Russia Energy Efficiency

By Richard Wallis

The EBRD and the Russian government today announced plans to cooperate on ways to promote energy efficiency, a major priority for a country which makes an exceptionally intensive use of its vast energy resources.

An Energy Efficiency Action Plan defining the areas in which the Bank and the government could work together in order to cut energy waste has been signed by EBRD President Thomas Mirow and Russia’s Minister of Economic Development Elvira Nabiullina.

Other countries which have already signed Energy Efficiency Action Plans with the EBRD are Bulgaria, Kazakhstan and Ukraine.

Both sides have in a Memorandum of Understanding stated their intention to broaden cooperation in building up initiatives aimed at increasing investments in energy efficiency projects in all sectors, including carbon finance.

Under the terms of the Memorandum, the Ministry and the EBRD will together identify areas in which cooperation can be most effective in terms of achieving a significant improvement in Russian energy efficiency. The Ministry will also supply the EBRD with information on regulations being developed regarding energy efficiency, as well as provide the Bank with support on the development of energy efficiency projects.

The EBRD said it would look into the possibility of launching a carbon market facilitation programme in Russia which would cover both transactions involving the private sector as well as those between the Russian Federation and sovereign partners.

Carbon trading, through the financial incentives it offers to implementing qualifying projects, is an important element in the government’s efforts to reduce the country’s extremely high levels of energy use.

The Bank also expressed its readiness to explore the possibility of implementing so-called Green Investment Schemes. Under these schemes, a country sells Assigned Amount Units (the trading and accounting unit for greenhouse gas emissions) to a buyer needing to meet emission reduction targets under the Kyoto Protocol. The seller then uses the proceeds to co-finance projects designed to cut greenhouse gas emissions.

The EBRD and the Ministry will also cooperate on ways to develop a legal and regulatory framework facilitating private investments in energy efficiency in new sectors such as existing public and residential buildings. This is an area with a vast potential for energy savings but from which private investments have so far been excluded.

Other areas where the EBRD could scale up investments in energy efficiency include:

• The power sector
• Renewable energy
• The oil, gas and mining sectors
• Industry
• Municipal infrastructure
• Transport
• Small and Medium-sized businesses (through loans to the banking sector)

In all these sectors, the EBRD is ready to identify donor-funded grants to finance energy-efficiency audits in support of potential projects.

BACKGROUND

Russia’s energy intensity is about three times that of the United Kingdom, India or Japan.
Russian President Dmitri Medvedev has set a target of reducing the energy intensity of the national economy by 40 percent by 2020.

As part of Russia’s efforts to achieve these targets, a new Energy Efficiency Law was adopted last month. The law lays down the institutional foundations for making Russia more energy efficient. In addition, the Russian government on December 1 approved a plan which aims to help attract private capital for energy-saving projects.

In 2006, the EBRD launched a sustainable energy initiative to address the climate change issue and promote a more efficiency use of energy in its countries of operation. The projects undertaken under this programme since then have resulted in annual reductions of 21 million tonnes in CO2 emissions.

In financial terms, the EBRD had by the end of 2008 provided €2.7 billion specifically for energy efficiency investments in 166 projects in 24 of its countries of operation. This EBRD financing translates into a total project value of €14 billion.

During the same period, EBRD energy efficiency-related investments in Russia amounted to €755.2 million. The total project value of the Bank’s energy efficiency projects in Russia in this timeframe, including the part not funded by the EBRD, was €3.7 billion.

Last month, the EBRD and state savings bank Sberbank, Russia’s largest bank, agreed to work together in order to identify possible co-financing projects with energy efficiency potential across a broad spectrum ranging from schools to steel mills. This is an important plank in the Bank’s strategy to implement the action plan signed with the government.