Publishers, 2006. 14. Edward B. Barbier, Global Green New Deal, Department of Technology, Industry of

Economy of UNEP, February 2009.

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Members of the Coordinating Group of the Project

at the Workshop in Baku 5 September 2011

BRIEF STUDY OF THE FRAMEWORK CONDITIONS FOR PROMOTING GREEN ECONOMY IN

THE REPUBLIC OF AZERBAIJAN

Prepared by

Xazar Consulting Agency, ZAO

Baku, Azerbaijan – 2012

46

TABLE OF CONTENTS

List of abbreviations 47

1. Policy and legal framework of Green Economy 48

1.1. Origins and grounds of Green Economy 48

1.2. Prerequisites for development of Green Economy in Azerbaijan 58

2. Analysis of developments in the field of renewable energy and energy efficiency 69 2.1. Energy policy of Azerbaijan 69

2.2. Legal framework of renewable energy and energy efficiency 79

2.3. Barriers for development 86

3. Conclusions and recommendations 87

List of reference sources and literature cited 90

47

List of abbreviations

AES - alternative energy sources

bbl – barrel

bln – billion

EPP – electric power plant

GWP - global warming potential

HPP – hydropower plant

IPCC – Intergovernmental Panel on Climate Change

kv/KV – kilo volt

mln – million

mW/MW – mega watt

PR - permissible range

RES - renewable energy sources

t - ton

thou – thousand

TPP - thermal power plant

ZAO - closed joint stock company

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1. POLICY AND LEGAL FRAMEWORK OF GREEN ECONOMY

1.1. ORIGINS AND GROUNDS OF GREEN ECONOMY

The Green Economy (defined as Green Economics or Ecological economics in English as well) is an economic science trend that has emerged during the past two decades and considers economy as a dependent component of the ecosystem in which it resides, while being its integral part. The Green Economy concept incorporates philosophical and other scientific trends ideas, i.e., of ecological economy, economy of natural environment, and the theories of anti-globalism and international relations.

The Green Economy approach departs from the following facts, in terms of a ‘triple bottom line’:

an endless expansion in a limited space is not possible;

with limited resources it is impossible to continue meeting a constantly growing demand;

everything on the Earth surface is interconnected. (from Wikipedia, the free encyclopedia) Recently, the international community has started devoting an increasing attention to the Green Economy ideas. "We stand at the threshold of another great change: the age of green economics"40, has said Ban Ki-moon, the UN Secretary General. According to the United Nations, the new approach has to be incorporated into the Global Green New Deal which is an agreement made by the national governments to envisage basic ideas for building the Green Economy.

The Green Economy concept has been gaining increasing popularity while generating heated debates. In the meantime, concerns arrive that transition to a new economic model would curtail growth potential and impede the resolution of social problems. A new UNEP report entitled Towards a Green Economy: Pathways to Sustainable Development and Poverty Reduction has revealed that those concerns are not grounded. In the opposite, the Green Economy stimulates economic progress and creates additional employment, while reducing the risks posed by such global threats, as climate change, loss of nature’s services and the water resources depletion.

40 The Washington Post daily, December 3, 2007.

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By expert assessment, the Green Economy is expected to ensure the same rate of increase –

or even higher - of GDP growth , per capita revenue and employment as a traditional or

“brown” economy in the short term. In the mid- and long term, the Green Economy may

well overpass the “brown” economy and provide better advantage in terms of environment

protection and reducing the social inequality. For transit to the Green Economy, just two

percent of the world GDP investment would be required in 2012-2050 into ten key sectors,

e.g., agriculture, public utilities, energy, fisheries, forestry, industry, tourism, transport,

waste utilization and recycling, and the water resources management. The funds could be

well attracted provided that the well-grounded national policy and financial innovative

mechanisms are in place. Additional resources could be allocated through reducing

subsidies for the energy, water, fisheries and agricultural sectors. The subtotal subsidized in

2008 for production and consumption of fossil fuel has exceeded $650 bln that impeded RES

broader utilization.

With transit to the Green Economy, the world energy demand would initially slightly go up

and return to the present level by 2050 largely due to substantial increase in the energy

efficiency, e.g., would be by 40 per cent lower than envisaged by the conventional

development scenario. The energy related CO2 emissions would go down by 2050 by one

third compared with their present levels, while their atmospheric concentration would reach

the level sufficient to reduce the global warming by 2˚C.

Transit to the Green Economy would compensate in time employment reductions in the

“brown economy” sectors by creating new working places, primarily in agriculture, public

utilities, energy, forestry and transport. Still, in such sectors as the fisheries, where the

natural capital is seriously depleted, temporal employment and revenue reduction would

generate a demand in manpower retraining programs.

The world, civil society and business leaders have to think jointly together how to determine new traditional indicators of wealth, prosperity and wellbeing. In this regard, the states are faced with a task of improving rules of the game for the Green Economy through refusing from the out-of-date subsidies, and reforming the policy, creating new stimulus, improving the market infrastructure and mechanisms, redirecting government investment and launching a Green Public Procurement practice. At the same time, business sector has to understand and further realize the real opportunities granted by transition to the Green Economy, as well as to react to policy reforms and price signals by means of increasing investment and funding. Favorable conditions have to be created in order to accomplish transition to the Green Economy. Among them would be the necessary legal regulatory documents, policy, subsidies and stimulus, world market, legal infrastructure, and protocols on turnover and financial assistance.

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UN ecological program entitled Green Economy Initiative has proved itself as an efficient way to build a new economy besides being grounds to keep the environment clean. The program pursues certain economic goals and, in particular, creation of new employment opportunities, expanding productions requiring lesser natural resources usage and promoting efficient waste recycling. UN report dated 21 February 201141 points out the benefits of a national policy of sustainable development and a new investment strategy. Investment of two per cent of global GDP into ten key sectors has a potential to initiate transition to a low-carbon and resource-efficient Green Economy, says the report.

"We must move beyond the polarities of the past, such as development versus environment, state versus market, and North versus South”, has emphasized UNEP Executive Director and UN Under-Secretary General Achim Steiner. UNEP defines a Green Economy as one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. An important condition for this transition to happen would be the policy and investment into securing economic growth based on a lesser raw materials and energy consumption than today. Substantial progress has been achieved in this field during the past 30 years, though the economic effect accomplished has proved to be too modest for the Earth planet to embark on the pathway of sustainable development and preserving the non-renewable resources. Pivotal role of public policy An innovative and creative public policy is due to contribute the most to building conditions for making the transition possible, to creating the markets and channelling private investment into Greening of the Economy. These conditions would include:

• sound regulatory frameworks, priority for government spending and procurement in the fields promoting development of the Green Economy Sectors and limits on harmful subsidies that deplete natural capital;

• taxation system and market mechanisms to change the structure of consumer spending and stimulate growth of the Green Innovation;

• public investment into education and knowledge popularization alongside a strengthening of international governance. Public policy could ensure as well that the benefits of Greening one sector would trigger sustainable benefits across others. The report generally suggests to the private sector to allocate the lion’s share of the proposed two per cent of the world GDP investment and reduce to modest levels the share of public investment. From fisheries to heating and lightening of the houses, e.g., ten key sectors are due to kick start the Greening of Economy.

41 http://www.unep.org/GreenEconomy/Portals/93/documents/Full_GER_screen.pdf.

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Referred to by the report as a cornerstone for Greening the Economy, the ten key sectors would be:

1. agriculture, 2. buildings (incl. heating and lightening of the houses), 3. energy supply, 4. fisheries, 5. forestry, 6. industry including measures to increase energy and resource efficiency, 7. tourism, 8. transport, 9. waste management, 10. water resources management. Of the two per cent of GDP proposed in the report, the sums invested by sector at current levels of GDP would be:

$108 bln for Greening agriculture including on small-holder farms;

$134 bln in Greening the houses heating and lightening by means of increasing energy efficiency;

over $360 bln in Greening energy supply;

close to $110 bln for Greening fisheries to include reducing the world fleets capacity;

$15 bln in Greening forestry to ensure better mitigation of climate changes;

over $75 bln in Greening industry including manufacturing;

close to $135 bln on Greening the tourism sector;

over $190 bln on Greening transport;

nearly $110 bln on waste management including utilization;

a similar amount on the water sector to include addressing deficit of sanitation services.

Selected data by sectors

Agriculture

The Green Economy is expected to ensure an annual investment of $100-$300 bln until 2050

in agriculture in order to feed nine billion people while promoting better soil fertility

management and sustainable water usage, and an improved biological management.

• Scenarios developed have indicated a potential increase in global yields of major crops by 10 per cent over investment in conventional development.

• The growth would be equal to raising the average daily nutrition levels per person to up to 2,800-3,000 kilocalories by 2030 and preserving the levels attained.

• Caloric value of food products wasted globally is estimated as 2,600 kilocalories per person per day; therefore transition to a Green Economy demands addressing these challenges linked to several of the sectors concerned.

Heating and lightening of the houses

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This sector is the single largest contributor to global greenhouse gas emissions; the share of heating and lightening of offices and homes reaches 30 per cent of the global end-energy use. The sector accounts for more than a third of global material resource consumption and 12 per cent of all freshwater use. By 2030, IPCC forecasts, the sector climate impact would practically double to reach 15.6 bln tons of carbon dioxide equivalent or 30 per cent of total energy related C02.

The Green Economy scenarios envisage a combination of applying existing technologies and the RES supply growth that would potentially dramatically reduce atmospheric emissions and save around $35 per ton of C02.

With the right government policies in place and annual investments of $300 bln to reach $1 tln by 2050, the global energy expense on heating and lightening of the houses could be reduced by one third.

Fisheries Subsidies estimated at around $27 bln a year have generated an excess capacity of the fishing fleet capable today to catch the tonnage of fish twice exceeding its ability to reproduce. Investment into better fisheries management to include establishment of the Marine Protected Areas and decommissioning, and reducing certain fishing fleet capacities jointly with retraining could rebuild the planet fish resources.

Such investment supported by political measures would result in increase in the catch-in numbers from 80 mln tons at present to 90 mln tons in 2050, although the catches would be temporally low from now till 2020.

"The present value of benefits from Greening the fishing sector is estimated to be three to five times the necessary investment," says the report.

Short- and mid-term employment reduction could be minimized through cuts in tonnage capacity primarily of the small in number large fisheries and not of the small-scale artisanal fleets.

Jobs in the fisheries sector are expected to increase again by 2050 as depleted stock recover.

Forestry

Forests generate goods and services, which support the economic livelihoods of over one billion people, recycle nutrients vital for agriculture and harbor 80 per cent of land-based species. Deforestation currently accounts for close to 20 per cent of the world greenhouse gas emissions."Reducing deforestation can therefore be a good investment: the climate regulation benefits of halving global deforestation alone have been estimated to exceed costs by a factor of three," says the study. According to the report, annual contribution to it of $15 bln - or 0.03 percent of global GDP – could result in Greening this sector to include triggering greater investments in the frameworks of the program on Reducing Emissions from Deforestation and Forest Degradation (REDD). These investments have a potential to contribute to broader application of reliable and tested market mechanisms from program on certified timber and certification of rainforest products to payment for ecosystem services and establishing community-based partnerships.

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Annual investment of $15 bln – or 0.03 percent of GDP – during the period of 2011-2050 could increase the value added of timber industry by more than 20 per cent as compared to the business-as-usual development scenario.

The report points out that potential transition to the Green Economy would increase the forested land - currently close to 4 bln hectares - by over three per cent by 2020, eight per cent by 2030 and over 20 per cent by 2050 as compared to the business-as-usual development scenario.

Transport The environmental and social costs of transport (air pollution, traffic accidents and congestion) in certain countries or regions could currently cost around 10 per cent of their GDP. Policies for Greening transport range from those that shift journeys to public and non-motorized transport to ones which boost fuel efficiency and cleaner vehicles. The analysis carried out has revealed that in Europe investments in public transport could yield an economic effect twice exceeding their cost. Reducing the sulfur content of transportation fuels in Sub Saharan Africa could annually save up to nearly $1 bln in expenditures on healthcare and related costs.

Annual investment in the transport sector of 0.34 per cent of global GDP up to 2050 could reduce oil usage by no less than 80 per cent as compared to the business-as-usual development scenario, while employment – primarily in the public transport sector - would go up by six per cent above business-as-usual.

Waste Most probably, by 2050 over 13 bln tons of municipal and other waste will be generated globally; only 25 per cent of all waste are currently utilized or recovered.

Annual investment of $108 bln in Greening of the waste sector could lead to nearly full utilization of electronic wastes, up from the current level by 15 per cent.

These investments could also increase by 2050 the waste re-utilization by three times, while reducing their landfill cost by 85 per cent as compared to the business-as-usual development scenario. By 2030 than, would be possible to reduce by 20-30 per cent emissions of such greenhouse gas, as methane and reach the cost reduction.

Waste prevention and management remains a key task for the manufacturing sector where such approaches as products redesign and industrially modification could play a vital role for reducing the waste and resources use.

If the life of all manufactured products is extended by 10 per cent, for example, the volume of resources extracted were cut by accordingly.

For more efficient energy use, the combined heat and power generation would represent a high potential (it is presently underutilized). In the pulp and paper sector these facilities allow reduction of the primary energy consumption by more than 30 per cent.

The EU Seventh Framework Program for Research and Technological Development brings together all the EU science and research initiatives in order to create a European research

54

association and reach the goals of the EU Lisbon Strategy. The program covers the 2007-2013 period and consists of four basic components to have several work programs each. Thus, a work program for environment protection is focused at deepening our knowledge about the links of biosphere, ecosystems and human activity with development of new technologies, and instruments and services for an integrated resolution of the global environment protection problems. A work program for the nano-production sector is focused on transition from a resource-intense to the knowledge-intense economy and envisages support for scientific research and technological development. The scientific research targets the higher-level products and production processes through the relevant processes and technologies. A work program for energy sector targets a transformation of the currently existing energy system by reducing dependence from imported fuels and increasing the energy resources diversification and energy efficiency. The mentioned program targets the technologies specified by the next decade strategic energy plan envisaging production of the second generation bio-fuels by bio-treatment plants, as well as solar energy, coastal wind industry and smart distribution networks. A work program for food, agriculture and bio-technology is developed for assistance to the European bio-economy and covers a balanced utilization and production of renewable bio-resources. This includes the alternative and ecologically efficient treatment schemes to ensure the bio-technology based production processes. The aforementioned work programs largely target the new Green Technologies development (level of production) or new links of production (level of processes). The action plan on environmental technologies is considered to be one of the three pillars of the Lisbon Strategy and the Sustainable Development Strategy which are growth, employment and environment. The plan consists of 28 activities incorporated into nine blocks, i.e.,:

science and research, and project design;

technological platforms, and public and private partnerships;

technologies verification, i.e., establishment of the testing centers network and compilation of the ecological technologies catalogues;

determining the efficiency planning indicators based on the ecological efficiency improvement indicators;

finance mobilization;

economic instruments to employ market mechanisms;

procurement of environmental technologies;

providing information to enterprises and consumers through means of definitive training;

the global scope activities: promotion of environmental technologies in the developing countries and countries in transition.

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Introduction or improvement of ecological legislation is an important field prone to generate certain benefits for the governments, if they consider internal reforming in addition to the fiscal reforms jointly with the other measures for transition to Green Economy. National legislation on environment protection, transport, construction and power supply could create inter alia a powerful market stimulus and encourage investment into Green Economy. Reduction of deforestation and forest restoration are economically viable and exert a positive influence on agriculture and living standards of rural population. For this, certain economic mechanisms exist being programs for certified timber production, certification of the rain-forest timber, introduction of payment for ecosystem services and programs of joint utilization. In this context and in order to move to a sustainable forestry, modifications of legislation and public administration are required. For Green Agriculture, a shift from the high-unit value and natural economy to the ecologically safe working methods is typical, and it’s a water efficient usage, broad appliance of organic and natural fertilizers or an optimal soil treatment. In this field, political modifications should be primarily targeted at reduction and final termination of allocation of subsidies that harms the ecology, as well as at reforming the pricing and regulation mechanisms to result in inclusion of expenditures related to ecology deterioration into the food and raw materials prices. The growing water shortages could be reduced by policy to increase investment into the water supply and its efficiency improvement. Delivery of reasonably good quality fresh water in desired amounts is a most important ecosystem service. Without transition to the Green Economy, a major gap would emerge between a global water supply and its consumption. The sole resolution of the problem would be infrastructure investments and the water policy reforming, in other words, the water sector Greening. These reforms could be focused on modification of institutional mechanisms jointly with the assistance and funds allocation systems, better payment for the ecosystem services collection, as well as modification of the water supply financial payment schemes.

Fisheries are highly important for economic development, employment and food security of millions of people. This sector Greening would require redistribution of public finance to improve fisheries management and fund the excess capacities reduction by terminating the boats exploitation and rapidly relocating the workers to new employment, while all those measures are to ensure the depleted fishery resources rehabilitation. Renewable energy, RE development would contribute to cost reduction of implementation of the energy poverty elimination strategy. Due to the RE generation technologies application coped with a necessary energy policy is expected a substantial increase in the living standards and health improvement of population of the low income regions distant from the distribution networks in particular. An economical decision in terms of expense could be utilization of net bio-mass and independent solar photoelectric devices known for their low exploitation costs and abilities of small-scale flexible introduction.

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Increase in the RES energy supply would reduce the fossil fuels price increase risks and their harmful impact on environment. The energy sector Greening would require a shift from investment into the hydrocarbon energy resources to investments into clean energies coped with increase in energy efficiency. RE technologies could be more competitive comparing expense on the fossil fuel utilization technologies and public expenditures often partially postponed for the future. Thus, a global agreement on carbon emissions and fixing up the emissions respective pricing could be a strong stimulus for RE investment. National policy plays an important role in incentives creation for RE investment. In their turn, the actual stimulation methods could increase attractiveness of RE investment by improving correlation between risk and profit. The methods could be supplemented by the emissions trading programs or introduction of a special tax. Construction of new Green Buildings and modernization of existing constructions suffering from high energy and resources consumption would ensure meaningful saving at minor expense, if an appropriate national policy is implemented. The UNEP initiative for sustainable construction development has revealed that the most efficient and economical political instruments - out of their variety potentially available - often envisage the sustainable construction standards application often jointly with economic and fiscal incentives and measures. Besides saving electric power, the construction sector Greening would contribute to more efficient usage of raw materials, land and water, as well as to reduction of waste and risk resulting from hazardous substances.

In future, the Greening Policy in transport should be based on three inter-related principles, i.e.:

termination/reduction of unnecessary trips by combining the planning of land-utilization and transport with production and consumption localization;

transition to the ecologically more efficient means of transport;

improvement of applied technical means and fuels to reduce their negative ecological impact.

The required measures should include: planned land-utilization to provide for compact city planning or its interconnection with main transport corridors, and fuel types and transport means clear specification. A proper economy regulating system has to be established to define the rights and develop

incentives to initiate, in their turn, the Green Economy transition and to remove the Green

Investment barriers. The regulation systems could specify the most hazardous types of

activity not compatible with sustainable development, or their minimal standards, or to ban

some of them. Besides, a proper regulation system would reduce risks related to the

national legislation modification to result in increased investors trust to the market. Sectors

self-regulation practice and agreement signing by the national governments and

corporations could positively contribute to the public legal regulation system as well.

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Regardless of how efficient the market instruments are, in certain situations the administer-by-command measures may be required since they could be easier to take. In a short term, it’s easier to establish new efficiency standards and remove the planning and receiving permissions obstacles for the RES sector projects than to create a carbon emissions market and remove the fossil fuel procurement subsidies. Requirement standards applied to constructions or production specific elements, or their working characteristics could be efficient instruments to ensure the ecology sector targets and establish the markets of sustainable goods and services. In particular, the obligatory standards may efficiently contribute to reaching the expected results. Still, the present standards fail to duly stimulate activities and improvements beyond their established requirements unlike of certain other market instruments with a potential to become an improvement constant stimulator. A government may create a long-term and high demand for Green Commodities and Services, if sustainable public procurement practices are applied. They would motivate the companies to invest for long-term into innovations and stimulate producers to reduce spending in order to accomplish saving. The Worldwatch Institute engaged with scientific research has recently published a report on current situation with Green Employment42, i.e., on professions that positively affect the environment and combat the global warming processes. Certain researchers believe that Green Economy would become the prime mover of the 21st century economic development. The report authors point out that Green Jobs are continuously created at a higher speed. In total, 2.3 mln of this kind of jobs exist in the world today. Among them, are the sectors of wind and solar energy that provide jobs to 300 and 600 thou people respectively and the bio-fuel production industry that employs more than 1mln people. Besides, other professions go continuously Green as well. For instance, Green Construction of the energy-efficient buildings - in terms of its consumption - gains momentum. According to the Worldwatch Institute data, Green Modernization of 200 thou apartments could provide for 25 thou of new jobs, while keeping 116 thou of old ones. Now, in the automobiles sector, around 250 thou workers are engaged with production of Efficient Cars, while this sector currently employs around 8 mln people. Around 40 per cent of steel and 25 per cent of aluminum in the world are produced through waste recycling that secures employment for about 250 thou people. Still, the Worldwatch Institute points out, regardless of all its advantages Green Economy would never become a reality, if it’s not supported by the governments - by means of money, relevant legislation and benefits – private investors and consumers.

42 http://vitalsigns.worldwatch.org,Vital Signs 2011.

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1.2 PREREQUISITES FOR DEVELOPMENT OF GREEN ECONOMY IN AZERBAIJAN

Energy resources Azerbaijan is rich in hydrocarbon resources. In the beginning of the 20th century its global oil production share accounted for 20 per cent. This time was historically marked by active political and economic processes to eventually result in the fundamental transformations. Thus, people of Azerbaijan gained national independence. Today, thanks to its oil and gas reserves, Azerbaijan is considered worldwide as an active economically developing country. Being now a major oil and gas producer, Azerbaijan could extract daily up to 1 mln bbl of oil. This accounts to one per cent of global production and five per cent of the total European oil demand. The oil and gas industry future is directly linked to both oil land extraction and off-shore production in the Caspian Sea Azerbaijani sector. By estimates, the sector hydrocarbon reserves sustain some 4-10 bln tons and their development provides vast opportunities for meeting the country’s fuel and energy demand, and increasing its export potential. Important oil and gas pipelines go through Azerbaijan’s territory as well. Baku-Tbilisi-Ceyhan, BTC is one of them. Due to geographic position, climate and economic infrastructure favorable conditions exist in Azerbaijan for the non-conventional energy resources development. Data on the country’s energy potential is given in the further table. Table 1. Energy resources of Republic of Azerbaijan

Measure

ment

unit

2008 2009

2010 2011 2012 2013 2014

real sector

GDP bln

manats

40,137.3 34,578.7 33,042.0 34,583.8 36,810.8 38,822.9 42,837.5

real growth

rate

% 110.8 109.3 106.7 103.1 104.8 103.8 108.7

oil sector,

GDP basic

estimates

bln

manats

22,251.3 16,257.3 13,035.5 12,983.5 13,494.8 13,845.4 15,695.1

real growth

rate

% 106.8 114.3 106.8 99.7 103.9 102.6 113.4

the GDP oil

sector

share

% 55.4 47.0 39.5 37.5 36.7 35.7 36.6

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non-oil

sector, GDP

basic

estimates

bln

manats

15,197.2 15,683.2 17,075.2 18,380.4 19,780.2 21,124.4 22,883.0

real growth

rate

% 115.7 103.2 106.4 105.1 105.1 104.3 105.8

Note: Studies in recent years have revealed that Azerbaijan’s fuel and energy reserves exceed the

numbers given in the table.

Current environmental conditions and potential for AES-RES utilization

Intensive hydrocarbons extraction jointly with the conventional fuels annual consumption growth have resulted in the greenhouse gases production increase and eventually created serious ecological problems in Azerbaijan. By expert estimation, further development of oil and gas industry would increase the hydrocarbon atmospheric emissions to 80-85 percent from their total volume in the country. The forecasts reveal that in comparison with 1990, the hydrocarbon emissions alone would increase by 1.8-2.0 times by 2025. Extracted oil is partially processed in Baku, while the rest is transported by the pipelines, and 60 per cent of the oil on-shore production originates from the Apsheron Peninsula. Pipelines cross the better part of the peninsula, while 70 per cent of Azerbaijan’s industrial potential is concentrated in that region. As a result of protracted pollution, the regional ecosystem got severely damaged to become just a plain occasionally covered with plants and bushes. Around 25 thou hectares of peninsula’s soils are polluted and lubricated by oil products. This pollution results from oil transportation and spillover, abundance of flush waters and sludge, and residue of seismic research, and industrial and communal waste. Sometimes, pollution levels there exceed 20-30 per cent. The international and local assessments reveal that Azerbaijan’s natural environment experiences constant impact of different pollutants and, from territorial point, the negative impact spread of the environment is not even. Around 30 per cent of Azerbaijan’s coastal zone suffers from an overall pollution. The Azerbaijan’s rivers total length sustains 100 km, while 50.6 per cent of them are determined as polluted. All the lakes in the plain part of the country are impacted by change of the biological, chemical and temperature regimes fluctuations. Environmental status of the lakes of the 200 sq km area located in the Kura-Arakskaya depression and on the Apsheron Peninsula is recognized as critical. To meet its domestic demand, Azerbaijan has to utilize the waters of the polluted Araks, Kura and Samur rivers that cross the country’s border zones. After the independence, regulation of the polluted waters discharge was seriously changed. While industrial enterprises reduced production of polluted waters, purification and treatment levels of municipal wastewaters went substantially down as well. Out of 75 Azerbaijani cities, only 16 are now equipped with the wastewater treatment facilities. Depending upon a particular system, some 50-90 per cent of urban population receives

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potable water. A huge difference in the water (and liquid waste) utilization exists between the major cities (including Baku) and other regions. Due to limitations for the land waters utilization, a need has arrived to resort to the underground waters reserves. The river waters concentration of chemical and organic substances often exceeds permissible ranges, PR. The two biggest rivers of Azerbaijan, Kura and Araks, mainly cross the territories of Georgia, Armenia and Turkey. Having passed through Georgia’s two largest cities of Tbilisi and Rustavi and polluted with hazardous substances (oil products, phenols, etc), the Kura river comes to flow through Azerbaijan’s territory to be additionally affected by agricultural pollutants. Some river sections suffer an increased biological oxygen demand of up to 4.1 mg\l, while the oil products and phenols concentrations growth sustain of up to 0.24 mg\l and from 0.04 to 0.08 mg\l, accordingly. The Razdan and Ohchu rivers, falling into the Araks, pollute it with harmful substances in Armenia. Industrial wastes of the Kadjaransky copper and molybdenum deposit, and the Kapansky copper minefield in Armenia are discharged through the Ohcha bed into the Araks to pollute its waters with copper exceeding PR by 25-50 times and phenol – by 6-15 times. Azerbaijani plains jointly with its numerous submerged shallow zones have turned into salinized soils as a result of natural pollution. In different submerged areas pollution with organic and mineral fertilizers, oil products and chemical substances is recorded. The Nagorno-Karabakh loss has triggered decrease in agricultural production and arable lands area in Azerbaijan. At the same time, the Azerbaijani land reform goes more successfully than in the other post-Soviet countries. Though it did not affect the former forest and pasture zones, certain ecological problems related to land use have emerged. This demands new management approaches to the national resources utilization. Difficulties with power energy and gas supply to the rural areas, as well as inefficiency of control resulted in the forest fall and loss, and damage for pastures. As other CIS countries, Azerbaijan suffers from the energy utilization inefficiency strongly impacted by the natural gas excessive burning, fuel oil usage for power production coped with low efficiency of the energy-consuming equipment. Though reductions in air pollution are experienced since 1991, they hardly result from application of a more sophisticated equipment and stricter compliance with the nature protection regulation: the process is triggered by the industrial emissions reduction only. Thus, an urgent need exists in Azerbaijan to apply clean production technologies and adopt new legal regulations. Excluding the Dashkesan metal-ore minefield, the national ore deposits are not extensive. Still, existence of stone quarries as a source of construction materials production negatively affects pollution. Largely, there extracted such raw materials for construction as limestone, sand and cement, and the quarries are located in the Southeastern part of Apsheron Peninsula. Negative impact of the aforementioned factors has resulted in floods, soil sliding and the overall air temperature increase in Azerbaijan.

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The transport gas emissions are the prime air pollution sources in the country, particularly in Baku. Further on, a table of the air pollutants composition is listed.

Table 2. The atmospheric air pollutants composition

Pollutants Concentration, %

carbon oxides (СО2, CO) 48.5

nitrogen oxides (NOx) 15.0

hydrocarbons (HC’s) 8.0

Sulfur oxides (SOх) 14.9

Solid particles 13.6

Total 100.0

As the table reveals, high utilization of conventional fuels increases gas emissions, and particularly the carbon gas. The gases, in their turn, produce a greenhouse effect of the atmosphere. The harmful gases emitted into the atmosphere contribute to the ongoing physical and chemical, and biological processes to eventually produce atmosphere’s self-purification. Two major industrial cities of Baku and Sumgait are located in the Apsheron Peninsula. Wind is the prime contributor to the cities atmospheric air self-purification. Still, to reduce the emissions to the levels close to PR, huge air volumes are required (Table 3). Table 3. Toxicological assessment of atmospheric emissions

toxic chemical substances

PR mg/m3 total emissions, kg/ 1 t of oil

share of total emissions, %

required air volumes for PR level, m3• 105

hydrocarbons 1.6 8.70 74.0 54

carbon oxides

(СО2, CO)

1.0 1.50 12.7 15

SO2 0.05 1.08 9.2 216

H2S 0.008 0.23 2.0 288

NOx 0.085 0.18 1.0 21

ammonium 0.2 0.12 1.0 6.0

phenols 0.01 0.014 0.1 1.4

As was mentioned above, in the early 1991 independence period certain regions of Azerbaijan experienced disruptions in energy supply. People had to resort to firewood for fuel and its burning inflicted a serious damage on the region’s ecosystem. Still, according to the Azerbaijani tax regulations, no additional duties are envisaged for its impact on environment. Nevertheless, Azerbaijan adopted a number of documents to reflect its environment protection and sustainable development policy.

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Having become independent, Azerbaijan launched international co-operation, signed major agreements and conventions for environment protection. Further on are listed certain international conventions Azerbaijan has joined:

Vienna Convention for the Protection of the Ozone Layer (1985), Montreal Protocol (1987), Copenhagen Amendment (1992) ratified in 2000;

Convention on Environmental Impact Assessment in a Transboundary Context (1991) ratified in 1999;

UN Framework Convention on Climate Change (1992) ratified in 2000 and Kyoto Protocol to the UN Framework Convention (2000).

Azerbaijan signed the Kyoto Protocol on February 16, 2005 and since then honors its commitments under the protocol with high responsibility. With the protocol signature, Azerbaijan’s industrial enterprises became obliged to submit annual reports on their atmospheric gas emissions. The law on safeguarding the natural environment is the main document to regulate environment protection and efficient utilization of Azerbaijan’s natural resources. The law was adopted in 1999 to incorporate the following basic provisions:

basic principles of environment protection, rights and obligations of public enterprises, associations and citizens in the field of environment protection;

obligations to safeguard the environment and monitor its protection in the process of the natural resources utilization;

insurance of the ecologically unsafe activities and the voluntary or mandatory auditing of the industrial processes;

resolution of issues related to responsibility in case of violation of the environment protection rules;

economic grounds for regulating the natural resources exploitation and environment protection.

The law substantiates ecological requirements for economic activities and the air quality standards. These ecological requirements include:

PR of environmental emissions ;

PR of continuous waste and emission discharge;

PR of noise and electro-magnetic waves ;

PR of radiation hazard;

sanitary-hygienic standards. Lack of compliance with the aforementioned requirements is prone with suspension or interruption of activity of an enterprise. The environment protection issues are reflected as well in a document approved by Presidential Decree on the «Measures to speed-up socio-economic development in Republic of Azerbaijan».

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List of important documents recently adopted by the Government includes: State Program to Reduce Poverty and Foster Economic Development (2003); State Program for Socio-Economic Development of the Republic of Azerbaijan Regions (2004); State Program for Utilization of AES and RES in Republic of Azerbaijan (2004); Plan of Integrated Activities to Improve the Ecological Situation in Republic of Azerbaijan in 2006-2010 (2006); Presidential Decree to Establish the National AES and RES Agency Under the Ministry of Industry and Power Energy (2009); and National Program for Sustainable Economic Development and Poverty Reduction in Azerbaijan in 2008-2015 (2008). National Program for Sustainable Economic Development and Poverty Reduction in Azerbaijan in 2008-2015 renders support to the activities ensuring the non-oil sectors development in the near future. The program also mentions solar energy plants, wind farms and small HPPs. Construction of these plants and farms would open new development opportunities for AES/RES-fed generations. Envisaged as well are financial sanctions and periodic monitoring aimed at minimizing the environment negative impacts. For sustainable ecological management, the following measures are envisaged by the program:

forest reserves sustainable management;

water resources sustainable management;

land resources sustainable management and prevention of soil degradation;

biodiversity sustainable management;

AES broad utilization;

waste integrated management;

mountain and coastal ecosystems integrated management;

improvement of existing monitoring system and legal frameworks for ecological management;

strengthening the public information and warning mechanisms in the field of environment protection.

The program covers as well such important issues as reduction of the greenhouse gases and the climate change negative impacts on the ecosystem, human health and national economy. It envisages as well establishment of a hydrocarbon fund to provide financial assistance to enterprises for their CO2 and other emissions reduction. For preventing atmospheric pollution in major cities, gas analyzers are planned to be installed in places of intensive transport concentration. Also, measures are envisaged for AES/RES development. During recent years, intensive research into the AES/RES potential development has been carried out in Azerbaijan. As a result, Azerbaijan’s high potential in wind, solar and hydropower energy has been revealed. Country’s biogas and thermal power resources were established as quite substantial as well. Indeed, unlike of many other countries, Azerbaijan’s potential for developing AES/RES infrastructure is comparable with such countries, as

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Denmark and Germany. Exploitation of the existing potential should be carried out jointly with NGOs and based on political steps taken and national stimulus. Table 4. Conventional, alternative and renewable energy resources

energy reserve measurement unit location amount

Conventional Energy Resources

oil t Caspian Sea,

Apsheron Peninsula

>1.2 bln t

natural gas m3 Caspian Sea,

Apsheron Peninsula

> 2 trl m3

brown coal t Alazan-Airichaiskaya

Depression

20-25 mln t

shale oil t Guba, Ismaily and

other regions

~ 100 mln t

Non-conventional Energy Sources

wind bln kWh large area > 2.5÷4 per year

large hydropower

plants

bln kWh countrywide 2.5÷3 per year

small hydropower

plants

bln kWh countrywide 2.5÷3 per year

solar energy t, conditional fuel countrywide more than 100,000 t

of oil equivalent

thermal waters t, conditional fuel countrywide big reserves

biomass t, conditional fuel area of 14,400 km big reserves

With reference to technical information presented by various reports, AES/RES exploitation potential in Azerbaijan could be assessed as follows. Solar energy Azerbaijan’s climatic conditions provide for the solar energy heat and electric power generation. The annual solar hours in the USA and Central Asia sustain around 2,500-3,000, in Russia - 500-2,000, while in Azerbaijan it’s 2,000-2,800 hours. The solar energy utilization would contribute to the energy supply problems resolution in certain Azerbaijan’s regions. Some developed countries have started since recently to broadly introduce the PVPs (method of electric power generation by the photo-sensitive elements exploitation for transforming solar energy into electric power). Azerbaijan’s joining the PV program would contribute to introduction of these energy systems application in the country. It needs to be noted that efficiency of solar plants also depends upon climatic conditions and geographic location of particular country. In the USA, the annual solar energy share sustains

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1,500-2,000 kW/m2, in Russia - 800-1,600 kW/m2, in France -1,200-1,400 kW/m2, in China – 1,800-2,000 kW/m2. In Azerbaijan it’s 1,500-2,000 kW/m2 , which reflects a rather high, in comparison with other countries, solar intensity. So, an important point has to be made: it’s necessary to create conditions for investment into solar energy exploitation. Further information covers three regions of the country, i.e., the island of Pirallahy, and the Mingechaur and Nahichevan regions. The Pirallahy Island is located close to the Apsheron Peninsula by the Caspian Sea coast, Mingechaur – in the Northeastern Azerbaijan, while Nahichevan is Azerbaijan’s enclave squeezed between Armenia and Iran.

Table 5. Solar radiation monthly and yearly indicators per horizontal face, mJ/m2

month Pirallahy Mingechaur Nahichevan

January 176 178 221

February 228 234 297

March 378 361 456

April 552 503 565

May 737 667 714

June 804 712 812

July 801 722 850

August 707 632 769

September 512 458 609

October 403 345 439

November 222 196 279

December 159 150 193

yearly 5,679 5,158 6,204

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Table 6. Monthly and yearly indicators of solar radiation per normal flat

surface, mJ/m2

month Pirallahy Mingechaur Nahichevan

January 177 210 209

February 181 246 265

March 251 292 430

April 433 395 469

May 630 534 643

June 774 622 842

July 745 632 895

August 662 573 838

September 506 444 756

October 337 391 579

November 206 236 383

December 162 193 232

yearly 5,064 4,760 6,541

Wind energy In terms of price, ecological cleanness and resources inexhaustibility, wind energy leaves behind such energy sources as solar, water, geo-thermal and bio-mass. Conducted tests have revealed substantial potential present in different parts of Azerbaijan to build wind farms. Assessments show that due to its geographic position, natural resources and economic infrastructure, its wind energy annual potential sustains 800 MW. By preliminary assessment, it could be equal to 2.4 bln KW of electric power. Such a powerful potential exploitation could save one million of conditional fuel and prevent substantial waste discharge into the atmosphere. Long-term observations reveal that wind conditions prevail on the Apsheron Peninsula, in the Caspian Sea coastal zone and on its Northeastern islands. The lasting winds average speed could exceed 6 m/sec, which reveals presence of a meaningful techno-economic potential for wind power utilization. In the Gyandja-Dashkesan zone and the Sharur-Djulfy territory of the Nahichevan Autonomous Republic favorable conditions exist for the mid-capacity wind plants exploitation. The year average wind speed there sustains 3-5 m/sec.

The following country’s regions are recognized as having potential for the wind energy utilization:

1. Baku, Sumgait and Apsheron Peninsula with adjacent islands. The wind power there is extremely intense and its energy potential is estimated around 1,500 MW.

2. The Caspian Sea zone with the lower Kura river banks (the right one), which starts in the South from the Kura to stretch to the North till the Dagestan border, has an estimated potential of 500 MW.

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3. The Nahichevan Autonomous Republic territory with selected zones including Zangezur has an estimated potential of 70 MW.

Table 7. Long-term forecast for wind power exploitation in Azerbaijan

years 2005 2010 2015 2020 2025

wind power generation,

mln KW/sec

163 325 434 542 651

saving in fuel-oil, thou t

49 98 130 163 195

CО2 reduction, thou t 150 300 400 500 600

Source: The 1st National Climate Change Information (Phase 2), Baku 2001.

Hydro-energy Currently, HPPs capacity of Azerbaijan’s power grid sustains 17.8 per cent. In 2003, HPPs generated 2.4 bln KWh of power to account to 11.4 per cent of the total energy capacity of the country. This evidences that hydro-energy, as the prime AES, is an important element of the national energy supply system. As of now, certain hydro-energy resources still remain unexploited. Research has revealed that the Azerbaijan rivers total hydro-energy capacity sustains 40 bln KWh. From the techno-economic point of view, the hydro-resources total assessable potential sustains 16 bln KWh, while small HPPs account to 5 bln KWh out of them. The HPPs construction would provide for generation of ecologically clean energy, while preventing the floods emergence and contributing to building of new irrigation systems. This, in its turn, would contribute to resolution of certain high-level issues. Construction of dozens HPPs on the rivers and at water reservoirs would annually provide for some 3.2 bln KWh of power. It deems appropriate to build 61 small HPPs within the recent time. Besides deciding the energy problems related to the power busses construction in distant rural areas, building of such plants would contribute to resolving certain social problems.

Presidential Decree No844 of December 21, 2001 «On small HPPs privatization» has approved decision to privatize nine small HPPs, in particular «Guba», «Gusar», «Sheki», «Chichekli (Zurnabad)», «Mugan», «Zeihur», «Nugedi», «Balaken» and «Chinarly». Since no connection exists between the Nahichevan and the national power grids, exploitation of medium, small and micro HPPs in Nahichevan deems more appropriate. Azerbaijan does not have rich water resources. Still, in relation to its territory and in comparison with other CIS countries, it has quite a substantial hydro-energy potential. In general, Azerbaijan’s water resources are concentrated at the:

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- lower Kura river with its numerous beds; - Araks river flowing along the national border (the Kura river bed); - small rivers (creeks) falling into the Caspian Sea.

For Azerbaijan’s energy sector, the small HPPs exploitation is very profitable. The small rivers, canals and water basins overall potential provides for construction of small HPPs of 240 thou KWh capacity. With the UNDP support, a three-year project to issue the «Бялядчи китаб» («a guide») publication was carried out to review the existing legislation and national policy and look into the small Azerbaijani HPPs potential.

With construction of new small HPPs, substantial reduction of the CО2 emissions discharge is expected (Тable 8). Table 8. Long-term forecast for reduction of CО2 emissions (thou t)

Source: The 1st National Climate Change Information (Phase 2), Baku. Further on is given forecasted reduction of CО2 emissions to result from increase in exploitation of hydro-energy resources .

Table 9. Forecasted reduction of CО2 emissions till 2015 to resultfrom exploitation of hydro-energy resources

Source: The 1st t National Climate Change Information (Phase 2), Baku.

year 2000 2005 2010 2015 2020 2025

initial

(basic) level

1,500 1,500 1,500 1,500 1,500 1,500

projected

level

1,750 1,820 1,820 2,300 3,050 3,650

unit of measurement

year

2000 2005 2010 2015

power generated by HPPs

bln kWh

17.069

21.24

26.28

34.1

specific demand in conditional fuel

g/ kWh 288 114 72 60

fuel-oil demand mln t 3.588 1.767 1.381 1.493

CО2 emissions mln t 11.047 5.440 4.624 4.596

CО2 five-year reduction mln t 5.6 0.816 -0.028

total reduction of CО2 emissions till 2015: 6.393 thou t

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Table 10. Potential reduction of greenhouse gases by means of RES utilization in agriculture

Thus, without doubt, Azerbaijan has a substantial RES/AES potential. Its exploitation should be carried out in compliance with its technical specifics and economic, legal, administrative and confidentiality regulations. Privatization is the main factor for the current Azerbaijani AES/RES sector policy. In the process, the national government has been playing a major role and assisting Azerbaijan in reaching a joined position with all the AES promoting developed countries. AES/RES exploitation should be carried out with (a) appreciation of economic and ecological necessity of shifting to this energy exploitation; (b) understanding that the time would come when the existing oil and gas reserves are exhausted; (c) taking into account that shifting to this energy source bears numerous advantages not mentioned by financial reports of the companies engaged with traditional energy supply. Azerbaijani government plays an important role in creating conditions for efficient participation of private sector in this process, as well as for potential realization of the plans. The main document adopted by Azerbaijani Government in the field of AES/RES is State Program AES/RES Utilization (2004) envisaging to:

determine AES/RES potential for electric power generation;

increase utilization efficiency of national resources through RES exploitation;

create additional employment through establishing new power generation sectors;

strengthen energy capacity of the country through AES utilization in addition to available capacities of conventional energy sources in order to increase Azerbaijan’s energy security.

2. ANALYSIS OF DEVELOPMENTS IN THE FIELD OF RENEWABLE ENERGY AND ENERGY EFFICIENCY

2.1. ENERGY POLICY OF AZERBAIJAN As was mentioned above, Azerbaijan is rich in hydrocarbon resources. In the end of the 19th-beginning of the 20th centuries the country experienced a sharp boost of the oil industry development. While developing, the industry started to generate a strong demand in electric power. In 1900, construction of the first two power plants was started in Baku. In 1901, with the launch of the first of them at the Bibiheibat enterprise, the history of Azerbaijan’s power sector was started. Thus, Azerbaijan’s power sector base was created much earlier than in other Caucasian and Middle Eastern countries.

greenhouse gases GWP indicator gas volumes, thou t CО2 equivalent, thou t

CО2 1 30,938 30,938

CH4 21 875 18,375

total 49,313

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Political instability started in the 1990s seriously damaged the country’s economy and its power sector in particular. Conflict with Armenia also affected Azerbaijan’s power sector negatively. Transmission lines were ruined in different regions of Azerbaijan. Rehabilitation of power plants demanded huge capital investment. The main obstacle for the national economy rehabilitation, besides disparity between the power demand and its generation level available at that time, was lack of required production capacity. In those years, production levels in the power sector went down by 25-30 per cent to result in restrictions in power supply and decrease in demand. Lasting breaks in power supply arrived in regional Azerbaijan in particular. After the Soviet Union broke apart, substantial local and foreign investments were made into the oil sector development of independent Azerbaijan. National economy started actively developing. Shortly after that, the International Oil Contract was signed by SOCAR and eleven oil leading multinationals (the Contract of the Century). During the past decade, a strong oil industry infrastructure has been created in the country. By accepting importance of the energy efficiency increase, the AES/RES contribution to sustainable development was recognized as well. Still, a relatively small political attention was given to RES back in the 1990s. During recent years many countries have started promoting AES/RES utilization as their sustainable development policy component influenced by technological developments to reduce the cost and improve reliability of those sources. At the international level, AES/RES attracted additional political attention at the 2002 Johannesburg World Summit on Sustainable development to result since then in increasingly active promotion of domestic and international policies of AES/RES development. The 2004 Political Declaration adopted by International Conference on the Renewable Energy Sources tied up the energy efficiency issues with RES. Also, besides providing for higher energy efficiency, RES could actively contribute to sustainable development, easier energy access for the poor in particular, mitigation of greenhouse gas emissions and reduction of atmospheric pollution by hazardous substances. By doing this, RES could open new economic possibilities and provide for better energy security by means of co-operation. Article 19 of the Energy Charter Treaty envisages that countries pay special attention to the energy efficiency increase and RES development and utilization. The mentioned political directions form the basis for AES/RES policy development in Azerbaijan. State Program for AES/RES Utilization approved by the Presidential Decree No 462 of October 21, 2004 envisages integrated measures for AES/RES exploitation and use of different energy sources. Political measures:

improvement of AES/RES legislation, and its legal regulatory base; activities to stimulate AES/RES utilization; increase of opportunities for AES/RES utilization (acquainting with international

experience, training of experts and enlightening energy consumers); R&D and building of AES/RES information base.

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Measures in regard to specific energy sources:

privatization and reconstruction of operating small HPPs and their new constructions; introduction of wind farms; installation of solar collectors to provide buildings with hot water and heating,

increase of the photocells output-input ratio and launch of their production; heating the public, communal and other buildings by means of the geothermal water

energy sources, introducing plastic tubes with low heat conductivity and heating of greenhouses;

R&D in the field of sea waves energy; development of modern technologies for the bio-substances production and

introduction, construction of small HPPs working on biomass; technology development for production of coke bricks and other products from the

oil-processing wastes. In the framework of State Program for AES/RES Utilization in the Republic of Azerbaijan, certain measures are due to be implemented into life till 2013. In parallel with this and within the process of energy statistics reforming, AES/RES statistics is envisaged to be established as well. Azerbaijan’s stimulation of introduction of ecologically clean technologies to generate heat and electric power from sun, wind and bio-gas is important for securing a sustainable – from environmental prospective – socio-economic development. From 2010, AES/RES development was started through assistance of State Oil Fund of Azerbaijan coped with budgetary allocations. Improvement of national energy security through AES/RES broader utilization, support to entrepreneurial activity of energy sector, further implementation of projects to erect, reconstruct and promote modern-type power plants are the main government policy directions of regional socio-economic development in 2012-2015. To understand the RES essence, let’s look into the closely interconnected notions of energy, power sector and RES. In line with Azerbaijani law, activities in the field of energy are defined as those related to reconnaissance, development, extraction, production, processing, storage, transportation, distribution and utilization of energy materials and products (energy resources), while power sector is assigned to engage with electric and heat energy generation, transportation and distribution, and RES are defined as the energy sources constantly renewed in the Earth biosphere, i.e., solar, geo-thermal, wind, the sea waves and currents, bio-mass, terrestrial heat flows, etc. In this sense, national policy in the field of RES does not differ from the national policy in energy sector. The national energy policy is assigned with a task to secure and regulate the following:

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efficient extraction, production, transportation, distribution, storage, utilization and safety of the energy materials and products;

efficient and reliable energy delivery to all consumers;

creating conditions for competition and demonopolization;

building energy activity based on different forms of ownership, long-term agreements and special permissions;

creating favorable conditions for local enterprises manufacturing high-quality products;

creating favorable conditions for introduction of efficient and ecologically safe technologies;

conservation of energy resources, reduction of emission levels, and efficient utilization of renewable and conventional energy sources;

reduction of negative impact on the environment;

providing subventions to consumers and producers to raise efficiency of power sector in case of energy deficit;

creating favorable economic and legal conditions for investment;

elaboration of national energy programs.

Azerbaijan has the most ancient and well developed energy system in Transcaucasia. The output of Azerbaijan’s power producing facilities accounts to 7,100 MW to be largely generated by thermal power plants, TPPs (6,100 МW). As well, HPPs contribute to national power balance.

In the process of the national economic potential build-up, the 4.7 per cent increase in the energy power demand is expected in Azerbaijan within 2015 (Table 11 reveals a forecasted energy demand for 2011-2020). To meet the demand, Asia Development Bank carries out a broad variety of works to maintain and improve the energy transmission obsolete systems, to rehabilitate connecting lines out of operation and install the new systems. It’s worth noting as well that in the recent years major steps were taken to create AES/RES infrastructure.

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Table 11. Forecasted energy demand in Azerbaijan in 2011-2020

Source: PREGA, Azerbaijan, 2009.

The prime task of national energy policy is to increase energy generation and supply. The Law on Energy (1999) and Presidential Decree to Establish Ministry of Industry and Power Energy (2001) are important political initiatives undertaken in the field.

year

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

by economic

sectors in

general

10.28 10.59 10.91 11.45 12.02 12.63 13.26 13.92 14.48 15.06

increase in

energy demand

in economic field

3.0

3.0

3.0

5.0

5.0

5.0

5.0

5.0

4.0

4.0

agriculture

1.0

1.0

1.0

1.1

1.2

1.2

1.3

1.3

1.4

1.4

development

rate, %

3.0

3.0

5.0

5.0

5.0

5.0

5.0

4.0

4.0

4.0

industry 3.9 4.1 4.2 4.4 4.6 4.8 5.1 5.3 5.6 5.8

development

rate, %

3.0

3.0

5.0

5.0

5.0

5.0

5.0

4.0

4.0

4.0

transport 0.5 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.8 0.8

development

rate, %

3.0

3.0

5.0

5.0

5.0

5.0

5.0

4.0

4.0

4.0

water supply 1.2 1.3 1.3 1.4 1.4 1.5 1.6 1.7 1.7 1.8

development

rate, %

3.0

3.0

5.0

5.0

5.0

5.0

5.0

4.0

4.0

4.0

other fields 0.9 0.9 0.9 1.0 1.0 1.1 1.1 1.2 1.3 1.3

development

rate, %

3.0

3.0

5.0

5.0

5.0

5.0

5.0

4.0

4.0

4.0

budgetary

organizations

0.7

0.7

0.7

0.8

0.8

0.8

0.9

0.9

1.0

1.0

development

rate, %

3.0

3.0

5.0

5.0

5.0

5.0

5.0

4.0

4.0

4.0

trade and

services

2.0

2.1

2.1

2.2

2.4

2.5

2.6

2.7

2.8

3.0

development

rate, %

3.0

3.0

5.0

5.0

5.0

5.0

5.0

4.0

4.0

4.0

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Management of AE/RE utilization The Ministry of Industry and Power Energy of Republic of Azerbaijan is the body to carry out national policy and regulation of the fuel and energy sector. Regulation and control over the energy sector activities, and the energy materials and products utilization are carried out - within their scope of reference – by President of Republic of Azerbaijan, Cabinet of Ministers of Republic of Azerbaijan and Ministry of Industry and Power Energy of Republic of Azerbaijan; regulation and supervision of the energy activities related to environment protection and safety - within their scope of reference – are carried out by Ministries of Industry and Power Energy, and Ecology and Natural Resources of Republic of Azerbaijan; allotment of land lots and water areas for energy activities and in accordance with legislation is carried out by Cabinet of Ministers of Republic of Azerbaijan; and the land mineral resources assignment is done by Ministry of Industry and Power Energy of Republic of Azerbaijan. Ministry of Industry and Power Energy of Republic of Azerbaijan is responsible to:

issue special permissions for extraction (production), transfer, distribution and sale of electric and heat power;

make contracts giving the right for transportation and distribution of electric and heat power within a specified area;

demonopolize the electric and heat power generating activity;

issue special permissions for the electric power export and import operations;

introduce governmental control over the energy efficient, safe and reliable production, transportation, distribution and consumption;

determine general rules and standards for the heat and electric power production, transfer, sale and distribution, as well as the heat and electric power plants safe and reliable construction and to introduce control over compliance with the mentioned general rules and standards (jointly with Ministry of Emergency Situations).

Ministry of Industry and Power Energy of Republic of Azerbaijan carries out the following activities as well:

legal regulation of a respective industry;

defining prospective directions for development of a respective industry, and development and implementation of national and sectorial programs;

governmental control of a respective industry;

attracting investment;

issuing special permissions (licenses) to conduct respective activities;

promotion of science, тechno-technologies and introduction of scientific and technological achievements in respective sectors;

making fuel and energy balance and conducting activities for its implementation;

carrying out the energy efficiency activities in the field of energy production, transfer, distribution and consumption;

approving legal acts and sectorial standards for a respective industry and controlling their implementation.

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State AES/RES Agency Under Ministry of Industry and Power Energy of the Republic of Azerbaijan was established by the Presidential Decree No123 of July 16, 2009 to regulate nationwide and effectively organize activities for and control over AES/RES utilization in Azerbaijan.

As well, the agency conducts the following activities:

contributes to elaboration of national policy on infrastructure development and to its implementation in the respective field;

contributes to development of the regulatory legal acts and documents to control the respective field;

submits proposals on the mechanisms to regulate activities related to the energy resources utilization, project designing, construction, facilities exploitation and production of the sector required equipment;

prepares proposals on the measures to stimulate activities in the respective field (project designing, construction, exploitation and production) and meet the demand in respective field;

controls the activities in respective field;

conducts other directions of activity specified by legislation. The law on the agency defines its following rights and responsibilities:

to provide for defining such RES in different Azerbaijan’s zones, as solar, wind, biomass, thermal waters, currents, different wastes, etc;

to determine suitable conditions for introduction of modern technologies through attracting local and foreign experts, and implementation of national and goal-oriented programs;

to prepare proposals on AES/RES efficient utilization by enterprises engaged with AES/RES related activities, as well as in the territories of AES/RES application;

to solicit the ministry for special permissions;

to solicit the ministry for suspension or cancelation of a special permission granted;

to prepare proposals on production in Azerbaijan of means and equipment, and spare parts usable in the field of AES/RES utilization;

to build Azerbaijan’s AES/RES data bank, and prepare proposals on introduction of technologies for their efficient application in line with local conditions;

to provide for informing the public, building a website of available public information specified by legislation and arrange for its regular upgrading.

Import and export of electric power Import and export of electric power in Azerbaijan are carried out in line with respective legal acts. Without a special permission, energy import and export are carried out by the government agencies only. A special permission could be granted, when energy import and export meet the public interest.

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At present, energy production, transportation and distribution in Azerbaijan are conducted by Azerenerji ZAO (closed joint stock company) which is responsible for the following : (1) installation of energy systems, (2) transmission and sale of heat and electric power; (3) project design of energy systems; (4) equipment maintenance, and (5) science and research works in the field. Institutional background of energy resources exploitation and energy efficiency In Azerbaijan, energy efficiency is regulated by Law on Energy Resources Utilization. Considering that the law was adopted more than a decade ago and social relations have rapidly developed since then, the law provisions may be currently viewed as obsolete. It’s worth mentioning as well, that though long time has passed since the law adoption, its provisions largely remain not implemented. Azerbaijani Ministry of Industry and Power Energy approves economic, technical and organizational requirements in the field of energy rational utilization. National policy for energy resources utilization is based on the following principles:

regulation by the government the energy saving activities of legal and physical persons by means of economic and administrative measures;

priority of the energy saving requirements, application of the economic and legal stimulation mechanisms in regard to activities related to production (extraction), processing, transportation, storage and utilization of energy resources;

establishing and applying progressive standards for utilization of energy resources;

public and supra-agency supervision over utilization of energy resources by enterprises and agencies;

rationing and standardizing the saving of energy resources and their efficient utilization; mandatory compliance with the energy sector standards and requirements;

balancing the interests of the energy resources producers (extractors), transporters and consumers;

mandatory control over consumption of energy resources by enterprises and agencies regardless of their ownership type;

mandatory energy expertise of construction and reconstruction facilities;

economic sanctions for the energy resources irrational utilization;

popularization of the energy saving economic, ecological and social advantages;

intergovernmental co-operation for resolution of energy saving problems in Azerbaijan;

development and application of new energy saving technologies. The government conducts regulation of the energy resources utilization by the following means:

adoption of the nationwide energy policy concept, public programs of energy resources utilization and regulatory legal acts;

integrated management of energy saving, single techno-scientific and investment

policy in the energy saving issues, and the sectorial ministries, companies, concerns,

enterprises, agencies and organizations activity coordination;

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arranging the energy resources utilization rationing, standardizing, certifying and metro-measuring, and their statistics recording;

governmental expertise of the energy resources production and utilization; establishing respective responsibility levels for the energy resources irrational

consumption; building and applying respective financial and economic mechanisms to stimulate

energy saving; establishing a rational energy consumption fund and deciding on its rules and

procedures; establishing and developing the machine- and instrument-building base for

production of the energy saving technologies and equipment, and control instruments;

funding the energy saving projects and programs from the budgetary goal-oriented investment programs and their soft earmarked crediting;

planned activities to mitigate crisis situations in the nationwide energy supply, while granting benefits to the energy producing regions.

Ministry of Industry and Power Energy of Republic of Azerbaijan in the field of energy resources utilization:

contributes to development and implementation of national policy and programs to rationally use the energy resources;

coordinates the executive power bodies and economic operators activity to implement the policy of rational utilization of energy resources ;

defines directions for funding the energy saving programs from the rational energy consumption fund sources, and controls the envisaged goal-oriented budgetary allocations;

conducts governmental control over rational utilization of energy resources; carries out expertise of the newly-built, reconstructed and operational facilities to

determine the rationality of their energy consumption; contributes to governmental and sectorial standards, norms and rates of energy

consumption; conducts, in line with the set order, international co-operation in the field of energy

saving, and studies, summarizes and spreads the sector advanced experience.

Economic measures to provide for rational utilization of energy resources envisage:

application of economic levers and incentives for orienting organizational, techno-scientific and economic activities to rationally use the energy resources, and RES in particular (solar, wind and waves energy, etc.);

determining basic directions and funding sources for rational utilization of energy resources;

building the system of norms and standards of rates of energy resources consumption in regard to the energy-intensive technological processes and product types in all economic sectors in order to establish grounds for applying economic measures of persuasion for energy saving processes;

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introduction of a fee for the energy resources irrational utilization through applying differentiated surcharges to the existing prices and tariffs to be determined based on the energy resources overconsumption in comparison with the rates;

granting of subsidies, subventions, and tax, credit and other benefits to stimulate building, introduction and application of progressive energy saving technologies and equipment;

application of national tariffs and prices system to ensure the energy resources rational utilization. Independent heat and electric energy generators not included into the national (regional) power supply system, have the right to use the national (regional) power supply system for transportation their produced energy power. The power supply systems should provide for the power distribution at the terms and prices respectively agreed upon.

The standardized energy resources utilization provides for application of mandatory sector-integrated standards, rules and requirements. National energy standards define terminology and definitions of basic notions of energy resources utilization, their organizational and methodological grounds, and specific rates of consumption and methods for the energy demand calculation and certification based on energy consumption, and collecting and processing the energy resources consumption data, as well as requirements for the energy saving technologies and facilities, energy derivatives and RES..

Regulation of rational exploitation of energy resources

Certification of the energy resources exploitation implies verification of compliance of data on the products, technological processes and services of energy consumption with the nationally determined standards or other standardized regulations. All kind of energy consuming products (works and services) and resources require their mandatory certification for compliance with the energy efficiency indicators. Mandatory certification is done in conformity with Azerbaijan’s legislation. Those enterprises that manufacture products whose energy efficiency indicators exceed the nationally established standards become entitled for benefits from the energy rational consumption fund. Regulatory base for the rational energy consumption is made of energy consumption regulations and rates for technological processes, equipment, facilities, electric home appliances and products (works and services). The energy consumption regulations are established by the national standards and are determined by calculation or based on experiment. National standards based energy consumption rates are valid for the time of validity of a national standard and other standardization regulating documents. Energy consumption rates are established by the national standards and other standardization regulating documents for the total device, technological equipment and/or technological process validity period. Energy consumption rates established by the national standards are mandatory for all agencies and enterprises regardless of their ownership and legal organization types. Rates established by other standardization regulating documents are of advisory nature and are deemed to conform to national standards. Energy consumption rates are necessarily specified in the technical passports, maintenance cards, and technological instructions for facilities to generate and consume electric power.

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Heat consumption rates for buildings and constructions are established by construction rules and standards. Standards, construction norms and rules established for energy consumption rates are subject for revision every five years. Within this process, the standard compliance with its original level is determined and – if necessary – a new rate is established. Control over compliance with the energy resources consumption rates is made by order established by Azerbaijani legislation.

2.2 LEGAL FRAMEWORK OF RENEWABLE ENERGY AND ENERGY EFFICIENCY

General review. In Azerbaijan, the country Constitution establishes legal grounds for energy efficiency and RES development.

Main provisions of Constitution establish legal and economic framework for these activities. Constitution declares, without abuse of rights and interests of any physical and legal person, that natural resources are the property of Republic of Azerbaijan and determines protection of natural environment a citizen’s obligation. Also, it declares that the state of Azerbaijan creates conditions for a socially-oriented market economy development and guarantees freedom for entrepreneurship. The international agreements Azerbaijan has adhered to are the part and parcel of Azerbaijani legal system, and enjoy superiority over national legislation. Though no independent legal act has been adopted yet in Azerbaijan to regulate relations in the AES/RES field, legal acts applicable for energy sector largely cover AE/RE as well. Constitution of Republic of Azerbaijan (November 12, 1995)

Article 14: Natural resources shall belong to Republic of Azerbaijan and shall be exploited without prejudice to physical and legal rights, and interests of a person. Article 16.2: Republic of Azerbaijan shall promote culture, education, public health, science,

arts and protect nature, and people’s historic, material and spiritual heritage.

Article 39.3, 39.4: Nobody shall prejudice integrity of environment and natural resources by exceeding the limits established by law. The state shall guarantee to preserve ecological balance and protect certain wild animal and plant species. Presidential Decree of Republic of Azerbaijan No 182 of November 10, 2009 «On approving provisions on State AES/RES Agency Under Ministry of Industry and Power Energy of Republic of Azerbaijan». In compliance with this decree, activities in the field of AES/RES (project design, construction, exploitation) are conducted by special permission granted by Ministry of Industry and Power Energy of Republic of Azerbaijan. The agency is an executive power body entrusted with public administration and control over operations in the field of AES/RES, as well as over AES efficient utilization in Azerbaijan. In fulfilling its rights and obligations, the agency – directly and within its mandate – co-operates with the ministry divisions, other executive power bodies and non-governmental organizations.

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Presidential Instruction of Republic of Azerbaijan «On additional measures for AES/RES utilization in Republic of Azerbaijan» (November 16, 2009) 1. For building new energy sources in order to improve the national energy security and ensure research into production and application of AES/RES energy of wind, solar, mountain rivers, biomass and geothermal water springs required for the natural environment protection, one million manat (XXX EUR ) shall be granted to Ministry of Industry and Power Energy from Reserve Fund of the Republic of Azerbaijan President envisaged for the 2009 national budget. 2. To implement the measures targeting the wind energy resources research, as well as the mountain rivers energy potential and broad application of small HPPs, one million manat from Reserve Fund of the Republic of Azerbaijan President envisaged for the 2009 public budget shall be granted to Azenerji ZAO. Presidential Instruction of Republic of Azerbaijan «On approving ‘National Program for the Azerbaijan Republic fuel and energy complex development (2005-2015’» National Program targets fully meeting demand of population and economy in electric power, gas and other energy carriers within the next decade of development through assistance of fuel and energy complex of Republic of Azerbaijan .

The main tasks of National Program are as follows: - determining the main development directions to meet modern requirements of the fuel and energy complex of Republic of Azerbaijan; - carrying out respective techno-scientific and administrative activities to increase efficiency of industrial areas included into the fuel and energy complex; - providing for progressive technological activities to produce, process, transport, store, record and consume the energy resources; - building a healthy competitive environment in fuel and energy complex; - increasing investment for development of fuel and energy complex; - ensuring ecological security of fuel and energy complex; - introducing a more rational system of payment for energy resources consumption (electric power and natural gas). By 2015, the currently installed generation capacities are planned to be increased to up to 6,500-7,000 MW. This would be feasible to achieve through construction of new TPPs and HPPs, modernization of the operational power units and AES utilization by Azerbaijani power sector (small HPPs, wind, solar, thermal waters, etc.). In future, up to 15 per cent of electric power are planned to be generated by the AES-fed HPPs, while the rest of power production (85 per cent) would be generated by TPPs. «National Program for AES/RES utilization» was approved by Presidential Instruction of

Republic of Azerbaijan (October 21, 2004, No 462)

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In its introductory part, the instruction specifies that increase in the world energy power production requires AES-RES broader utilization. This positive experience has been accumulated already by many countries, where the solar, wind and other clean and RES energy utilization is annually increasing. Due to its favorable conditions, Azerbaijan possesses sufficient AES/RES potential. Still, potential has not been fully utilized yet. Thus, by means of broader world experience, new AES/RES capacities shall be established in the country. Let’s note, that in the course of National Program preparation certain references were made to numerous Azerbaijani legal acts and laws, e.g., «On utilization of energy resources», «On electric power», «On energy sector», «On thermal and electric power plants»; «National Program to lower the poverty level and on economic development in Republic of Azerbaijan in 2003-2005» approved by Presidential Decree of Republic of Azerbaijan No 854 of February 20, 2000; «National Program on measures to strengthen financial discipline in energy and water sectors» approved by Presidential Decree of Republic of Azerbaijan No 893 of March 25, 2002; «National Program on measures to foster socio-economic development» approved by Decree No 4 of November 24, 2003; «National Program on regional socio-economic development in Azerbaijan (2004-2008)» approved by Decree No 24 of February 11, 2004. Presidential Instruction of Republic of Azerbaijan «On approval of national ecological programs in Republic of Azerbaijan» (February 18, 2003) The mentioned document is focused on AES power supply for population, but gives priority to the forestry resources rehabilitation and expansion. It is envisaged to encourage imports to Azerbaijan of ecologically clean technologies for generation of heat and electric power from solar, wind and biogas energy. As well, huge potential exists in the country for both rational utilization of conventional energy and expansion of RES exploitation. To resolve current problems through rational utilization of conventional energy and expansion of RES exploitation, further activities are deemed to be important: - application of highly-efficient technologies for TPPs and the energy system structural optimization; - encouragement to application of the modern energy protection technoologies in production and non-production processes; - preparation and implementation of national and regional programs targeting broader application of the energy protection communal means (thermo protecting devices etc.). Resolution of the mentioned problems is required for a dual purpose, i.e.,: 1) to ensure utilization of energy-saving systems to reduce energy consumption per every unit of national profit. In this case, the goods and services cost would go down to increase economic efficiency, while the environmental impact would decrease;

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2) power sector development and RES utilization. To reach the goals specified, the following should be done: - developing and applying the small HPPs schemes; - preparing a national action plan to utilize solar and wind energy; - installing wind energy facilities in places distant from the birds traditional migration routes and their concentration sites; - producing and utilizing biogas at private and municipal facilities. Implementing the action plans jointly with providing for sustainable develoment would ensure as well an increase in production rationality and contribute to new employment. Law of Republic of Azerbaijan No 94-IГ of May 30, 1996 «On utilization of energy resources» The present law determines legal, economic and social grounds for the energy resources utilization national policy, as well as prime directions of its implementation mechanism, while regulating the sector relations between the government, and legal and physical persons. Article 3 of the mentioned law determines basic principles for national policy of energy resources utilization. Article 31 of the mentioned law specifies that foreigners who invest advanced Western technics and technologies, material and financial resources to increase energy efficiency in Azerbaijan shall carry out their activity in compliance with present law, in particular legislation to protect foreign investment and regulate sectorial activities, as well as with other legal regulations and shall bear responsibility in accordance with Azerbaijan’s legislation. Law of Republic of Azerbaijan No 541-IГ of November 24, 1998 «On energy sector» The present law covers the following fields: the energy sector activities; deployment, construction and exploitation of facilities to conduct the mentioned activities; measures to protect and rationally use the energy, as well as to prevent or reduce the energy activities negative impact on the environment. The present law largely incorporates the most general legal grounds for the oil, gas and electric power sectors public regulation. Special rules could be envisaged by other laws covering specific sectors. National energy policy is aimed at ensuring and regulating the following: 1. Providing for the energy materials and products efficient extraction, production, transportation, distribution, storage, utilization and safety. 2. Building infrastructure to efficiently and reliably supply the energy to all consumers and create new employment with consideration of the following:

conditions for competition and minimal monopoly in all types of the energy sector activities;

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organization of activities in energy sector based on different types of ownership, long-term contracts and special permissions;

favorable conditions for local enterprises for manufacturing high-quality products;

favorable conditions for applying efficient and ecologically safe technologies. 3. Conservation of energy resources, reduction of waste levels, efficient utilization of energy and RES. 4. Reduction of negative environmental impacts.

5. Allocating subventions to producers and consumers to raise the energy sector productivity, when the energy shortage arrives. 6. Creating favorable legal and economic conditions for investments.

7. Preparing national energy programs.

Law of Republic of Azerbaijan No 459-IГ of April 3, 1998 «On the power sector» The present law primarily envisages to ensure the energy resources rational utilization jointly with socio-economic feasibility of power generation and their delivery to the energy market to meet consumers demand while safeguarding the environment.

In compliance with the law, the energy sector activities shall be defined as exploration, extraction, production, treatment, storage, transportation, distribution and utilization of energy materials and products (energy resources). Electric power sector is a branch of economy engaged with generation, transportation and distribution of heat and electric power. In compliance with the present law, parties to the heat and electric power supply operations shall be:

national electro-technical enterprise of Unified National Electro-Technical System;

energy supplying enterprises;

independent power generators, i.e., legal persons possessing full economic and organizational independence and not subordinate to the national unified electro-technical system;

energy consumers.

National electric power enterprise of Azenerji, ZAO with its subordinate enterprises incorporate high-voltage transmission networks (exceeding 110 KV) and operated from a single center jointly with means for dispatch and management that are subordinated to the mentioned energy generator. Based on contractual agreements, the enterprise buys electric power from its generators and transmits the power by the enterprise networks, while carrying out foreign energy exchanges. As a legal person, an energy supplying enterprise, buys heat and electric power by contract agreement from a national electric power enterprise and energy producers to sell it to consumer on the agreed upon technical and economic terms. Such energy supplying enterprises by contract agreements with Azenerji ZAO manage heat and electric power supply, while supply functions remain within an exclusive competence of the state.

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Independent power generators owned by the state, different sectors, and private companies supply heat and electric power to consumers using their own interconnections, as well as through the national electric energy enterprise and/or power supplying enterprises in conformity with Azerbaijani legislation, while exporting their power produced in excess. Power supplying enterprises and independent generators could be of any ownership type.

Small EPPs are classified as independent power producers. They are:

solar energy plants to produce heat and electric power;

wind plants to produce 10-100 KW of electric power and be built in compliance with respective requirements for distance from any third party’s property;

HPPs of 50-10,000 KW capacity to ensure the utilized water immediate return to its body and to be built on the permanent water streams;

EPPs to use heat and electric power by some 80 per cent gas-generated from biomass, but for firewood, or other fuel materials;

the stand-by and fuel-fed EPPs to produce power, if disruptions in power supply arrive. These plants operating periods depend upon the time required to cover unexpected energy supply disruptions.

Law of Republic of Azerbaijan of January 15, 1992 «On protection of foreign investments» The present law determines economic and legal principles of foreign investment in Azerbaijan. It targets to attract and ensure efficient use by national economy of material and financial resources, advanced foreign techno-technologies and managerial experience, while guaranteeing protection of rights of foreign investors. Tariff Committee of Republic of Azerbaijan Heat and electric power price (tariff) No energy market functions in Azerbaijan yet, and prices for heat and electric power (tariffs) are adjusted by the state. Types of heat and electric power price are as follows: price of the heat and electric power generator; wholesale price of heat and electric power; retail price of heat and electric power, i.e., for power salable to consumer; import-export price of electric power. Heat and electric power prices , while fully covering the enterprise expenses on energy production, transportation and distribution, shall ensure the enterprise profit generating and power sector development in the context of energy consumption natural growth. Heat power price in a particular region (territory) can’t exceed the price for heat power generated from electric energy. A distributer regularly submits reports to respective executive authorities on the established prices and terms.

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Decision No 03 of January 6, 2007 «On electric power domestic tariff regulation»

Based on this decision, the following retail prices for electric power were approved:

No group of consumers tariff for 1,000m3 (manat, VAT inc)

1 wholesale tariffs

1.1 Azerenerji ZAO generated power 4.1

1.2 small private HPPs generated power 2.5

1.3 wind plants generated power 4.5

2 retail tariffs

2.1 all consumers 6.0

3 transit tariffs

3.1 electric power transmission 0.1

(100 gyapik = 1 manat; 1manat = 0.79 $) The wholesale electricity tariffs of Azerenerji ZAO cover its all production and network transmission expenses. Electricity tariffs for power generated by small HPPs and wind stations do not include tariffs for transit transmission of electric power. The electricity transit transmission by means of transmitters belonging to the networks and other economic operators is based on the electricity transit transmission tariff. As the table shows, AES/RES prices differ substantially and wind produced electricity is twice more expensive than a small EPP generated power. This would impede development of small HPPs. For the country to move to a free energy market, specific conditions have to be met, i.e., presence of numerous independent power producers and privatized entities engaged with energy transmission and distribution. Exemptions Import operations. According to Republic of Azerbaijan Cabinet of Ministers Decision No 187 of October 15, 2005 «On changes and additions to certain Republic of Azerbaijan Cabinet of Ministers decisions», imported wind plants and their parts shall be exempt from customs duties and VAT taxes. Other RES-powered producing plants were not exempt from customs duties and VAT taxes.

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2.3 BARRIERS FOR DEVELOPMENT Azerbaijan, as other CIS countries, faces certain obstacles impeding the process of AES/RES utilization to include:

Financial shortages:

shortage of domestic and foreign investment capital resources, i.e.,: interested local companies lack the funds for AES/RES development. Participation of foreign capital is often impeded by unstable economic conditions and business environment, and legal and regulatory frameworks;

shortage of long-term loans to be granted on preferential terms. Due to presently risky long-term investments, commercial banks are reluctant to credit for long term. Besides, financial institutions lack knowledge about and experience in RES capital investment. Also, price of long-term commercial foreign loans is quite high due to the risks associated;

due to insufficient demand, required equipment is expensive;

lack of available national mechanism for funding AES/RES utilization. AES/RES projects technical complexity makes this mechanism important due to high risks and lasting implementation period.

Informational limitations:

shortage of information on technologies and their application. Lack of comprehensive information on technologies to transform the major conventional energy complexes into miscellaneous RES-utilizing systems;

insufficient data on financial, social and ecological benefits deriving from investment into AES/RES exploitation;

lack of reliable AES-RES data. At present, only initial working data exists about the RES potential.

Institutional restrictions:

limited legal framework for AES/RES exploitation. The existing system of sanctions targeting the ecology laws application could not – due to its inefficiency – increase attractiveness of AES/RES utilization as an ecologically cleaner energy source;

the local government bodies are not interested in funding AES/RES projects since no private profits could be expected from these long-term projects in short prospective;

lack of national and inter-regional long-term programs, and inter-regional coordination required for RES exploitation;

lack of legal, political and regulatory framework to stimulate RES utilization.

Technical restrictions:

lack of proper engineering infrastructure specialized in AES-RES exploitation. RES utilization requires services of designers, technical staff and government officials besides the knowledge of AES-RES engineers;

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lack of experience in AES/RES projects implementation;

the country lacks the duly qualified mass producers of equipment for application of AES/RES modern technologies. That’s the reason for the mentioned equipment production absence;

lack of broad experience to calculate greenhouse gases reduction in the course of planning and implementing activities targeting RE production;

lack of RES standards.

3. CONCLUSIONS AND RECOMMENDATIONS It is important to ensure Azerbaijan’s transition from the “brown” to Green Economy. Azerbaijani concept of Green Economy has to be build based on the global and European experience attained in this field with consideration to its national specifics. For this, inefficient subsidies shall be abandoned, and introduced assessment of natural resources in the money terms and taxation of productions harmful to the natural environment; A policy of public procurement shall be introduced to encourage production of eco-products and application of production methods conforming with principles of sustainable development; System of Ecological Taxation shall be reformed to envisage modification of manpower taxation and introduction of pollution taxes; Public investment into the infrastructure compatible with principles of sustainable development (including public transport, RES and construction of energy-efficient buildings) and nature’s capital shall be secured, in order to resume, support and – when possible – to increase this capital; Goal-oriented public support shall be ensured for R&D related to development of clean-ecology technologies;

As of today, the following directions could be considered as targeting the Green Economy development in Azerbaijan:

Green Energy;

development of tourism and health-and-spa treatment;

ecologically clean transport;

Green Agriculture and Agro-Industrial Complex;

Green Residential Utilities Sector;

Green Building Materials Production and Construction;

development of eco-entrepreneurship;

eco-management and eco-auditing;

eco-engineering and eco-modernization;

Green Taxation;

eco-investment;

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activation of Green Credit Lines;

eco-certification and eco-marking;

Green Procurement;

Green Statistics;

shaping by Green Mass Media a Green Public Opinion.

In order to activate investment support, the following measures shall be applied:

- tendering the goal-oriented public subsidies for implementing energy-saving projects of nationwide importance;

- applying financial mechanisms of fund raising through selling quotas in line with the Kyoto Protocol;

- resorting to credit programs offered by foreign financial institutions.

In order to make the economy energy-efficient by means of its techno-technological components, the following possibilities shall be used broader:

- technical modernization of the economy sector enterprises by means of energy-efficient equipment;

- inter-sectorial and intergovernmental transfer of energy-efficient technologies and the most modern systems for organization of production and management of energy exploitation;

- increasing the efficiency coefficient of energy equipment and loss reduction of heat and electricity transmission lines in the process of power and heat energy production and transportation;

- utilization and further recycling of municipal waste; - introduction of alternative eco-clean fuels at transport.

Improvement of system of public administration Practice of voluntary agreements on the energy-efficiency projects introduction signed by the public administration bodies with enterprises and public associations shall be introduced.

Motivation Broader application shall be granted to such stimulating mechanisms as:

development of legal mechanisms of the energy resources market regulation; providing for market pricing and improvement of the tariff fixing mechanisms, preventing price fluctuations, strengthening the work competition principles;

granting tax benefits to enterprises that introduce energy-saving equipment and apply AES;

introduction of bonus system for the energy resources effective consumption, as well as penalties for the enterprise leaders for the energy resources inefficient consumption.

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Standardization, marking and other regulating mechanisms There shall be applied: national energy standards; marking of goods for energy efficiency; experiments for energy saving. It is necessary to encourage the maximal possible independent initiative and resources usage of the regions, economic operators and population, as well as RES broader utilization. The Green Economy concept is relatively new for Azerbaijan and rather generates discussions among the scientific workers and experts in the field. That is why its broad popularization is required for the joint effort to be taken by the public, business and non-governmental organizations with involvement as well of initiatives of private citizens in order to create Green Thinking and develop Green Economy in Azerbaijan.

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LIST OF REFERENCE SOURCES AND LITERATURE CITED

1. The Washington Post daily, December 3, 2007. 2. http://www.unep.org/GreenEconomy/Portals/93/documents/Full_GER_screen.pdf. 3. http://vitalsigns.worldwatch.org,Vital Signs 2011. 4. Global Green New Deal, UNEP, 2009,

http://www.unep.org/greeneconomy/portals/30/docs/GGND-policy-brief. 5. Ааron Cosbey, Are There Downsides to a Green Economy? The Trade, Investment and

Competitiveness Implications of Unilateral Green Economic Pursuit, 2010. 6. Herbert Kopnik, Green Business is a Green Light to future organizations and

businesses, ATIB EcoVision magazine, 2011, No 7. 7. Samir Isayev, Green Economy and Green Business prospectives in Azerbaijan, ATIB

EcoVision magazine, 2011, No 6. 8. Detlef Schreiber, On the path towards the Green Economy:

improvement of resources efficiency, ecological competition and performance, ATIB EcoVision magazine 2011, No 6.

9. Green Business support strategy for Azerbaijan Private sector organizations was worked out by Mr. Samir Isayev within the framework of UBCCE – GTZ, 2011.

10. Green Economy Report: How two per cent of global GDP can trigger green growth and fight poverty, UNEP report, 21 February 2011.

8. Constitution of Republic of Azerbaijan (November 12, 1995). 9. Law of Republic of Azerbaijan No 94-IГ of May 30, 1996 «On the energy resources

utilization». 10. Law of Republic of Azerbaijan No 541- IГ of November 24, 1998 «On the energy

sector». 11. Law of Republic of Azerbaijan No 459-IГ of April 3, 1998 «On the power sector» with

amendments and additions introduced by the Laws No 204-IIДГ of December 12, 2001, No 399-IIДГ of December 6, 2002 and No 394-IIДГ of December 3, 2002.

12. Law of Republic of Azerbaijan No 784-IГ of December 28, 1999 «On thermal and electric power plants».

13. Law of Republic of Azerbaijan of January 15, 1992 «On protection of foreign investment».

14. Law of Republic of Azerbaijan of December 15, 1998 года «On natural monopolies». 15. Water Code of Republic of Azerbaijan No 418-1Г of December 26. 16. Law of Republic of Azerbaijan No 159-IIГ of June 29, 2001 «On the municipality water

economy». 17. Law of Republic of Azerbaijan No 547 of August 9, 2001 «On introducing

amendments to the Water Code of Republic of Azerbaijan» based on the Law ‘On water economy of municipalities’».

18. The Republic of Azerbaijan Tax Code. 19. The Republic of Azerbaijan Civil Code of December 28, 1999. 20. The Republic of Azerbaijan Land Code. 21. The Republic of Azerbaijan Forestry Code. 22. The Republic of Azerbaijan Code No 906-IГ of July 11, 2000 «On administrative

misbehavior». 23. The Republic of Azerbaijan Code of Civil Procedure No 780-IГ of December 28,1999. 24. Law of Republic of Azerbaijan No 1064 of June 20, 1995 «On customs tariff».

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25. Decision of the Republic of Azerbaijan Tariff (Pricing) Council No 03 of January 6, 2007 «On domestic electric power tariff regulating».

Presidential Decrees of Republic of Azerbaijan

26. Presidential Decree of Republic of Azerbaijan No 182 of November 10, 2009 «On approving provisions on National AES/RES Agency Under Ministry of Industry and Power Energy of Republic of Azerbaijan».

27. Presidential Decree of Republic of Azerbaijan of April 14, 2009 on approving «National program for socio-economic development of regions of Azerbaijan in 2009-2013».

28. Presidential Decree of Republic of Azerbaijan No 266 of January 26, 2000 «On applying the Law of Republic of Azerbaijan on ‘Water supply and waste waters’».

29. Presidential Decree of Republic of Azerbaijan No 366 of July 15, 2000 «On applying the Law of Republic of Azerbaijan ‘On specially protected natural territories and facilities’».

30. Presidential Decree of Republic of Azerbaijan of September 18, 2001 «On approving provisions on Ministry of Ecology and Natural Resources of Republic of Azerbaijan».

31. Rules for issuing special permissions (licenses) for certain activities in Republic of Azerbaijan (approved by the Republic of Azerbaijan Presidential Decree of September 2, 2002).

Presidential Instructions of Republic of Azerbaijan

32. Presidential Instruction of Republic of Azerbaijan «On applying the Law of Republic of Azerbaijan ‘On thermal and power plants’» (March 6, 2000, No 343).

33. Presidential Instruction of Republic of Azerbaijan «On additional measures for AES/RES utilization in Republic of Azerbaijan» (November 16, 2009).

34. Presidential Instruction of Republic of Azerbaijan «On approving ‘National program on the Republic of Azerbaijan fuel and energy complex development (2005-2015)’». 35. Presidential Instruction of Republic of Azerbaijan approved «National program for AES/RES utilization» (October 21, 2004).

36. Presidential Instruction of Republic of Azerbaijan «On approving national programs related to ecology in Republic of Azerbaijan» (February 18, 2003).

37. Presidential Instruction Republic of Azerbaijan No 6761 of March 31, 2001 «On regional (city) electricity distribution networks transfer under the contract-based management».

38. Presidential Instruction of Republic of Azerbaijan No 844 of December 21, 2001 «On small hydropower plants privatization». 39. Presidential Instruction of Republic of Azerbaijan No 793 of May 2, 2005 «On additional measures related to improvement of power supply in Republic of Azerbaijan».

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Workshop in Moscow 6 March 2012

BRIEF STUDY INTO DEVELOPMENT OF FRAMEWORK OF GREEN ECONOMY IN THE RUSSIAN FEDERATION

Done by Vasily Malaha national expert

Moscow, Russian Federation - 2012

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TABLE OF CONTENTS

LIST OF ABBREVIATIONS 95

1.PREREQUISITES OF GREEN ECONOMY 96 1.1 ENVIRONMENTAL POLICY AND GREEN ECONOMY: PRIORITIES OF NATIONAL SECURITY 96 1.1.1 ECOLOGICAL DOCTRINE 96 1.1.2 CLIMATIC DOCTRINE 97 1.1.3 STRATEGY OF NATIONAL SECURITY 97 1.1.4 ENVIRONMENTAL LAW 97 1.1.5 ENVIRONMENTAL MANAGEMENT: FEDERAL, REGIONAL, LOCAL 100 1.1.6 SYSTEM OF STATE ENVIRONMENTAL MONITORING 102 1.1.7 GREEN BUILDING STANDARD 102 1.1.8 ENVIRONMENT PROTECTION FUNCTIONS OF THE LAW ENFORCEMENT AUTHORITIES 103 2. GREEN ENERGY 103 2.1 PRINCIPAL INDICATORS TO SPECIFY ENVIRONMENTAL IMPACT OF ELECTRIC POWER, GAS AND WATER PRODUCER 104 2.2 INTRODUCTION OF ENVIRONMENTAL MANAGEMENT SYSTEMS AT POWER SECTOR FACILITIES 105 3. DEVELOPMENT OF RENEWABLE ENERGY 105 3.1 EXPLOITATION POTENTIAL OF RENEWABLE ENERGY SOURCES 106 3.2 RENEWABLE ENERGY AS PRIORITY OF GOVERNMENT POLICY AND NATIONAL SECURITY 107 3.3 RENEWABLE ENERGY SOURCES AND ELECTRICITY MARKET 108 3.4 RENEWABLE ENERGY SOURCES AND HEAT SUPPLY 109 3.5 FUNDING OF TECHNOLOGICAL EFFORT IN THE FIELD OF RENEWABLE ENERGY SOURCE 111 3.6 PRINCIPAL DOCUMENTS TO REGULATE EXPLOITATION OF RENEWABLE ENERGY SOURCES 111 3.7 RESERVES OF RENEWABLE ENERGY SOURCES 112 3.7.1 HYDROPOWER 112 3.7.2 TIDAL ENERGY 114 3.7.3 WIND ENERGY 115 3.7.4 SOLAR ENERGY 116 3.7.5 GEOTHERMAL ENERGY 116 3.7.6 BIOMASS ENERGY 118 3.7.7 LOW-POTENTIAL ENERGY 119 3.7.8 INTERNATIONAL CO-OPERATION 120 4. ENERGY EFFICIENCY AND ENERGY SAVING 121 4.1 RF STATE PROGRAM ON “ENERGY-ECONOMY AND AN INCREASE IN THE ENERGY EFFECTIVENESS BY THE PERIOD UNTIL 2020" 122 4.2 AUTHORITIES TO MANAGE ENERGY SAVING 124 4.3 ROLE OF NATIONAL AND INTERNATIONAL TRADE SYSTEMS IN GAINING RESULTS OF THE ENERGY EFFICIENCY POLICY 125 4.4 ROLE OF FINANCIAL INSTRUMENTS IN ATTAINING GOALS OF ENERGY EFFICIENCY 126 4.5 INTERNATIONAL CO-OPERATION IN THE FIELD OF ENERGY EFFICIENCY 127 CONCLUSIONS AND PROPOSALS 129

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List of abbreviations

RF – Russian Federation UNCED – UN Conference on Environment and Development UNEP – UN Environment Protection Program WTO – World Trade Organization GDP – gross domestic product GRP – gross regional product RE – renewable energy RES – renewable energy sources CHP - combined heat and power plant EP – electric power plant HPP - hydropower plant GPP - geothermal power plant PSPP - pumped-storage power plant TiPP - tidal power plant TPP - thermal power plant PVS - photovoltaic system DPM - power delivery contract ESCO - energy-service company SPO - self-regulating agency BAT – best available technologies EMS – Environmental Management Systems PPP - public-private partnership GW - gigawatt kWh – kilowatt per hour MW – megawatt sq m – square meter thou t – thousand tons bln – billion mln – million trln – trillion

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1. PREREQUISITES OF GREEN ECONOMY By the World Bank assessment, in parallel to the doubling of global GDP in the period 1981-2005, 60 per cent of the world flora and fauna have degraded. OECD forecasts signal that by 2050 – if no dramatic measures are taken – planet Earth would lose two thirds of its animal and vegetal life. In response to this, the Green Economy has come into being. Experts believe that it is due to create a virtually no-waste production cycle to affect the nature in the least possible way. In order to emphasize the problem magnitude and contribute to reaching the Millennium Development Goals, the UN General Assembly Resolution 65/151 designated 2012 as the International Year of Sustainable Energy for All in recognition of energy importance for sustainable development. Lack of access to clean, affordable and reliable energy hinders human, social and economic development and is a major impediment to achieving the millennium development goals stated in the UN Millennium Declaration. 1.1 Environmental policy and Green Economy: priorities of national security 1.1.1 Ecological doctrine

Russian Federation, RF treats the sustainable Green Economy Development issues as matters of national security. Current ecological crisis, as points out the RF Ecological Doctrine (approved by the RF Government Order No 1225-р dated August 31, 2002) endangers sustainable development of human civilization. Continuing degradation of natural systems would result in the bio-sphere destabilization and loss of its integrity jointly with ability to sustain the natural environment indispensable for our life. Russia is a key contributor to supporting the bio-sphere global functions since the better part of Earth biodiversity exists in the vast Russian territories where different natural ecosystems are present. Scope of Russia’s natural resources, its intelligence and economy potential determine RF’s important role in resolution of global and regional ecological problems. The ecological Doctrine is based on the RF Constitution, its federal laws and other legal regulation instruments, and RF international agreements in the field of environment protection and the natural resources rational exploitation, as well as on

fundamental scientific knowledge in the field of ecology and allied sciences;

assessment of modern environmental status jointly with its impact on the people’s quality of life in Russia;

acknowledgement of the RF natural systems importance for the global bio-sphere processes;

consideration of global and regional specifics of man and nature interrelation. As well, the doctrine encompasses recommendations of UNCED (Rio, 1992) and subsequent international forums on environment protection and sustainable development.

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Ecological Doctrine lays down strategic objective of the national policy in the field of ecology, e.g.: preservation of natural systems, providing support for their integrity and life functions indispensable for the human society sustainable development, improvement of life quality jointly with public health and demographics, and ensuring national eco-security.

1.1.2 Climatic doctrine

Climatic Doctrine of the Russian Federation was approved by the RF Presidential Executive Instruction No 861-рп dated December 17, 2009 to become a systemized approach to the goals, principles and ways to implement RF policy in the field of climate change. In the field of climate change mitigation and adaptation, the RF strategic target is to ensure safe and sustainable development of Russia to include institutional, economic, ecological and social (as well as demographic) aspects of development under conditions of climate change and emerging its related threats and challenges.

1.1.3 Strategy of national security

Strategy of the National Security of the Russian Federation Until 2020 was approved on May 12, 2009 (RF Presidential Decree No 537 of May 12, 2009) to acknowledge that its national eco-security was negatively impacted by depletion of the mineral and raw materials global reserves, as well as water and biological resources, and by presence of the ecologically unfavorable regions in Russia. Besides, national eco-security has been further aggravated by continuous strong presence of hazardous productions whose activities result in disturbance of eco-balance, e.g., sanitary and epidemiological and/or sanitary and hygienic standards of potable water consumed by population, while leftovers of radioactive wastes of the non-nuclear fuel cycle remain not covered by legal regulation. Keeps building-on strategic risk of the major Russian mineral and raw resources depletion, and extraction of certain strategically important mineral products continues going down. Energy security is determined by strategy as a key direction for ensuring a long-term national security in the sector of economy. Necessary conditions for ensuring national and global energy security are a multilateral co-operation to establish the energy resources markets complying with the WTO principles, development and international exchange of advanced energy saving technologies, as well as utilization of the ecologically clean alternative energy sources jointly with preserving natural environment and its protection, liquidation of ecological aftermath of economic activities under conditions of its continuing activity and the ongoing global climate change, introduction of ecologically safe productions and search for advanced energy sources.

1.1.4 Environmental law

RF Constitution is the prime source of environmental law. It determines foundations of constitutional order, rights and freedoms of man and citizen, the government federal mechanism, government authorities and their scope of reference, etc. For eco-law, the most

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important is that the constitution establishes the ground laying principles of order, methods and norms for legal regulation of eco-relations in Russia. Article 2 of the constitution envisages that “Man, his rights and freedoms are the highest value. Acknowledgement, observance and the protection of rights and freedoms of man and citizen - responsibility of state”. According to Article 42, “Each citizen has right to the favourable environment, adequate information about its state and to the compensation of the damage, caused to its health or to property by ecological offense”. In line with Article 9, “Earth and other natural resources are used and are guarded in the Russian Federation as the basis of life and activity of peoples, which live in the appropriate territory”. In the meantime, “Earth and other natural resources can be located in the quotient, state, by municipal and other forms of property”. Landowners are free to exercise their ownership, exploitation and management of land and other mineral resources, but without inflicting damage on the environment and legitimate interests of other persons.

As such, constitutional norms determine:

• environmental rights and obligations of RF citizens (Articles 42 and 58);

• ownership rights on land and other natural resources (Articles 9 and 36);

• authority of government bodies in the field of nature exploitation and environment protection (Articles 71,72 and 114).

RF Constitution in force has established legitimate grounds for Russian statehood, while laying down a new system of relations between the center and the regions.

RF Federal law No 7-ФЗ «About the protection of environment» of January 10, 2002 is the grounds laying document for environmental legislation. The law has force everywhere within RF territory, as well as on its continental shelf and in the exclusive economic zone, and systemizes the norms regarding:

• citizen rights for a healthy and favorable natural environment;

• economic mechanism for environment protection;

• quality regulation of natural environment;

• state environmental expertize;

• environmental requirements to project design, building, reconstruction and commission of enterprises, structures and other facilities;

• environmental emergencies;

• specially protected natural territories and objects;

• environmental control;

• environmental upbringing, education, scientific research, etc.

In accordance with the List of Instructions issued by RF President Dmitry Medvedev following up on the outcomes of the RF State Council on Ecological Policy meeting on June 9, 2011, to Russian Duma was submitted draft proposal of Federal Law «On introducing changes into the RF individual legislative acts in terms of improving regulation of environment impact and introducing measures to stimulate the economic operators to employ the most advanced technologies».

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The mentioned Federal Law would provide for:

differentiation of enterprises in terms of their environmental impact and applying for them proportional measures of government regulation;

creating grounds for technological rationing, introduction and regulation of the best available, BAT technologies;

introduction of economic stimulation methods for economic operators employing BAT.

At the same time, the draft law proposes to strengthen economic sanctions against those economic operators, who exceed the limits of permissible impact in the process of their activity, by means of introducing - in three years since the law enforcement - monetary coefficients of 25 and 100 for negative impact (instead of currently applicable 5 and 25). The Federal Law «About the protection of environment» adopted in 2002 has envisaged that the «rate setting in the region of the protection of environment consists in the establishment of the norms of the quality of environment, norms of the permissible action on the environment with the realization of economic and other activity, other norms in the region of the protection of environment, and also normative documents in the region of the protection of environment». In order to avoid taking not ecologically grounded decisions at the pre-project and project design stages, the Federal Law "About the ecological examination" was developed and adopted in 1995. During the years, changes have been introduced into the law to directly clarify the RF subjects and municipal units scope of authority in the field of environment protection. The law has specified definition of environmental expertize: establishing compliance of planned economic and other activities with environmental requirements and allowability of implementing the project subjected to ecological examination in order to prevent potential environmental impact of the planned activity and its related social, economic and other aftermath in the result of implementation of the project subjected to ecological examination. In Russia, state and public environmental examinations are practiced. The RF Government Decision No 182 of March 2, 2000 “About the order of establishment and revision of the ecological and hygienic norms of the quality of atmospheric air, maximum permissible levels of physical actions on atmospheric air and the state registration of harmful (contaminating) substances and potentially dangerous substances” has decided "to establish that the ecological norms of the quality of atmospheric air, the methods of determining the ecological norms of the quality of atmospheric air, the maximum permissible levels of physical actions on atmospheric air, maximum permissible (critical) loads on the ecological systems and other ecological norms for purposes of the protection of atmospheric air are established and are re-examined by state Committee of the Russian Federation on the protection of environment" (Rostekhnadzor). Presently, the main legal regulating documents to control producers activity in the field of atmospheric air protection are the RF Law No 96-ФЗ "On the protection of atmospheric air" of May 4, 1999 and the Law No 52-ФЗ "About the sanitary-epidemiological prosperity of

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population" of March 30, 1999 (with modifications introduced on 30.12.01 and 10.01.03 respectively). Presently, the main legal regulating document to control relations in the field of exploitation and protection of water facilities is the "Aqueous code of the Russian Federation" of June 3, 2006. The principal legal document for solid waste management is Federal Law No 89-ФЗ "On the production waste and consumption" of June 24, 1998 (with modifications introduced on 04.01.2001). The law determines legal grounds for treating production and consumption wastes in such a way as to prevent their negative impact on human health and the natural environment, as well as for utilizing these wastes by economy as an additional source of raw materials. Addendum to the Russian Ministry of Natural Resources and Ecology Order No 663 of July 30, 2003 "About the introduction of additions into the federal classification catalog of withdrawals, affirmed by the Order of MPR of Russia from 02.12.2002 No 786 “About the assertion of the federal classification catalog of withdrawals” has listed in full the wastes studied by that time with specifying their class of danger. In total, the catalogue edition has included more than 600 waste types produced by all branches of economy.

1.1.5 Environmental management: federal, regional, local

RF Constitution in force has provided legitimate grounds for Russian statehood and laid down system of relations between the center and its regions. According to the RF Constitution Article 72, eco-legislation is a matter of joint authority of the Russian Federation and its subjects who have legitimate right to establish their own legal regulation (RF Constitution Article 76). Government administration in the field of environment protection and the nature rational exploitation is exercised by the executive authorities. Supreme body of executive power is RF Government in accordance with Article 18 of Federal Constitutional Law No 2-ФКЗ «On the Government of the Russian Federation» (current version) of December 17, 1997.

In the field of nature exploitation and environment protection, the Russian Government:

ensures a single government policy in the field of environment protection and eco-security;

ensures citizen rights for favorable environment and environmental prosperity;

arranges for protection and rational exploitation of natural resources, regulation of nature exploitation and development of Russian mineral and raw materials base;

coordinates activities to prevent calamities, accidents and catastrophes, to reduce their danger and liquidate the aftermath.

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In accordance with Article 5 of Federal Law «About the protection of the environment», the RF government bodies have authority in the field of environment protection, in particular:

ensuring RF federal policy in the field of eco-development;

elaboration and publication of federal laws, and other legal regulation documents for environment protection, and control over their application;

establishing the order of state environmental monitoring , and organization and ensuring of functioning of the state environmental monitoring unified system;

ensuring a federal-level state ecological control over environment protection including the economic and other activity facilities, regardless of their forms of property, that fall under the RF supervision, and facilities contributing to the environment transboundary pollution and producing negative environmental impact (federal-level state environmental monitoring);

establishing requirements for environment protection, norms, government standards and other regulating documents in the field of environment protection;

introducing order for restricting, suspending and prohibiting economic and other activities violating legislation for environment protection and its execution.

Competences of the public administration bodies of RF subjects in the field of environment protection in particular cover:

state environmental monitoring of facilities engaged in economic and other activities - regardless of their property type - located within the territory of RF subjects with exception of those such facilities that are subjected to the federal-level state environmental monitoring;

establishment of environmental quality standards to incorporate norms and requirements at least equal to the federal-level norms and requirements;

authority for economic assessment of environmental impact from economic and other activities, and to conduct territorial eco-certification.

Competences оf local governments in the field of environment protection are specified by Article 7 of Federal Law «About the protection of the environment». According to the law, collection and discharge of communal wastes and garbage are arranged by the local town and rural settlement authorities. Local authority of municipal region covers arrangements for:

inter-settlement environment protection;

communal and industrial wastes treatment and recycling.

Local authority of urban districts covers arrangements for:

environment protection within an urban district;

collection, discharge, treatment and recycling of communal and industrial wastes.

Within RF subjects, in the federal cities of Moscow and Saint Petersburg, authority of local government could be granted to their administrations by laws of these RF subjects due to homogeneous nature of functioning of those municipal facilities.

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1.1.6 System of state environmental monitoring

On November 21, 2011, President of Russia approved amendments to establish a single system of state environmental monitoring. It is to include government monitoring of environment status and its pollution, of atmospheric air and radioactive situation within the territory of Russia and in other subsystems. Besides, it’s been decided to establish a governmental foundation of state environmental monitoring data to become a federal information system to collect, treat and analyze data on environmental status. The law has introduced change into RF Land and Forest Codes, Federal Laws “About the animal kingdom”, “About the especially guarded natural territories” and “About the use of atomic energy”, as well as into other RF legal instruments in order to bring them to compliance with new provisions of the state environmental monitoring.

1.1.7 Green Building Standard

Based on instruction of RF Minister of Natural Resources and Ecology of July 15, 2009, a Working Group was established to elaborate criteria for immovable property eco-certification. In December 2009, by instruction of RF Minister of Natural Resources and Ecology were approved the system criteria for voluntary eco-certification that took into consideration the international experience of Green Standards application. As well, the Working Group was requested to elaborate temporary methodology for immovable property eco-assessment. As a result, the Working Group established a system of property voluntary certification, i.e., the Green Standards (system). The main document to regulate the system functioning have become the “Rules of the functioning of the system of the voluntary certification of the objects of real estate - “green standards” that was registered on February 18, 2010 by Federal Agency on Technical Regulation and Metrology. The established system provides for voluntary certification of immovable property and independent and professional assessment of compliance with the system requirements. It targets: • reduced negative environmental impact from immovable property, • rational utilization of natural resources required for construction and exploitation of immovable property, • introduction of advanced energy-saving and energy-efficiency decisions into the practice of construction and exploitation of buildings, and structures, • propaganda of and assistance to the Green Construction development in Russia, • consumer assistance for choosing immovable property to produce no negative impact on the environment.

The system is fully independent and open for participation of organizations, enterprises and persons respecting its rules. System’s certification is voluntary and carried out through

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applications from foreign and domestic customers. This voluntary certification does not replace assessment of property compliance mandated by RF legislation.

1.1.8 Environment protection functions of the law enforcement authorities

Eco-security and environment protection are ensured by different government authorities to include the law enforcement agencies. RF Ministry of Natural Resources and Ecology, and its territorial units are the specially authorized sectorial bodies. In combating environmental offence, an important role is played by the law enforcement authorities who directly apply measures of legal responsibility for committed eco-offences. The main element of this eco-function would be prevention of environmental offence and interception of illegal actions, in other words, abortion of an illegal act already committed (action or lack of it) and measures taking to determine, detect and detain the law-breaker. The law enforcement authorities engage with interception of illegal activities. Currently, certain RF authorities engage with this environmental function implementation. State eco-control and law enforcement authorities consider the eco-situation prevailing in many Russia regions as unfavorable. The number of actually committed environmental offences by far exceeds the officially registered data. Regardless of emergence of Russian public opinion supportive of eco-problems and appearance of institutional legal grounds of Green Economy, protracted problems demanding resolution continue existing. Thus, at the May 27, 2010 meeting of Presidium of the Council of State for Questions of the Improvement of Government Control in the Sphere of the Protection of Environment, RF President Medvedev has pointed out, that the Russian society has matured to understand that without taking into consideration environmental status and strictly complying with environmental standards no future is possible, while for environmental problems resolution a coherent national policy is required.

2. GREEN ENERGY Five climate belts and ten natural climatic zones cover RF territory located within eleven time zones, while having the world largest surface area and longest coast line. At the same time, around 60 per cent of RF territory is hardly accessible while having complicated climatic conditions, low population density and lack of developed transport and energy infrastructure. Within this territory, live around 13 per cent of the country population and are concentrated the main reserves of RF natural resources whose real deposits are not fully explored and estimated yet. By available assumptions, no less than 73 per cent of proven resources of oil, 97 per cent of natural gas, 90 per cent of gold, as well as other valuable deposits of natural wealth are located there.

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Creating conditions within these territories indispensable for a permanent human residence and production activity requires substantial energy consumption exceeding by times the relevant per unit power consumption in the developed areas with favorable climate conditions including, for comparison, the European countries.

2.1 Principal indicators to specify environmental impact of electric power generators and distributors, and gas and water producers

measure

ment unit 2006 2007

2008 2009

discharged hazardous substances, total thou t 4,352.9 4,206.0 4,462.2 4,140.7

including: solid matters thou t 1,273.2 1,233.8 1,337.6 1,150.1

liquid and gaseous matters, thou t 3,079.7 2,972.2 3,124.6 2,990.7

including: sulfur dioxide thou t 1,426.7 1,281.1 1,378.3 1,273.1

carbon monoxide thou t 580.5 619.5 623.4 623.8

nitrogen oxides thou t 962.7 937.1 1,002.0 975.4

hydrocarbons (without VOCs) thou t 30.7 45.3 45.1 54.1

volatile organic compounds (VOCs) thou t 7.9 12.3 16.7 11.4

detected and neutralized % 84.6 84.3 84.2 92.8

consumed water, total mln m3 40,467.7 41,114.1 42,411.3 38,379.74

volume of recycled and reused water mln m3 80,151.1 81,635.7 83,329.7

79,876.48

saving of fresh water % 72 72 72 73

water disposal to the surface water basins, total mln m3 36,092.1 36,565.4 37,849.2 34,624.60

including:

polluted waste waters mln m3 9,256.6 9,013.8 9,059.9 8,817.23

including without treatment mln m3 1,229.2 1,262.0 1,274.0 1,213.25

regular clean mln m3 25,473.2 26,205.6 27,601.6 24,644.86

treated to standard quality mln m3 1,362.3 1,346.0 1,187.6 1,162.51

annually accumulated waste mln t 73.5 70.8 67.61 65.3

investment into capital assets for environment protection and the natural resources rational exploitation (in actual price)

bln roubles

12.8 15.6 20.9 17.0

investment priority areas (investment subtotal %)

protection of atmospheric air % 14 9 4 4

protection of water resources % 83 82 91 91

protection and rational exploitation of land % 3 7 3 2

Source: State Report “About the state and about the protection of the surrounding media in Russian Federation in 2009”

In comparison to 2008, the accumulated in 2009 sector discharges of hazardous emissions went down by 11.5 per cent (till 2.96 mln t) due to optimization of the plants fuel management and reduction of fuel consumption for heat and electricity generation.

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2.2 Introduction of environmental management systems at the power sector facilities Pilot projects to develop and introduce environmental management systems, EMS and conduct eco-auditing of energy companies are implemented by stages, i.e.:

– diagnostic auditing (initial assessment) of an energy company management system with a view to establish its compliance with ISO 14001:2004 requirements of «Environmental management systems. Requirements and guidelines»;

– training the energy companies experts in EMS development and introduction; – elaboration and introduction of documents conforming with the ISO 14001:2004

standard, methodological assistance and participation in environmental aspects identification to include defining of their importance and compilation of the environmental aspects register;

– training experts in internal auditing and conducting integrated internal audit for EMS preparedness of pilot energy companies for certification of their compliance with ISO 14001:2004 standard;

– conducting of eco-auditing for compliance with requirements of the RF nature protecting legislation;

– development of recommendations for EMS replication by energy companies.

The main principle of implementation of pilot projects to build EMS by the pilot energy companies could be described through a 1+1 (+1) formula implying the EMS introduction by a management company jointly with one of its affiliates (in case the affiliate has several units, by one of them). Source: State Report “About the state and about the protection of the surrounding media in Russian Federation in 2009”.

3. DEVELOPMENT OF RENEWABLE ENERGY

Russian energy sector will continue playing its determining role for resolution of pressing strategic issues of national development. It refers first of all to construction of a new energy infrastructure prone to provide for a speedy socio-economic development of Eastern Siberia and the Far East jointly with overcoming infrastructural estrangement of certain RF regions and creating new territory-and-production clusters based on the RES exploitation development as well.

Presently, Russia is a world leader in RES exploitation and it strongly outpaces majority of industrially developed countries. In Russia’s electricity generation, the total share of RES utilization accounts to around 18-21 per cent (the peak of 21 per cent was registered in 2005, while in later years the share went somewhat down due to the thermal generation capacities outpacing growth). For comparison: US power sector accounts to the RES share of 9 per cent (including large hydropower plants, HPPs), and it averages around 13 per cent in the EU countries.

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RES thermal generation share accounts to around 20 per cent (about 20 per cent of the country population use wood for heating, cooking, hot water supply and other communal and industrial purposes). Certain RF subjects account to a substantially higher RES share in the energy balance. For instance, RES power sector share of Khakasia Republic accounts to 100 per cent (hydropower). Natural and climatic, and geographic conditions, as well as the established national balance of fuel and energy resources, to include assessable reserves of fossil fuels and RES, determine priorities for exploitation of different RES.

3.1 Exploitation potential of renewable energy sources

Economic, ecological and social efficiency of RES exploitation in Russia are determined by RES potential contribution to resolution of the following problems:

ensuring stable heat and electricity supply to population conforming with accepted rates for similar climatic conditions, as well as production in zones of decentralized power supply, primarily in regions of the Far North and equated localities;

providing for a guaranteed minimal level of power supply for population and producers (agricultural, in particular) in zones of unstable centralized power supply (primarily in the deficit power systems), as well as in the regions of decentralized power supply, and preventing loss from emergency and restrictive outages in rural areas and for agriculture processing industry, in particular;

reducing hazardous emissions of power plants in specific cities and towns suffering from unfavorable eco-situation, as well as in places of mass public recreation.

According to expert assessments, potentials of RF technically assessable RES account to the equivalent of at least 24 bln t of conventional fuel. At the same time, under the presently prevailing at international energy markets conditions and levels of technological development, it is economically viable to exploit just a small fraction of assessable RES (with exception of hydropower), if no governmental support is rendered. In general, Russian RES economic potential is conditioned by its competitive value and accounts to at least around 181 mln t of oil equivalent or about 20 per cent of current domestic consumption of energy resources. In Russia, total installed capacity of the RES-operated power plants and electricity generating facilities (without HPPs of installed capacity exceeding 25 MW) does not currently exceed 2,200 MW. No more than 8.5 bln kWh of electric power (without HPPs of installed capacity exceeding 25 MW) is annually RES-produced to account to less than one per cent of the totally generated electric power in the Russian Federation. Actual production and RES exploitation dynamics for heat and electric power generation are given in the following Table.

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Potential of non-conventional RES reserves in Russia

Reserves

Technical potential,

mln t of oil equivalent per year

Economic potential, mln t of oil equivalent per year

Smaller hydropower 88 46

Geothermal energy of priority development

- 80

Wind energy 1,400 25

Biomass energy 37 8.5

Solar energy 1,610 8.5

Low-potential heat

Total 3,135 168

By regions, Russian RES technical potential could be specified as follows: – smaller hydropower: North-Western (15 bln kWh), Southern (15.5 bln kWh),

Privoljsky (9 bln kWh), Uralsky (13.2 bln kWh), Siberian (153 bln kWh) and Far-Eastern (146 bln kWh) federal districts;

– geothermal energy: Southern , Siberian and Far-Eastern federal districts; – wind energy: southern Russia, and North-Western and Far-Eastern federal

districts; – biomass energy: North-Western (2.7 mln t of oil equivalent), Central (8.2 mln t of

oil equivalent), Privoljsky (7 mln t of oil equivalent), Southern (4.8 mln t of oil equivalent), Uralsky (5.6 mln t of oil equivalent), Siberian (6.7 mln t of oil equivalent) and Far-Eastern federal districts (2.1 mln t of oil equivalent);

– solar energy: southern Russia and the Far East.

RES exploitation is primarily used for generation of heat and electric power. Share of the RES-generated electric power in Russia accounted in 2008 to around one per cent without HPPs with capacity exceeding 25 MW, and with them – about 17 per cent. Specific weight of the RES-produced heat power accounted to three per cent or around 2,000 mln Gcal.

3.2 Renewable energy as priority of government policy and national security

RF Government takes steps to create conditions favorable for attracting investment to the RES-based energy sector. Recently, certain political decisions were taken to define the place of RE development among the national priorities. In particular, Strategy of the National Security of the Russian Federation Until 2020 approved by Presidential Decree No 537 of May 12, 2009, for a required condition to ensure a long-term national and global energy security of economy, has specified development and international exchange of the advanced energy saving technologies jointly with exploitation of environmentally clean alternative energy sources.

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A required broad introduction of innovative energy technologies relying on RES exploitation has been declared by the RF President decisions taken following up on the outcomes of extended meeting of the Council of State of the Russian Federation on July 2, 2009, Message of the President to the Federal Assembly of the Russian Federation of November 12, 2009 and other documents to lay down the grounds for Russia’s national policy. Based on potential and economic viability of RE development, the RF Government approved on January 8, 2009 «Basic directions of state policy in the sphere of an increase in the energy efficiency of electro-energetics on the basis of the use of the renewable energy sources for the period until 2020». The document laid down Russia’s national policy to increase energy efficiency of power sector through RES exploitation and became a part of RF energy policy to define for the national authorities their objectives, directions and activities in the process of the power sector development through RES exploitation. State policy to increase the power sector energy efficiency through RES exploitation incorporates a complex of activities to stimulate development of RES electric power generation. Basic directions of “State policy to increase energy effectiveness of electro-energetics on the basis of the use of the renewed energy sources for the period until 2020” (Basic Directions, further on) have defined objectives and principles of RES exploitation, incorporated targeted indicators for the RES generated volumes of electric power and its consumption in relation to accumulated balance of generated and consumed electric power, as well as the measures to reach these indicators. Indicators of RES utilization by power sector are defined as the electric power generation share in accumulated balance of the RF electric power production and consumption. The established indicators envisage increase of the RES utilization share (without HPPs with capacity exceeding 25 MW) from 1.5 per cent in 2010 to 4.5 per cent by 2020 (or from 17.8 to 80 bln kWh respectively). Increase in the HPPs electric power generation with capacity exceeding 25 MW accounted in 2010 to 168 bln kWh and is to reach 284 bln kWh in 2020. RES heat power generation by district heating systems is to increase from 63 mln Gcal in 2010 to 121 mln Gcal in 2020.

3.3 Renewable energy sources and electricity market

Since in 2010 Russia opened a long-term power market, currently consideration is given to revision of mechanisms for subsidizing the RES-fed electric power production and introduction of support mechanisms for the long-term power sales and purchasing specially priced agreements for the RES-powered qualified generators to replace a mechanism of adding a fixed surplus to the wholesale power market equilibrium price.

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The prime goal of the legally laid down stimulating principles has become support to the wholesale market generation practiced exclusively for commercial purpose and in the wholesale market price zones only. The measures mentioned primarily meet demands of large and stable generators. RF Presidential Decree No 889 of June 4, 2008 «On some measures for an increase in the energy and ecological effectiveness of the Russian economy» has envisaged budgetary allocations for implementing pilot projects in the field of RES exploitation. RF Government Decision No 426 of June 3, 2008 “About the qualification of the generating object, which functions on the basis of the use of the renewed energy sources” has approved the relevant rules. To implement executive instructions of RF Government, the Russian Energy Ministry developed a complex of measures to stimulate the generation of electric power from RES. These measures target employment of mechanisms defined by Federal Law «On electro-energetics» to stimulate the RES electric power generation based inter alia on attracting funds from federal and regional budgets, as envisaged by the «Energy efficiency and development of energy sector» draft national program currently under elaboration. Of prime importance has become decision to stimulate RES exploitation by means of mechanism of surplus adding to the price of power delivery contract. It was approved by the RF Federal Assembly and relevant modifications were introduced into Federal Law “About electro-energetics” and signed by RF President on December 5, 2011. Existing legal constructions and technical regulations for functioning of the power market trade system provide for the most efficient solution of the RES exploitation stimulation with power generators functioning within the wholesale market system. Due to this, it is proposed to allow transmission operators, through a complex of measures, to retail - at the regulated prices fixed by RF subjects - the electric power produced by mentioned generators of capacity exceeding 25 MW, but beyond 150 MW, for their compensation of the network power loss. To expand the scope of potential investors, it has been proposed to allow transmission operators as well to generate the RES electric power for their technological needs, i.e., for compensation of the network power loss.

3.4 Renewable energy sources and heat supply

In accordance with “Energy strategy of Russia for the period until 2030”, strategic goals of the heat supply development would be in particular: attaining of a high-comfort level of residential, public and industrial space to include increase in quality and quantity growth of the heat supply integrated services, i.e., heating, cooling, ventilation, air-conditioning, hot-water supply; and providing a high level of these integrated services to population and branches of economy at compatible price that would conform with the leading European countries standards;

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crucial technological improvement of heat supply systems through innovative and high-efficiency technologies and equipment; reduction of downtime heat loss and fuel consumption; ensuring controllability, security, safety and economical efficiency of heat supply; reduction of environmental negative impact. The system envisaged, as well as the heat energy production and consumption volumes for the period under consideration are fully focused at meeting the Russian economy demand with taking into consideration an already started de-urbanization of town settlements to include shifting of industrial productions beyond the city construction borders and active development of individual low-rise housing whose share is expected to account to some 52-55 per cent of the residential housing to be commissioned. The low-rise constructions are to be generally equipped with individual heat generators, while the high-risers – with the centralized (partially de-centralized) heat supply sources. The main heat generation surplus for the centralized heat-supply systems will be provided by TPPs whose heat generation share in the centralized heat-supply system will go up from 44 per cent to 49-50 per cent by the end of implementation of the third stage of current strategy. Besides, application will increase of the heat utilizing plants in particular equipped with the RES heat generators working on geothermal, solar and biomass energy. As a result, the share of boiler houses in producing thermal power for the centralized heat supply systems will go down from 49 to 40 per cent by the end of implementation of the third stage of current strategy.

For heat supply, nuclear plants equipped with high-temperature gas cooled modular reactors will be utilized as well for industrial-purpose heat generation, and production of hydrogen, synthetic liquid fuel, etc. Projected heat-power supply development will require implementation of such measures, as building and improving of the thermal power competitive market, supporting development of advanced Russian equipment for the heat supply systems and their management improvement, as well as support of the government and regional authorities to investment required by the heat supply sector.

RF Law No 190-ФЗ on heat supply establishes legal framework for economic relations emerging from production, transmission and consumption of heat energy and power through utilization of heat supply systems, while defining responsibility of central government and local authorities, and city counties for regulation of and control over the heat supply sector, and rights and responsibilities of thermal power consumers, and heat suppliers and network providers. It should be mentioned that attention in the field of drafting the federal laws is focused on RES utilization for electric power generation, though organization of heat power and hot water supply, in southern Russian regions in particular, is of high priority. An example could be the Krasnodar Area, where respective regulatory frameworks are in the process of establishment and the necessary scientific, educational and production base is present.

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In general, the RES-fed thermal power generation in Russia urgently requires an appropriate legal regulatory support at federal level, and particularly focused on specific consumer.

3.5 Funding of technological effort in RES field

Creation of the RES applying technologies and technological equipment in line with the RF President approved critical technology «New and renewed energy sources» by means of funding from federal budget and through financial support of business sector is implemented in the framework of the goal-oriented federal programs, e.g.:

«“National technological base” during the years 2007-2011»; and «Studies and development for priority trends in development of the scientifically-

technological complex of Russia during the years 2007-2013». In total, 18 projects are under implementation to commercialize technologies of different RES reserves exploitation by attracting extra-budget funding to exceed 10 bln rubles.

3.6 Principal documents to regulate exploitation of renewable energy sources

Federal Law «About electro-energetics» No 35-ФЗ of March 26, 2003;

RF Government Decision No 426 «About the qualification of the generating object, which functions on the basis of the use of the renewed energy sources» of June 3, 2008;

RF Government Decision No 850 «About the assertion of criteria for the assignment of the Federal Budget of subsidies by way of the compensation for the cost of the technological connection of the generating objects with an installed generating capacity not more than 25 MW, acknowledged as the qualified objects, which function on the basis of the use of the renewable energy sources, to the persons, to which such objects belong on property rights or on another law foundation» of October 20, 2010;

RF Ministry of Energy “Rules of procedure to organize work for building a scheme of placing within RF territory electric power generators working on RES” approved by RF Ministry of Energy Order No 607 of December 17, 2010;

RF Government Decision No 823 «Rules of development and assertion of diagrams and programs of the promising development of electro-energetics» of October 17, 2009;

RF Government Order No1-р “Basic directions of state policy in the sphere of an increase in the energy effectiveness of electro-energetics on the basis of the use of the renewed energy sources for the period until 2020” of January 8, 2009;

“Order of conducting the list of delivery and pay-off of the certificates, which confirm the volume of the production of electrical energy on the qualified generating objects, which function on the basis of the use of the renewed energy sources” approved by RF Ministry of Energy Order No 187 of November 17, 2008;

RF Government Decision No 400 «Position about the Department of Energy of the Russian Federation» of May 28, 2008;

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“Energy strategy of Russia for the period until 2030” approved by the RF Government Decision No 1715-р of November 13, 2009.

3.7 Reserves of renewable energy sources

Russian Federation has a vast territory covering more than 11 per cent of the global land surface and the world longest coast line. Hydropower resources are one of the easiest assessable, economically and energy-efficient RES reserves to ensure high level of the energy supply security. Having resources of solar, wind, geothermal and tidal energy proportional to the size of the country territory, Russia accounts as well to 46 per cent of global non-tropical forests and more than half of them are ripe and overmature (annual amount of growth exceeds one bln m3), 47 per cent of proved peat deposits (annual amount of growth is 20-30 mln t) and no less than 7 per cent of sludge gas (60-80 trln m3). The technically assessable geothermal resources account to 115 mln tons of oil equivalent per year, while technical potential of the river energy resources account to 382 bln kWh per year. Besides, more than 390 mln t (by absolutely dry substance) of organic waste annually accumulate in Russia to include 250 mln t of the agricultural production waste, 60 mln t of municipal solid waste in the cities, 10 mln t of communal waste waters and 70 mln t of the wood procession wastes.

3.7.1 Hydropower Hydroenergy makes the ground for the RES power sector development due to its easiest assessable resources, economic attractiveness and a key role in ensuring secure performance of Unified Power System of Russia. It accounts to around 99 per cent of total RES-powered generation. Around 9 per cent of the global hydropower resources are concentrated within RF territory to imply the presence of a huge potential for hydropower development. Russia is the world second by hydropower reserves. As of now, total theoretical hydropower potential of Russia is calculated as 2,900 bln kWh of annually generated power or 170 thou kWh per 1 sq m of territory. Still, the potential has been exploitated by about five per cent only. An obstacle for hydroenergy development is the resource concentration in Central and Eastern Siberia, and the Far East, i.e., remoteness from the prime consumers of electric power. Power generated by Russian HPPs annually ensures a 50 mln t conventional fuel saving, while the saving potential accounts to 250 mln t. This allows reducing the СО2 atmospheric emissions by up to 60 mln t per year to provide for a practically unlimited Russian potential of surplus growth of power capacity in a situation, when the international community keeps advancing demands for limiting the greenhouse gas discharges. Currently, 102 HPPs of more than 100 MW capacity and one pumped-storage power plant, PSPP operate in Russia. Total installed capacity of the Russian HPPs hydraulic units accounts to around 46 GW (the world fifth). In 2010, Russian HPPs generated 165 bln kWh of electric power, and their production share hardly exceeded 20 per cent of totally generated electricity in Russia.

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Until recently, Sayano-Shushenskaya HPP of 6,721 MW capacity was considered to be the largest in Russia. Still, after a tragic accident of August 17, 2009 its capacities were temporary put on stand-by. Restoration is currently under way to be fully completed by 2014. On February 24, 2010, hydraulic unit No 6 of 640 MW capacity was switched-on for loading. In Russia, second by installed capacity is Krasnoyarskaya HPP. Its generated power is almost fully consumed by Krasnoyarsky aluminum smelter, one of the world largest. Prospective development of Russian hydropower sector is believed to depend upon potential development of rivers of the Northern Caucasus. Under current construction are Zaramagskie, Kashhatau and Gotsatlinskaya HPPs, and Zelenchukskaya HPP-PSPP; planned are the second construction stage of Irganaiskaya and Agvalinskaya HPPs, development of the Kuban cascade and Sochiskie HPPs, as well as smaller hydropower in Northern Osetia and Dagestan. As well, it depends upon development of Siberia, i.e., completion of construction of Boguchanskaya, Viluiskaya-III and Ust-Srednekanskaya HPPs, project-designing of Yujno-Yakutskaya and Evenkyiskaya HPPs; future development of hydropower complexes in central and northern parts of European Russia, in the Volga regions, as well as upon construction of the compensative capacity plants in the prime consuming regions, such as construction of Leningradskaya and Zagorskaya PSPPs-2.

Hydropower development through HPPs of installed generating capacity exceeding 25 MW According to the Russian Ministry of Energy data, HPPs generated 176.0 bln kWh in 2009 to account for a world highest production levels. In line with the general scheme of hydropower facilities placement till 2020, it is envisaged to put into operation the 25.9 GW basic capacity HPPs. To cover power demand during the consumption maximum peaks, an additional program is elaborated to construct the up to 81.56 GW capacity HPPS ensuring a stable growth of the HPPs installed capacity. The program of hydropower construction provides for a maximal exploitation of opportunities offered by domestic hydropower machinery sector and hydro-construction complex, as well as resources of project design, and science and research institutes.

Development indicators of HPPs of installed capacity exceeding 25 MW

indicators 2005

2010

2015

2020

electric power generation, bln kWh per year

174

168 193 284

installed capacity, MW 44,200 48,30

0 55,4

00 81,5

60

share of accumulated generation, %

18.3 14.1 13.0 16.1

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Commissioning of major large HPPs, whose construction is envisaged by the general scheme of hydropower facilities placement till 2020, is planned to happen after 2020. Hydropower development through HPPs of up to 25 MW installed generating capacity Russia’s economic potential of smaller hydropower stands at around 205 bln kWh per year. The smaller HPPs generation is forecasted to reach 20 bln kWh by 2020 to imply that these HPPs economic potential will be exploited by less than ten per cent.

Russia has its production, project design and engineering base. Its profile institutes of Mosgidroproekt, Lengidroproekt and NIIES have accumulated a substantial stock of developed schemes and engineering decisions on the smaller hydropower facilities placement. As such, are available designs of pilot projects for different types of hydraulic units with per unit capacity ranging from 7.5 kW to 5 MW, water pressure between 1.5 m and 450 m and water consumption from 0.06 to 10 cubic m per sec. Preliminary list of the smaller HPPs prospective facilities located within 35 RF subjects incorporates more than 200 EPs of 2.5 GW total installed capacity and annual generation around 10 bln kWh. The operating HPPs accumulated electric power generation jointly with the smaller HPPs forecasted power production would reach by 2015 around 10 bln kWh and by 2020 – around 20 bln kWh.

Indicators of exploitation development of hydropower resources by smaller HPPS

indicators 2005 2010 2015 2020

electric power generation, bln kWh per year

2.8 3.5 10.0 20.0

installed capacity, MW 683 850 2, 430 4, 800

RES plants production share , % 1.5 1.9 4.4 5.5

accumulated production share , % 0.3 0.3 0.7 1.1

3.7.2 Tidal energy

Russia’s tidal energy resources are comparable with the power subtotal currently generated and consumed by the country. The Kola Bay jointly with the Sea of Okhotsk coast could in principal secure around 100 GW to be generated by tidal power plants, TiPPs. Kislokubskaya TiPP in the Murmanskaya region is the only in Russia and the world over major concrete construction functioning in the polar region conditions. Currently, at Kislokubskaya TiPP testing goes on of an orthogonal unit of 1.5 MW installed capacity with potential expansion to up to 5MW. Exploitation of orthogonal units allows transition to a modular-type design of TiPP units to result in substantial cost reduction of the plants construction.

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In 2011, in Long (Eastern) Lip of Barents Sea located in Murmanskaya region on the Russian North-Eastern coast is planned to be commissioned Severnaya TiPP of 12 MW installed capacity that would include as well an experimental tidal plant. Planned TiPP constructions are the core of the world tidal energy development trends and they contribute to establishment and development of the required grounds-laying base.

Development indicators of tidal energy

indicators 2005 2010 2015 2020

electric power generation, bln kWh per year

0 0 0.024 2.3

installed capacity, MW 1.5 1.5 12 4,500

RES plants production share , % 0 0 0.0 0.6

accumulated production share , % 0 0 0.0 0.1

3.7.3 Wind energy

Technical potential of Russia’s wind energy is estimated as exceeding 6,500 bln kWh of electric power per year to reflect its substantial potential. Especially high wind energy potential is detected on the coast of Pacific and Arctic oceans, in the piedmont and mountainous regions of the Caucasus, Urals, and the Altai and Sayan mountains. Territories with the potential are located in all RF federal districts including such regions as Arkhangelskaya, Murmanskaya, Volgogradskaya, Astrakhanskaya, Saratovskaya, Chitinskaya, Sakhalinskaya, Kamchatskaya and Omskaya, and such territories as, Krasnodarsky, Stavropolsky, Altaisky and Primorsky, and such republics as, Karelia, Komi, Dagestan, Kalmykia, Bashkortastan, Chuvashiya and Tuva. Installed capacity of the wind power plants in Russia currently stands at around 16.5 MW, while their accumulated generation does not exceed 25 mln kWh per year. The forecasted wind energy electricity generation is to reach around 17.5 bln kWh by 2020. Development of wind energy in Russia is considered of major priority for the power sector development. It’s been forecasted that by 2015, total installed capacity of wind farms would stand at 1,380 MW. Currently under development is project design documentation for construction of the Eisk wind power plant (50 MW) in Krasnodar territory, and wind farms in Kalmykia (150 MW), Leningradskaya region (70 MW), etc. The Arkhangelskaya region government, OAO Roskomunenergo and SoViTec company of Germany made an agreement to construct, in the framework of the White Sea Energy territorial project in Arkhangelskaya region, a wind power plant of around 300 MW capacity with PSPP to secure guaranteed electric power supply to consumers. In 2015-2020, is planned to commission wind farms of 5,500 MW total capacity.

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Development indicators of wind energy

indicators 2005 2010 2015 2020

electric power generation, bln kWh per year

0.0097 0.21 2.6 17.5

installed capacity, MW 12 120 1, 500 7, 000

RES generation production share, % 0.0 0.1 1.1 4.8

accumulated production share , % 0.0 0.0 0.2 1.0

3.7.4 Solar energy

Regardless of rather high solar energy volumes incoming to RF territory, about two-third of them are not usable for a broad-scope power generation by means of the currently applicable technologies. Targeted indicators envisage commissioning of 12.1 MW solar elements by 2020. This level of development would be sufficient enough to support the science-and-research effort, R&D and engineering to provide a platform for increase of photovoltaic generation after 2020. At the same time, photovoltaic systems, PVSs are now used for electric batteries recharging, power supply to small independent consumers distant from transmission networks, including for the indoor and outdoor lighting, contribute to functioning of the TV and radio retransmitting stations, and mobile communication, for cathode protection of pipelines, water supply systems, as well as for the agricultural production needs and at gas stations. In Russia, Khevel company (joint stock company of RENOVA Group and Rosnano state corporation) is about to complete construction of a factory for mass production of thin-film PVSs. Exploitation of solar energy by power sector is due to increase with gradual reduction of specific production cost of photovoltaic batteries.

Development indicators of solar energy

indicators 2005 2010 2015 2020

electric power generation, bln kWh per year

0.00002 0.00003 0.002 0.018

installed capacity, MW 0.02 0.02 1.5 12.1

RES generated production share, %

0.0 0.0 0.0 0.0

3.7.5 Geothermal energy

Forecasted reserves of geothermal energy suitable for electric power generation are estimated as 2,390 MW. By 2020, a geothermal power plant, GPP of 750 MW capacity to account to 31 per cent of forecasted reserve is planned to be constructed.

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The geothermal energy sector has a substantial scientific stock jointly with construction design, organizational and producing experience accumulated in the process of erection of Verkhne-Mutnovskaya (12 MW) and Mutnovskaya (50 MW) GPPs in 1998 – 2004. At present, development of a 2.5 MW capacity binary module has been completed and its replication is planned for regions with geothermal potential. As of 2008, the GPPs total installed capacity stood at 86.635 MW. Prior to 2020, GPPs commissioning is planned on Kamchatka (100-170 MW), Kuril Islands and Sakhalin (10-30 MW), in Krasnodarsky territory (5-15 MW), Dagestan (2.5-10 MW) and Chechen Republic (2.5-15 MW).

Development indicators of geothermal energy

indicators 2005 2010 2015 2020

electric power generation, bln kWh per year

0.4 0.6 2.0 5.0

installed capacity, MW 71 90 300 750

RES generated production share, % 0.2 0.3 0.9 1.4

accumulated production share , % 0.0 0.1 0.1 0.3

Besides having huge deposits of fossil fuels, Russia is also rich in geothermal reserves whose energy exceeds the whole fossil fuels potential by 10-12 times. To provide energy supply to certain remote regions and the residential utilities sector, the geothermal resources with temperatures exceeding 20-25˚С could be considered as suitable and having potential: as of now, heat pumps and systems have been designed to ensure production of heat providers of 80-90˚С. It makes possible active use of the Earth thermal energy for heat supply to cities and towns, and selected settlements located at 75-80 per cent of Russian territory. Mutnovskaya GPP (Kamchatka) with capacity of 50 (2х25) MWe is the world best GPP by ecological parameters and level of automatization. Under current open market conditions and the existing world prices for oil, gas and timber, GPPs possess indispensable advantage towards conventional thermal power plants, TPPs and combined heat and power plants, CHPs, and boiler houses by cost of 1kWh(e) and 1 Gcal(h), on the one hand, and by emissions reduction of greenhouse and other gases (700-1,000 times less than from a coal and fuel oil burning TPP, and by 200-500 times less from those operating on gas). In recent years, Russia has built and put into operation five energy units of Verkhne-Mutnovskaya GPP (3 units per 4 MW) and Mutnovskaya GPP (2 units per 25 MW) of 62 MW total capacity. All the operational Russian GPPs are located on Kamchatka and the Kuril Islands. Still, their accumulated electric power potential of steam therms estimated to be 1 GW of operational power capacity has been utilized by no more than about 80 MW of installed capacity, while around 450 mln kWh are annually generated (2009) by:

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Mutnovskoe reserves:

Verkhne-Mutnovskaya GPP of 12 MWe capacity (2007 ) and 52.9 mln kWh annual generation,

Mutnovskaya GPP of 50 MW(e) capacity (2007) and 360.7 mln kWh annual generation,

Paujetskoe reserves by Kosheleva and Kambalnogo volcanos:

Paujetskaya GeoTPP of 14.5 MW(e) capacity and 59.5 mln kWh generation,

Iturupskoe reserves by Baranskogo volcano:

Oceanic GeoTPP of 3.6 MW(e) capacity, Kunashirskoe reserves by Mendeleeva volcano:

Mendeleevskaya GeoTPP of 3.6 MW (e) electric, and 20 MW (2009) heat power capacity.

The GPP most important ecological advantage, in comparison with conventional EPs, is their substantial emissions reduction and full withdrawal of СО2 discharges allowed by modern GPPs employing technologies of reinjection of the outspent geothermal carrier into geo-reservoir. Geothermal energy in Russia is generated not only by the steam-and-water reserves of Kamchatka and the Kuril Islands. Currently, 56 thermal water deposits have been explored in Russia whose potential exceeds 300 thou m³ per day. Industrial exploitation has been started at 20 reserves to include: Kazminskoe and Cherkesskoe (Karachaevo-Cherkessiya and Stavropol Territory), Kizlyarskoe and Makhachkalinskoe (Dagestan), Mostovskoe and Voznesenskoe (Krasnodarsky Territory). According to the data available, an underground sea of 3 mln m² area and water temperatures of 70–90 °С exists in Western Siberia.

3.7.6 Biomass energy

Development of biomass energy utilization (solid municipal wastes including), biogas and gas emitted by production and consumption wastes at their landfills, and coal mines gas Currently, the biomass electric power is generated by small CHPs functioning at timber processing factories and paper mills through using their production wastes. As a rule, all electric and heat power generated is consumed by the enterprise, while development of such generating capacity rests within the authority of a respective RF subject. At the federal level, statistical records cover the largest EPs only that transmit electric power to public networks. These EPs number 27 and their installed capacity stands at 1,276.83 MW. Another source for increase of the biomass electric power generation would be smaller EPs that work on biogas, generator gas, biofuel, solid municipal wastes and sludge gas. No federal level statistical records are currently available covering these production facilities. Economic reserves of the forest biomass waste account to 44 bln kWh and of agricultural waste - to 158 bln kWh. By 2020, based on forecasted economic reserves of 34.9 bln kWh, is planned to rich their development level of 17.2 per cent.

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Development indicators of the biomass energy generation

indicators 2005 2010 2015 2020

electric power generation, bln kWh per year

5.2 13.5 22.0 34.9

installed capacity, MW 1, 413 2, 800 5, 000 7, 850

RES generated production share, % 2.9 7.2 9.6 9.7

accumulated production share , % 0.5 1.1 1.5 2.0

3.7.7 Low-potential energy

Development of electric power production through utilization of energy of sewage disposal, waves of water basins, rivers, seas and oceans, and low-potential heat energy of earth, air and water This sector is planned to be developed by means of pilot projects on adjustment and improvement of schemes for transformation of energy, construction designs and technologies, and environmental impact assessment. Further on in the Table are listed development indicators of power production from energy of sewage disposal, waves of water basins, rivers, seas and oceans, and low-potential heat energy of earth, air and water to lay down the ground for innovative science and research effort and R&D. Development indicators of electric power production through utilization of energy of sewage disposal, waves of water basins, rivers, seas and oceans, and low-potential heat energy of earth, air and water by means of employing special heat carriers

indicators 2005 2010 2015 2020

electric power generation, bln kWh per year

0 0 0.08 0.5

installed capacity, MW 0 0 20 250

RES generated production share, % 0 0 0 0.3

accumulated production share, % 0 0 0 0

For reaching targeted indicators for the RES power production levels for the period till 2020, construction of generating plants of 60.3 thou MW total installed capacity would be required to include

37.3 thou MW through commissioning of HPPs of installed capacity to exceed 25 MW,

23 thou MW through other generating means and based on the RES-powered generators.

The estimated amount of capital investment into construction for the period of 2009-2020 stands at around 1.4 bln roubles in the current year prices.

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Indicators of RES utilization by RF power sector

Activities to develop RES exploitation are envisaged in two directions by means of:

raising energy efficiency of the RES-supplied power sector through utilization of quasi-market mechanisms for generators present at the electric power wholesale market and employing the long-term power market mechanisms;

establishing regulated purchasing prices for electric power bought by territorial transmitters to compensate the network loss and under conditions of this power premium purchase;

increasing energy and ecological efficiency of Russian economy through implementation of pilot projects of the RES-supplied generators construction.

3.7.8 International co-operation

Russia is actively involved in international co-operation to develop innovative technologies of RES utilization and coordinate activities in this field. Interaction goes on with representatives of the partner member countries, and Russia participates in the work of International Energy Agency, IEA, Conference Internationale des Grands Reseaux Electriques a Haute Tension, CIGRE, International Partnership on the Hydrogen Economy, IPHE, International Partnership on the Commercial Use of Non-Traditional Resources of Methane (Partnership ‘methane – to the markets’), M2M, Carbon Sequestration Leadership Forum, CSLF, Global Bioenergy Partnership, GBEP, and in implementation of initiative on complex usage of secondary resources and withdrawals (3R: Reduce, Reuse, Recycle). In the framework of financial fund of the Russia–ASEAN Dialogue Partnership, interaction goes in the field of RES utilization. Issues of Russia’s co-operation with International Renewable Energy Agency, IRENA are currently under discussion. Bilateral memorandums and co-

indicators 2010 2011 2012 2013 2014 2015 2020

electricity share produced by the RES-fed generators in power subtotal, %

17.0 16.5 16.7 16.9 17.3 17.5 18.5

annual forecast for introduction of the RES-fed generators capacity (without HPPs of installed capacity exceeding 25 MW), MW

75-104 300-400

600-700

1,100-1,200

1,350-1,450

1,900-2,100

5,900-6,200

forecasted power subtotal produced by RES-fed generators, bln kWh per year

17.2-17.3

18.9-19.0

20.9-21.1

24.3-24.6

26.0-31.2

34.7-35.6

76.5-80.1

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operation agreements for RES utilization have been signed by Russian Ministry of Energy with more than 40 countries of the world.

4. ENERGY EFFICIENCY AND ENERGY SAVING

Russia possesses a huge and underdeveloped energy saving potential comparable with surplus production of all the energy resources due to its ability to ensure economic growth of the country. Energy intensity of Russian economy substantially exceeds similar indicators in US, Japan and the EU developed countries in terms of calculating the parity of their purchasing power. Reasons of high energy intensity:

- structure of economy (high share of processing industries, as well as of metal smelting and heavy machinery);

- climate and territory factors (Russian vast northern regions and high transportation expense);

- technologically outdated production (industry, fuel and energy complex, and sector of residential utilities), highly depreciated equipment and retarded production technologies, energy wasting plants and big losses;

- underestimation of the energy resources cost.

Executive Instruction of RF Government No1715-р of November 13, 2009 approved the «Energy strategy of Russia for the period until 2030» listing as priorities an increase in energy efficiency and decreasing the economy energy intensity till the levels experienced by the countries with similar nature and climate conditions (Canada, Scandinavian countries), as well as a gradual easing of the fuel and energy complex burden on natural environment and climate by means of limiting pollutants discharge, sewage disposal, greenhouse gas emissions, production wastes and energy consumption. RF Law No 261-ФЗ «About the energy-economy and about an increase in the energy effectiveness and about the introduction of changes in the separate legislative acts of the Russian Federation» of November 23, 2009 envisages certain measures currently enacted or planned for elaboration, in particular:

- from 2011, distribution on the territory of Russia of incandescent electric lamps exceeding 100 W is forbidden;

- from 2013, may become forbidden the distribution of electric bulbs of 75 W and more, and from 2014 – exceeding 25 W;

- by 2011, houses, buildings and constructions shall be equipped with the energy resources registering devices, and residential houses – by 2012;

- assigning efficiency classes to buildings with mandatory notification thereof (at façade, for instance);

- planned resorting to regulating prices (tariffs) for the electricity transmission services by means of long-term tariffs fixed at the basis of the long-term parameters to regulate transmitters performance (including the methods to ensure return on investment);

- limits of level for energy consumption reduction by budgetary entities are established;

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- envisaged stimulus for increasing energy efficiency of productions (for instance, accelerated amortization of fixed assets having high energy efficiency);

- introduction into the civil turnover of the energy-service contracts to oblige contractors to encourage the customers to increase efficiency of energy resources exploitation. This practice exists in Europe and America;

- introduction of mechanism for planned verification of compliance with requirements of energy saving and increase in energy efficiency. Still, the most important element to crucially change the whole system of energy saving and conducting energy auditing would be introduction of a self-regulation system for the sector, i.e., self-regulation in the field of energy inspection. The relevant law has introduced a notion of energy inspection to imply collection and processing of information on the energy resources utilization aimed at receiving reliable data on volumes of the energy resources consumed and the energy efficiency indicators, discovering possibilities for energy saving and the energy efficiency increasing, while reflecting the accumulated data in an energy passport. All physical and legal persons, and private entrepreneurs shall be subjected to energy inspection. Energy inspections shall be carried out by those persons only (energy auditing entities and physical persons) who are members of the self-regulating agencies, SPOs in the field of energy inspection. SPOs are organized by non-commercial partnerships, the energy auditing companies, and/or physical persons, if they meet the relevant requirements; SPOs live on membership fees. Following up on adoption of the law, was established Commission with the President for Modernization and Technological Development of the Economy of Russia to supervise five directions of the RF economy modernization, while the Energy Efficiency and Energy Saving Direction was called its core by President Medvedev, i.e., a number one priority to integrate all the rest directions. At the same time, it is important to take into consideration the fact that for the synergy effect achieving, all these directions require application of advanced methods of innovative strategic management, use of indicator statistical feedbacks, as well as a system-oriented coordination with the international co-operation projects.

4.1 RF State Program on “Energy-economy and an increase in the energy

effectiveness by the period until 2020”

In December 2010, RF State Program on “Energy-economy and an increase in the energy effectiveness by the period until 2020” (RF Government Executive Instruction No 2446-р of December 27, 2010) was approved. The program is aimed at ensuring increase in the Russian economy competitive ability, financial stability, energy and eco-security, as well as in the living standards and life quality of population through realization of the energy saving potential and raise of energy efficiency based on modernization, technological development and transition to the rational and ecologically responsible exploitation of energy resources.

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Energy intensity of Russian GDP is 2.5 times higher than the world average and by 2.5-3.5 times exceeds the developed countries levels. By more than 90 per cent, the operating EPs, and 83 per cent of residential buildings, 70 per cent of boiler houses, 70 per cent of technological equipment of interconnecting lines and 66 per cent of heat-supply lines were built prior to 1990. Around quarter of the presently used refrigerators were purchased more than 20 year ago. Industry exploits 15 per cent of completely depreciated fixed assets. Protracted lagging behind advanced countries by levels of energy efficiency is unacceptable. Keeping high energy intensity levels of Russian economy would result in decreasing national energy security and impede its economic growth. Russia’s approximation to the wellbeing standards of developed countries may demand a crucial increase in efficiency of all the energy resources utilization under conditions of the global competition increase and depletion of reserves of the export-and-raw-materials oriented development. In 2000 – 2008, after the long years of lagging behind, Russia made a breakthrough to become a world leader by rates of its GDP energy intensity reduction. During these years, the indicator went down by 35 per cent, i.e., by average 5 per cent annually. The main contribution to the GDP energy intensity reduction was accomplished by structural shifts in economy, since industry and residential sector were developing slower than service sector, while industrial production of less energy intense products was growing at advanced pace. «Recovering» growth in industry has made it possible to get the «saving through scope of production» effect (saving on conditionally-constant energy consumption depending upon the load increase of the old production capacities), but maintained a high energy intensive raw-material specialization and technological lagging behind of Russian economy. Energy intensity levels of production of the major domestic industrial products exceed the world average by 1.2 - 2 times and the best world examples – by 1.5 - 4 times. Low energy efficiency results in poor competitive ability of Russian industry. With domestic price for energy resources approaching the world levels, Russian industry would survive in competition under conditions of substantial increase in the energy efficiency of its production only. Building in Russia an energy efficient society is an inalienable element of Russia’s economy development towards innovation. Transition to energy efficient way of development shall be accomplished within the next years, otherwise the economic growth would be impeded by high price and decrease in assess to energy resources. Russia possesses one of the world highest technical potential for energy saving and efficiency increasing to account to about 40 per cent of the energy consumption levels. Assessment is given based on the 2007 levels serving as basis for the RF President Decree No 889 of June 4, 2008. In absolute numbers, this potential accounts to 403 mln t of conventional fuel, and taking into consideration reduced oil gas flaring - 420 mln t of conventional fuel. This exceeds the parameter specified by Energy Strategy of Russia for the Period until 2030 approved by Executive Instruction of RF Government No 1715-р of 13 November 2009 to determine production surplus of crude energy in Russia in 2008 - 2020 as 244 - 270 mln t of fuel equivalent.

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Accomplishing the tasks posed by the program requires high level of activities coordination of the federal executive authorities, as well as of the RF subjects authorities, local governments, agencies and population. Facilitation of this would be provided by The Russian Energy Agency, REA to assume functions of operative management of a government program to follow up on the Ministry of Energy Order. Ministry of Energy has decided to promote the energy-service contracts practice.

4.2 Authorities to manage energy saving

At the level of federal legislation, issues of energy saving and energy efficiency fall under authority of RF Federal Assembly (state Duma and Council of Federation). At the government level, increasing of Russia’s energy efficiency is carried out by RF Ministry of Energy with participation of Ministries of Economic Development and Trade, Regional Development, Natural Resources and Agriculture, as well as Federal Agency on Atomic Energy, Federal Service for Tariffs and other authorities. At the level of RF subjects, relevant functions are performed by the regions legislative and executive authorities. Besides of government authorities, the energy saving and energy efficiency issues are taken care of by the energy-service companies, associations, as well as economic operators, immediate producers and consumers of fuel and energy. Training of experts in the energy saving and energy efficiency fields is carried out by respective educational institutes and universities (energy and technological). Reporting of government statistics is performed by Federal Service of Government Statistics (Rosstat) that files the data on consumption of fuel and energy by industry, agriculture, transport and utilities sector. Majority of RF subjects have their energy saving infrastructure established and 75 centers, agencies, non-commercial partnerships and 24 energy saving foundations function within their territory. At federal level, annual monitoring of energy efficiency is carried out by means of comparing the actual specific energy intensity of national economy, GDP with indicative assessments of Energy Strategy of Russia for the Period up to 2020. Certain RF subjects take similar assessments of the energy intensity dynamics of their economies, GRP.

Energy efficiency monitoring is carried out by enterprises (economic operators) at their discretion and through in-house resources or by employing the energy-service companies.

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4.3 Role of national and international trade systems in gaining results of the energy efficiency policy

Having launched the process of economic reforms, Russia abandoned state monopoly on foreign trade and has been developing relations with the market economy countries based on common principles accepted by world economy. This is particularly why it has been engaged with active contacts building with international organizations. Russia became a fully-fledged member of certain major customs, trade and financial organizations to include, in particular, Council of the Customs Collaboration, International Monetary Fund, International Bank for Reconstruction and Development, International Chamber of Commerce and since recently - the World Trade Organization, WTO. Introduction of new trading rules and broad access to market of different countries would contribute to speeding-up the pace of economic reforms in Russia after its joining the WTO. This would most of all impact the energy efficiency processes due to deriving requirements to conform to international experience guided by the established relevant norms, standards and notions. Experts are unanimous in believing that in the long-term prospective, Russia’s WTO membership would most positively impact its economic growth through trade and investment development, competition stimulation at domestic market and establishment of clear-cut international legal frameworks for internal policy in the field of foreign trade regulation. Joint assumptions of independent experts reveal that WTO participation would not bring any core problems to any of the Russian economy sectors. Still, in a short-term prospective certain selected enterprises - currently already non-competitive – could experience problems. All this is applicable for the energy efficiency sector as well, since the state energy efficiency program targets increase of Russia’s competition ability, higher levels of modernization and mobilization of internal potential. No secret that the state program is rather focused on strengthening and using a local producer. Open market created by Russia’s joining WTO could become a discouraging factor. At the same time, Russia could not go without foreign investment, technologies and expertize.

Having joined WTO, Russia takes measures to resolve this energy efficiency dilemma, in particular through:

cooperation with international producers in the light of encouraging productions localization to replace imports;

stimulating investment into energy efficiency and innovation (and not into gas extraction, for instance);

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creating schemes of attraction for foreign funds and corporations to participate in the energy efficiency process through building opportunities to generate profits (concessions, leasing, leasing-and-finance instruments);

bringing the norms and standards system in compliance with the EU requirements.

International standards are powerful means to distribute innovation, new technologies and global experience. It is them that develop the world markets and support coordination of political measures in the field of energy efficiency. RF Government Executive Instruction No 1054-р of August 8, 2001 (edition of RF Government Executive Instruction No 832 of June 6, 2002) approved Plan of Measures for Bringing of the Legislation of the Russian Federation into Compliance with Standards and Rules of the World Trade Organization, while envisaging elaboration of certain legal documents whose adoption would allow resolving problems of adapting Russia’s legal regulatory base to WTO requirements.

4.4 Role of financial instruments in attaining goals of energy efficiency

Since the state program has estimated as 92 per cent the share of extra-budgetary funding of the energy efficiency activities, involvement of financial instruments is one of the prime grounds laying stimulus for reaching the energy efficiency goals. Market financial mechanisms are very important for investments into energy efficiency, while state policy could encourage development of such mechanisms, as energy-service companies, ESCO, the open-end credit funds, leasing, joint enterprises and venture capital for ensuring the required legal regulatory frameworks and tax stimulus. Currently, the best supported has been proposal for conventional crediting of the energy efficiency projects in industry and sector of residential utilities, and banks actively engage with preparing packages for local governments, residential property owners and the energy-service companies. Particular activity is generated by reputable international institutions, such as EBRD, IFC, NEFCO contributing to elaboration of statutory instruments for Ministry of Regional Development. Included into the package, is an energy inspection of the funded project to be offered free of charge in addition to consulting services on the energy efficiency increase. ESCO may be the most efficient mechanism for funding the energy efficiency projects the world over, and Russia as well has decided to start using it. Besides providing the funds, these mechanisms contribute their technical experience as well. This kind of companies could provide three types of services, e.g.: engineering and technical expertise; general investment funding; and guarantees for energy saving. Through assuming full responsibility for project designing, implementation and running the energy efficiency projects, these corporations fully retain the risks. Their effort remuneration comes from the funds accumulated from energy saving only. ESCO provide global services having no equal in the world financial system. They offer to consumer miscellaneous services in the energy

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saving field to include project finance, engineering, project management, servicing of equipment, monitoring and assessment. Alternative or supplementary mechanisms for ESCO would be the open-end credit funds to grant loans repayable from energy saving. The reimbursed credits go for funding of new projects. In Russia, attempts are made to practice all instruments of public-private partnership, PPP, in particular:

venture capital (Russian Venture Company),

rent, leasing and concession (in particular, in regard to heat networks and water canals),

joint enterprises are quite popular with foreign producers entering a new market and seeking localization of their production. Could be listed an example of Siemens working through different partnerships, as well as cooperation of Alstom and Rushydro, Fortum and TGC, EDF and InterRAO, Dalkia and TGC-4, Schneider Electric and Samaraelektroschit, General Electric and InterRAO, etc.

While retaining certain industrial independence, Russian companies and producers could use European experience and technologies contributed to these alliances by foreign partners to ultimately speed-up processes of Russia’s technical and legal evolution towards energy efficiency. No doubt, all financial institutions contribute to the energy efficiency processes, and time will show what form could be the best result generating, when the first outcomes of performance are appraised.

4.5 International co-operation in the field of energy efficiency

Russia actively develops international co-operation in the field of energy efficiency. As an example, could be mentioned The Energy Dialogue the Russia-European Union (EU-Russia Energy Dialogue) going on since October 2000, and a joint Thematic Group on Energy Efficiency has been working within its framework. Also, co-operation for improving energy efficiency has been developing between the Russian and European energy agencies. RF Ministry of Energy has signed memorandums and adopted declarations on co-operation in the energy efficiency field with profile ministries of Germany, France, Italy, Japan, the Netherlands, Denmark and Great Britain. In October 2006, two world oldest mining universities, Freiberg Mining Academy, TU and Saint Petersburg State Mining University, SPMU signed an agreement to establish Russo-German Raw Materials Forum. Its activity is particularly focused on support to science-and-technology initiatives to promote development, as well as an environmentally efficient use of raw materials and R&D in the field of RES and ‘materials for the future’.

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In 2009, was established Russian-German Energy Agency, RUDEA, whose activity contributes to efficient utilization of Russia’s energy potential essential for its speedy economic growth, better living standards of population and environment protection. RUDEA and German Energy Agency, DENA jointly provide education in different fields of energy efficiency in Germany. Projects in the field of energy efficiency are implemented jointly with the Sredneuralsky metal smelter, United Machine Building Factories and Uralhimmash public companies. In 2011, Russian Energy Agency, REA jointly with Russian Union of Industrialists and Entrepreneurs, RSPP, from the Russian side, and Environment and Energy Management Agency of France, ADEME jointly with Association of French Enterprises for Energy Efficiency, from the French side, established Russian-French Centre for Energy Efficiency. It is a non-commercial enterprise and, as a catalyzer, is expected to stimulate conditions required for RES and energy efficiency development in Russia. Russian-Dutch interaction has been actively developing to implement Memorandum on Co-operation in the Field of Energy Efficiency and Renewable Energy Sources, and Implementation of Joint Projects in the Mentioned Field. Dutch energy saving methodology of Scanning the Energy Potential, EPS was tested by Proletarsky Plant from Saint Petersburg participating in federal and regional programs on energy efficiency and energy saving. In the framework of US-Russia Bilateral Presidential Commission, Presidents of Russia and US made an agreement to establish an interagency Working Group on energy and environment. Among other topics, energy issues were discussed to include the energy efficiency projects. RF Ministry of Energy takes part in the work of different agencies and entities dealing with issues of energy efficiency and energy saving, in particular:

International Partnership for Energy Efficiency Cooperation, IPEEC, whose members are Russia, Italy, US, Brazil, Canada, France, Germany, Japan, Republic of Korea, Mexico, China, Great Britain and European Commission is an observer.

IPEEC extends support to the work done by the member countries and relevant organizations for increasing energy efficiency. It is a supplementary instrument to the UN Framework Convention on Climate Change.

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CONCLUSIONS AND PROPOSALS General Conclusions The present study reveals an ongoing in Russia active build-up of institutional, regulatory and legal base for Green Economy. At the same time, in the field of nature exploitation still remain:

prevailing presence of resource-intensive and extracting sectors of economy to result in fast depletion of natural reserves and environment degradation;

mechanisms of nature exploitation and environment protection are of low efficiency, and no payment schemes for environmental services and the utilization of natural resources have been introduced;

sharp derogation of the state managerial functions, primarily of control, in the field of nature exploitation and environment protection;

high share of shadow economy in the field of natural resources exploitation;

low technological and organizational level of economy, and high depreciation of fixed assets;

aftereffects of economic crisis and modest living standards of population;

low ecological awareness and culture of broad population. RF President has specifically emphasized that current nature-protecting relations and ecological activity practiced are regulated by a set of unrelated laws and legal acts often contradicting one another. Mechanisms of economic regulation far from always exist on paper and enjoy legislative support. Up till now, no integrated system of state environmental monitoring has been established in the country, while no monitoring system at all exists in certain regions, and occasionally where it does exist, it has not been changed for decades. By official data, generally around 40 per cent of urban population live on the Russian territories neglected by atmospheric pollution surveys, while 34 of RF subjects carry out just partial surveys, i.e., in one or two-three cities.

Short-term and long-term tasks:

complete codification of the environment protection legislation and eliminating, at least legally, ecological negativism;

planning of concrete activities and package regime for preparation of respective regulatory acts;

drafting special registers and methodologies to approve the order, rules and procedures to ensure effective solution of different tasks;

create an improved system of rationing an environmental negative impact, transition to the BAT principles;

establish a system of necessary encouragement for compliance with eco-norms;

create the maximal attraction for business. Enterprises have to see profit in transition to modern technologies, programs of production modernization and introduction of advanced sewerage systems, for this

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it is necessary to strengthen responsibility for an ecological legal offence, though a reasonable one;

more realistic mechanisms for reimbursing environmental damage need to be developed;

offenders shall be obliged to speedily liquidate their committed pollutions including the most serious ones, such as produced by oil.

The established system of environmental impact control is subjective and allows unrestricted environment pollution. Now, after coming into force of the Law on Technical Regulation, the fixed in the environment protection legislation requirements need to be adjusted with technical requirements tied up to specific technical capacities and means of production. Environmental licensing shall be based on application of BAT to reflect modern level of technological development, the best technologies capable to simultaneously launch the benchmarks and become a base for assessment of successful implementation of innovative development programs prone to ultimately increase competitive ability of Russian enterprises in accordance with international standards and WTO requirements. Apparently, the system of eco-rationing requires improvements by means of adopting the legal regulatory acts necessary to introduce new order of rationing environmental impact including in regard to fixing responsibility of RF subjects to ration impacts of the regional level facilities. Ensuring of eco-control is another important direction of state regulation in the field of environment protection. Currently, no clear division of functions between executive authorities of federal and RF-subject level exists in the field of government control. List of facilities liable to the federal-level state eco-control approved by the RF Government Decision of March 31, 2009 is far from full. Functioning in Russia are more than 100 thou legal persons and individual entrepreneurs, whose activities impact the environment. Still, the lion share of negative environmental impact is produced by about 300 enterprises only. Largely, it is sectors of energy, oil and gas extraction, as well as metal smelters, paper mills and residential utilities. In order to reduce administrative barriers, the number of controlling authorities and – evidently – of inspections, it is proposed to divide the eco-control responsibilities between the federal and regional executive authorities, i.e.: the largest nature exploiting producers shall fall under the federal controlling authorities, while the rest of facilities – under the local and regional level bodies with respective funding. To increase efficiency of state eco-control conducting and minimize damage to the environment from economic activity, it is necessary to:

develop common rules of state eco-control over economic activity in Russia jointly with the rules to arrange and conduct production eco-control at facilities of economic and other activities;

establish automatized system for recording emissions and environmental pollutants discharges within the whole territory of Russia.

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Currently, eco-militia functions locally, is estranged from the RF Ministry of Interior central authority and has no common and agreed upon approach to activities to prevent, intercept and detect eco-offences. This is generally explained by the modern stage of Russia’s development, when restructuring of power goes on jointly with transfer of its multiple functions to local administrations. When determining place and role of eco-militia within the system of government authority to conduct the nature protecting activity, one should bear in mind that the very reason for establishing a public security militia to maintain public order and fight the crime preconditions its ultimate participation in ensuring environmental security. Energy Related Conclusions Main factors to restrain development of RES exploitation Low development rate of Russian RES energy sector is clearly explained by objective reasons related to the established structure of fuel and energy balance and general inertia present in energy field, to include:

lack of the RES projects competitiveness in comparison with practices of organic fossil fuel exploitation;

presence of institutional barriers, lack of programs to support large-scope RES utilization;

lack of infrastructure required to ensure speeded development of energy sector through RES exploitation including the insufficient level and quality of scientific support for its development;

lack of required informational support to include information about the RES potential reserves and reliable data on the implemented projects indicators;

lack of technical and methodical regulations, as well as engineering and program software required for project design, construction and exploitation of the RES-powered generating plants.

To strengthen the RES exploitation regulatory base, it is required to:

improve the system of targeted indicators and provide for better quality of the government statistics reporting;

develop and regularly improve a placement scheme of the RES-fed power generators;

provide for development and implementation of measures to attract extra-budgetary investment for construction of new and reconstruction of the old operating RES-powered generators including the legally specified measures (Federal Law No 35): allocation of subsidies to compensate the cost of technical connection of the qualified RES-fed power generators to electrical networks;

elaborate set of measures to facilitate development of the RES-operated smaller businesses present at the energy service market of power sector;

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elaborate and improve system of RES development monitoring and forecasting the target indicators reaching.

Required are development and implementation of the pilot territorial projects for raising energy and eco-efficiency of regional power supply through optimization of regional energy balance and combined exploitation of RES, local fuel reserves, conventional generation to ensure the highest economic and energy efficiency in the result of created synergy effect in order to:

increase energy efficiency and eco-security of economy of the regions or other territories;

practice, based on accumulated experience in different climatic zones and nature conditions, the best of technologies and mechanisms for regulating RES economic exploitation by the regions or other territories;

determine directions and priorities for RES development in Russia (depending upon objectives) in terms of territory, and prime directions for increasing regional energy efficiency through RES exploitation;

determine the infrastructural support requirements for the RES sector functioning and developing under the real exploitation conditions;

develop and optimize, based on practical application, system of technical requirements to regulate the RES exploitation development depending upon the terms and goals posed;

formulate the RF optimal energy and technology policy in the field of the energy efficiency improvement through RES exploitation and the RES general future development based on practical experience of introduction and utilization of the RES exploitation technologies and statistics accumulated;

establish technological and institutional platform for the RES exploitation development in Russia.

Conclusions Related to Renewable Energy and Energy Efficiency The first attempted system-based approach to energy saving in Russia was made through a federal goal-oriented program entitled «Energy-economy in Russia» approved by the RF Government Decision No 80 of January 24, 1998. It was largely focused on energy saving by fuel and energy complex, residential utilities and the energy-intense sectors of industry. The program was not a success. A major reason for this was weak elaboration of financial mechanisms to attract funds for realization of priority projects on energy saving in the framework of the program. The second attempt to establish an integrated approach to development of the energy saving nation-wide process became a federal goal-oriented program entitled «Energy-efficient economy». The program was expected to become one of the prime mechanisms of implementation of Russia’s energy strategy till 2020. Its main objective was to establish a socially-oriented energy economy to ensure in Russia, at the expense of structural refurbishment of power generating and consuming sectors, an efficient energy saving in the country, safe supply of energy carriers to economy sectors, reduction of GDP energy intensity by 13.4 per cent by 2005 and by 26 per cent by 2010 in comparison to the 2000

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level. As well, it failed to be implemented. The program was largely focused on development of the fuel and energy complex, and nuclear power. By the Russian expert assessment, attempts to establish a system-based approach to and organize the energy saving process failed to generate meaningful results due to the following reasons:

application of system-based approach was just formal;

the program presumed its implementation at federal level only;

no interconnected multi-level system of programs was established, i.e., municipality-region-federation. As a result: lack of unified policy, goals and tasks;

no efficient management system was created. Supervision was envisaged by government means only;

motivations for and stimulating of energy saving were not envisaged. As result, the energy saving activities through silence procedure were considered as expense generating, and not as activities to generate additional benefits, saving and profit;

no infrastructure of the energy saving market was established starting from the rules to conduct an energy-service activity (until now the notion has not been fixed officially anywhere);

no rules were determined to appraise the energy saving results, to sum-up the economic effect, etc.

As an outcome, no prerequisites for business development were created and, as the aftereffect, private investment failed to become the prime mover for raising energy efficiency. Until recently, no integrated energy-saving government policy actually existed in Russia. Today, by opinion of RF President, situation in Russia with energy efficiency is deeply frustrating: the GDP energy intensity by times exceeds the developed economies levels, while losses of the heat-supply networks account to more than 50 per cent. To achieve the prime tasks of Russian energy policy, the following would be particularly required:

favorable economic environment for fuel and energy complex development (including a harmonized tariff, tax and antimonopoly regulation, and institutional modifications within the fuel and energy complex);

introduction of system of prospective technical requirements, national standards and norms to strengthen managerial capacity and stimulate implementation of prime priorities and benchmarks for energy development to include improvement of energy efficiency of economy;

support to and stimulation of strategic initiatives of economic operators in the fields of investment, innovation, energy saving, ecology and other sectors of priority;

increase efficiency of government property management in power sector.