Access to Green Finance for SMEs in Georgia

Chapter 3. Energy, Environmental and Climate Policy of Georgia

Abstract

This chapter looks at the sustainable energy and climate policy in Georgia, and the emerging policy context for green investment, particularly for small and medium-sized enterprises. This includes key strategic documents such as the Low Emission Development Strategy and Nationally Appropriate Mitigation Actions. It also includes emerging policy documents such as the National Energy Efficiency Action Plan and National Renewable Energy Action. After reviewing the most recent relevant policy developments, the chapter concludes with a discussion of potential areas that need further strengthening. Relevant themes include renewable energy targets, environmental regulations and enforcement, energy prices, public procurement and non-renewable energy options.

3.1.  Context

The energy intensity of the Georgian economy is high, particularly in industrial facilities and small and medium-sized enterprises (SMEs). Environmental concerns have been part of the government agenda for several years. These are reflected in a range of policy documents set out in Table 3.1.

The Socio-Economic Development Strategy “Georgia 2020” adopted in 2014 highlights three key principles of economic development. These comprise the rational use of natural resources, ensuring environmental safety and sustainability (Government of Georgia, 2014[1]).

In terms of climate action, Georgia has communicated its climate targets internationally through its Intended Nationally Determined Contribution (INDC) (Government of Georgia, 2015[2]), (FAO, 2018[3]). The country is working on a more ambitious NDC document, which it plans to submit by the end of 2020. It has also developed key strategic documents such as the Low Emission Development Strategy (LEDS) and Nationally Appropriate Mitigation Actions (NAMAs) (NAMA, 2017[4]), among others. While the LEDS document has been prepared, the government has not yet adopted it. In addition, several cities and municipalities have made commitments under the Covenant of Mayors (Covenant of Mayors, 2017[5]), and 11 have developed voluntary Sustainable Energy Action Plans (SEAPs).

Georgia is also mainstreaming climate and environment considerations into wider economic development policy.1 These include a Green Economy Strategy, led by the Ministry of Economy and Sustainable Development (MESD). The 2016 Green Growth Policy Paper, developed in co‑operation with GIZ, set out pathways for development of this strategy. Analytical work to support the strategy considers three main sectors (buildings, agriculture and tourism) and their interlinkages (UN Environment, 2018[6]). MESD plans to further elaborate the Green Growth Policy Paper, including the strategy and an accompanying action plan.

The National Energy Efficiency Action Plan (NEEAP) also remains under development. The draft plan for 2017–20 set out overall energy efficiency targets, as well as sectoral targets for buildings, industry and transport. As adoption was delayed, the initial period covered by the plan is no longer relevant. At the request of the Ministry of Finance, MESD is preparing an update for NEEAP to 201922. MESD is also leading the development of a National Renewable Energy Action Plan (NREAP).

The government has authority to adopt NEEAP and NREAP, while Parliament is responsible for adopting laws on energy efficiency and renewable energy. All documents have been submitted to the relevant authorities, but adoption is still pending.

Table 3.1. Overview of relevant energy and environmental policy development in Georgia

Name	Scope		Status	Notes
Nationally Determined Contribution	National		Submitted to UNFCCC in 2015	Communicates Georgia’s climate-related targets internationally
Georgia 2020	National		Adopted in 2014	Identifies priorities and problems to be dealt with to achieve long-term, sustainable and inclusive economic growth, including renewable energy and energy efficiency
Climate Change Strategy	National		Adopted in 2014	Aims to identify feasible ways to reduce the vulnerability of ecosystems and GHG emissions from various emitting sectors
Main Directions of the State Policy in the Energy Sector	National/ sectoral		Adopted in 2007, amended in 2015	Sets the enhanced use of renewable energy sources as a national policy
Law on Electricity and Natural Gas	National/ sectoral		Adopted in 1999, amended in 2013	Supports priority use of local hydro and other renewable, alternative and gas resources
State Programme “Renewable Energy 2008”	National/ sectoral		Adopted in 2008, amended in 2013	Specifies rules and procedures for development of renewable energy sources
Low Emission Development Strategy	National		Draft finished as of August 2017	Identifies sectoral strategies and goals to achieve low-carbon development pathways
National Energy Efficiency Action Plan	National		Finalised, and seeking government approval as of June 2017	Identifies energy emission targets, policy measures and financial needs
Nationally Appropriate Mitigation Actions (NAMAs)	Sectoral		Finalised	Developed NAMAs on biomass energy, buildings, sustainable forest management, transport and hydropower
National Forestry Concept for Georgia	Sectoral		Approved in 2013	Serves as a basis for sustainable development of forest management and related policy frameworks
Sustainable Energy Action Plans (SEAPs) under the Covenant of Mayors	Municipal		11 SEAPs have been approved and submitted as of 2018	Shows the individual signatory municipalities’ commitments to voluntarily reducing GHG emissions
Tbilisi Sustainable Urban Transport Strategy	Municipal/ sectoral		Finalised in 2016	Defines policy directions and priorities on sustainable transport to be implemented between 2015 and 2030
Green Economy Concept	National/ sectoral		Under development	This will develop green economy interventions in various sectors, which can also lead to higher income and employment
Green City Action Plan of Tbilisi	Municipal		Under development	This will present benchmarking and priorities for tasks and defines the long-term Green City vision – within a timeframe of 10-15 years – supported by the European Bank for Reconstruction and Development
National Adaptation Plan	National		Under development	The first draft will focus on the agriculture sector
National Renewable Energy Action Plan	National		Finalised in 2018 and submitted to the government	This plan has developed a national policy framework for renewable energy sources, which is also compatible with Renewable Energy Directive 2009/28/EC
Georgia’s Country Programme with the Green Climate Fund	National		Finalised, under procedural approval process at Ministry of Env Protection and Agriculture	Georgia’s Country Programme with the Green Climate Fund analyses key national climate change strategies and actions and serves as an instrument to synthesise project ideas on climate change – both mitigation, adaptation and cross-cutting issues – to identify and present those ideas most suitable for Green Climate Fund funding
Climate Action Plan	National		Under development	The Ministry of Environmental Protection and Agriculture is developing this plan as an INDC implementation strategy

Source: Adapted from (OECD, 2018[7]) and updated by the authors.

In addition, the Ministry of Environmental Protection and Agriculture has been preparing a Climate Action Plan as part of the NDC implementation strategy. This includes concrete steps and figures for achieving climate-related targets. Further detail is provided below.

Intended nationally determined contribution

Through the INDC, Georgia commits 15% of greenhouse gas (GHG) emission reductions below business as usual (BAU) by 2030. Further, it has committed 25% of reductions below BAU, contingent on international support with finance and technology (approximately 41% below 1990 benchmark levels) (Government of Georgia, 2015[2]). The INDC does not, however, quantify the volume of finance necessary to deliver on these targets.

The INDC describes Georgia’s national targets on climate change mitigation and adaptation by 2030. It does not include details on proposed actions, or a robust examination of financial needs, to achieve the targets. Instead, the INDC refers to the Low Emission Development Strategy (LEDS) and the National Energy Efficiency Action Plan (NEEAP).

Low Emission Development Strategy

Georgia finalised its LEDS in the middle of 2017. It was prepared under the Enhancing Capacity for Low Emission Development Strategies Program with support of the United States Agency for International Development (USAID, 2017[8]). LEDS aims to support Georgia’s transition to a low-emission economy through various approaches, including the following:

• identifying main sources of GHG emissions and their future trajectories

• setting goals and needed policy measures to tackle barriers to reducing GHG emissions in the selected sectors

• outlining necessary legislation systems, infrastructure and co‑ordination for implementation

• proposing mechanisms to mobilise the national and international financial sources for implementation of LEDS (Winrock and Remissia, 2017[9]).

National Energy Efficiency Action Plan

The government prepared the NEEAP between 2015-17 (NEEAP Expert Team, 2017[10]). The NEEAP sets out detailed plans for energy efficiency, such as a financing scheme, energy auditing and performance labelling, as well as sector-specific measures. The latter includes measures on buildings, public bodies, industry, transport, heating and cooling, and energy transformation, transmission, distribution and demand response.

Energy community

Georgia has been one of the Energy Community Contracting Parties since July 2017 (Energy Community Secretariat, 2017[11]). The need to comply with several relevant European Union (EU) directives over time is likely to result in higher support for renewable energy and energy-efficiency investments in Georgia. These include Directive 2012/27/EU on Energy Efficiency, Directive 2010/30/EU on Labelling and Standard Product Information on the Consumption of Energy and Other Resources (due on 31 December 2018) and Directive 2010/31/EU on Energy Performance of Buildings (30 June 2019).

Nationally appropriate mitigation actions

Georgia has also developed a number of Nationally Appropriate Mitigation Actions (NAMAs). These are meant to be linked to and aligned with the NEEAP. Among these are NAMAs focused on clean energy production, energy-efficient refurbishment of public buildings and use of biomass for rural development (NAMA, 2017[4]).

3.2. Renewable energy

The use of renewable energy sources is set as a key national priority in Main Directions of State Policy in the Energy Sector (Government of Georgia, 2017[12]). Relevant frameworks support infrastructure, finance and research. Georgia has also developed specific legal frameworks to support hydropower development.

MESD is working with the United Nations Development Programme (UNDP) to develop a NREAP. This is because legal frameworks on renewable energy in Georgia do not fully comply with the Renewable Energy Directive 2009/28/EC in light of the EU-Georgia Association Agreement and the Energy Community Treaty.

3.3. Potential areas for strengthening

While Georgia has made much progress in certain areas such as hydropower development, it is not necessarily a front-runner in the field of energy efficiency or other types of renewable energy. Other countries in Eastern Europe and Caucasus or in Central Europe with similar levels of gross domestic product per capita (purchasing power parity) often have stronger policies, especially for energy efficiency [see (Energy Community, 2019[13]) for an overview of regional policies].

Therefore, several policy areas could potentially be strengthened to improve the likelihood of green investment in the SME sector as previously set out by the Organisation for Economic Co‑operation and Development (OECD, 2018[7]).

• More robust targets: Georgia is the only country in the Eastern Europe, Caucasus and Central Asia region, except Turkmenistan, not to have yet adopted any quantitative targets for renewable energy or energy efficiency into legislation.

• Environmental regulations: According to the United Nations Industrial Development Organization and from discussions with representatives of the business community, Georgian enterprises consider environmental policies and enforcement to be the most important driver for investment in energy efficiency and cleaner production. They believe such policies may create economic opportunities for new market development.

• Higher energy prices: Low energy prices still make small-scale renewables relatively uncompetitive and impede investments in energy efficiency. Raising energy prices and removing subsidies would lead companies to respond by improving efficiency and productivity.

• Strengthening regulation and enforcement: Growth-oriented policies are often seen as having been at the expense of weaker standards on energy use and environmental performance. Despite growing evidence to the contrary (OECD, 2017[14]), some government stakeholders continued to identify environmental improvement with creating negative impacts on growth. This is reflected in the relatively loose approach to regulation (e.g. efficiency, building standards, materials standards) and the lack of market-based mechanisms such as pollution charges.

• Finalisation and alignment of policy frameworks: Georgia has a range of frameworks guiding mitigation and energy-efficiency policy at the national and sectoral level (NEEAP, LEDS, INDC). The adoption of pending policies and strategies and the incorporation of energy-efficiency performance or other environmental considerations could help build SME markets for green goods and services.

• Greening public procurement: Public procurement rules can potentially contribute to creating significant demand by public bodies for low-carbon, climate-resilient goods and services.

• Promotion of non-hydro renewable energy options: Hydropower investment has been robust, but there has been little progress on other types of renewable energy. This is especially true for smaller building-scale technologies that might interest SMEs. The government could consider how differentiated support might help grow the market for alternative technologies.

References

[5] Covenant of Mayors (2017), Covenant of Mayors – Signatories, http://www.covenantofmayors.eu/about/about/.

[13] Energy Community (2019), “Energy Community”, webpage (accessed 23 September 2019), https://www.energy-community.org.

[11] Energy Community Secretariat (2017), Energy Governance in Georgia, Report on Compliance with the Energy Community Acquis, Energy Community Secretariat, Vienna, http://www.euneighbours.eu/sites/default/files/publications/2017-08/ECS_Georgia_Report_082017.pdf.

[3] FAO (2018), Policy Analysis of Nationally Determined Contributions in Europe and Central Asia,, Food and Agriculture Organization of the United Nations, Rome, http://www.fao.org/3/ca2684en/CA2684EN.pdf.

[12] Government of Georgia (2017), Main Directions of the State Policy in Energy Sector of Georgia, Government of Georgia, Tbilisi, http://www.energy.gov.ge/projects/pdf/pages/MAIN%20DIRECTIONS%20OF%20THE%20STATE%20POLICY%20IN%20ENERGY%20SECTOR%20OF%201047%20eng.pdf.

[2] Government of Georgia (2015), Georgia’s Intended Nationally Determined Contribution, United Nations Framework Convention on Climate Change, Bonn, http://www4.unfccc.int/submissions/INDC/Published%20Documents/Georgia/1/INDC_of_Georgia.pdf.

[1] Government of Georgia (2014), Social-economic Development Strategy of Georgia: Georgia 2020, Government of Georgia, Tbilisi, https://policy.asiapacificenergy.org/sites/default/files/Georgia%202020_ENG.pdf.

[4] NAMA (2017), Georgia – NAMA, Nationally Appropriate Mitigation Actions, Georgia (database) (accessed 23 October 2019), http://www.nama-database.org/index.php/Georgia.

[10] NEEAP Expert Team (2017), Draft National Energy Efficiency Action Plan, Report Commissioned by EBRD, National Energy Efficiency Action Plan, Tbilisi.

[7] OECD (2018), Mobilising Finance for Climate Action in Georgia, Green Finance and Investment, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264289727-en.

[14] OECD (2017), Investing in Climate, Investing in Growth, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264273528-en.

[6] UN Environment (2018), Supporting the Development of a Green Growth Strategy in Georgia, United Nations Environment Programme, Geneva-Tbilisi, http://www.green-economies-eap.org/resources/Georgia%20GE%20report%20ENG%2027%20Jun.pdf.

[8] USAID (2017), “Georgia Overview”, Enhancing Capacity for Low-Emission Development Strategies, archived webpage (accessed 23 October 2019), https://www.ec-leds.org/countries/georgia.

[9] Winrock and Remissia (2017), Georgia Low Emission Development Strategy Draft Report, commissioned by the USAID-funded EC-LEDS Clean Energy Program, Winrock International and Sustainable Development Center, Little Rock, US.

Note

← 1.  See OECD (2018), “Green Finance and Investment. Mobilising Finance for Climate Action in Georgia” for a full overview on the emerging policy and financing context for green investment.