This chapter provides a brief background of the whole regional project, including both preparation (identification) and implementation (analytical) phases in Kazakhstan, Kyrgyzstan and Moldova. The first part contains a short overview of the countries’ challenges with regard to their transition to sustainable and energy-efficient economies. This provides an important component of the (complex) justification of the project. In the second part, the chapter outlines the leading co‑operation objectives and milestones in each of the three focus countries.
Promoting Clean Urban Public Transportation in Kazakhstan, Kyrgyzstan and Moldova
Summary Report of Project Implementation 2016-2019
Green Finance and Investment
1. Country programme preparation and implementation
Abstract
1.1. Common features of the projects
1.1.1. Project rationale and focus identification
Since gaining independence from the Soviet Union in 1991, the national governments of Kazakhstan, Kyrgyzstan and Moldova have committed to promoting sustainable development. National policies, programmes and action plans have been developed and approved in the main sectors affecting the countries’ economy and environment. These sectors range from energy, industry and transport to agriculture, forestry and waste.
The governments of Kazakhstan, Kyrgyzstan and Moldova committed to the development of energy-efficient local public transport. The Intended Nationally Determined Contributions (INDCs), presented at the 21st Conference of the Parties (COP21) in Paris in 2015, set ambitious targets of reducing greenhouse gas (GHG) emissions. By 2030, compared to 1990 levels, Kazakhstan and Moldova aimed to reduce emissions by 15-25%1 and 64-78%2, respectively. For its part, Kyrgyzstan sought to reduce GHG emissions by 11.49-30.89% compared to a business as usual (BAU) scenario by 2030 and 12.67-36.75%3 below BAU by 2050.4
To meet climate change targets set through Nationally Determined Contributions (NDCs),5 national governments in Eastern Europe, Caucasus and Central Asia (EECCA) put in place climate-related programmes and identify projects that can be supported with public funds. These programmes often include investment components. However, in many cases, the targets of these programmes are overly ambitious, costing is imprecise, timeframes are unrealistic, and budgets and sources of funding are not specified. In most cases, the institutional set-ups for implementation are not well designed.
Among the EECCA countries, the economies of Kazakhstan and Kyrgyzstan are carbon dioxide (CO2) intensive (Figure 1.1). Kazakhstan takes second place (after Uzbekistan) with 3.24 kg of CO2 (per kg of oil equivalent of energy use). With 1.49 kg, Moldova shows the lowest value among EECCA countries (as well as being below the world average of 2.57 kg). In CO2 emissions per capita, Kazakhstan emitted almost triple the world average in 2014 (14.36 vs. 4.98 tonnes per capita). This is mainly because Kazakhstan reduced its per capita emissions in 1992-2014 by only 10% compared to reductions in Moldova and Kyrgyzstan of 75% and 34%, respectively.
Figure 1.1. CO2 emissions and intensity in EECCA countries, 2014
Note: *2013 data.
Source: World Bank (https://data.worldbank.org).
Kazakhstan’s energy sector contributes the largest share (82.1%) of total GHG emissions. Emissions from the transport sector are included in the energy sector, accounting for 8.4% of GHG emissions from that sector in 2014. With 88% of GHG emissions in the transport sector, the automobile transport sub-category forms a key part within the sector. The industrial production sectors, agriculture and waste management, as well as the land use, land-use change and forestry (LULUCF) sector, account for the remainder of emissions. From 1990 (base year) to 1999, total GHG emissions from the road transport sector declined rapidly, mainly due to the deep economic crisis in the country. Despite a significant increase since 1999 – almost reaching 1990 levels in 2007 – total GHG emissions in 2014 were only 80.5% (excluding LULUCF) of the total amount in 1990 (UNFCCC, 2016[1]).6
The energy sector also contributed the largest share of total emissions in Moldova – 68.1% without LULUCF – in 2015. Emissions from transport are included in the energy sector and accounted for 23.2% of GHG emissions from the energy sector. In absolute terms, GHG emissions (both overall and those from transport) decreased over the period. This was mainly due to the fall in gross domestic product and the decline in population. However, the transport sector’s share in total emissions increased from 10.3% in 1990 to 15.8% in 2015. Emissions from road transport make up the bulk of GHG emissions from the transport sector. Road transport was responsible for 87.3% of transport emissions in 1990, but had reached 98.1% by 2015. The agriculture, waste management, and industrial production sectors account for the remainder of the emissions (15.2%, 11% and 5.7% in 2015, respectively) (GoM, 2017[2]).
Kyrgyzstan’s low emissions – in total values as well as per capita – are largely because hydroelectric power plants generate 90% of total electricity. Kyrgyzstan’s GHG emissions in 2013, excluding the land-use change and forestry (LUCF) sector, were mainly from the energy sector (61.1%).7 This was followed by agriculture (28.4%), industrial processes (5.7%) and waste (4.8%).8 Emissions from the transport sector are included in the energy sector and account with other fuel combustion for approximately 71% of emissions within the energy sector (USAID, 2017[3]). While total GHG emissions in Kyrgyzstan decreased by 52% over 1990-2010, emissions in the transport sector only decreased by 32%. Still, transport contributed relatively little to the country’s overall GHG emissions – 10% in 1990 and 15% in 2010. Within the transport sector, almost all GHG emissions can be attributed to road transport – 93% in 1990 and 99% in 2010 (GoK, 2016[4]).
Importantly, Kyrgyzstan, Kazakhstan and Moldova are classified as countries relatively vulnerable to climate change. This is especially the case in terms of water resources, health, agriculture and climate emergency situations. In 2017, they ranked 52nd, 67th and 124th out of 181 rated countries on the Germanwatch Global Climate Risk Index. Kyrgyzstan, for instance, ranked 11th for the number of fatalities per 100 000 inhabitants (Eckstein, D. et al., 2019[5]).
1.1.2. Analytical work and main outputs
Since 2016, the OECD has joined forces with Kazakhstan, Kyrgyzstan and Moldova to analyse how a public investment programme could help the countries achieve their environmental (air pollution reduction) and climate-related (GHG emissions reduction) targets. The work primarily helped the three partner countries design a green investment programme that will be co-financed by public funds (subsidies in the form of grants). This aims to stimulate demand for green investments in the country.
Defining the focus of the programme was a political decision made by the OECD’s main counterparts: the Ministry of Energy in Kazakhstan, the former Ministry of Environment in Moldova and the Ministry of Economy in Kyrgyzstan. They consulted extensively with the main stakeholders in the country, both governmental and non-governmental.
All three country green public investment programmes focused on encouraging low-carbon mobility through switching to modern public transport vehicles (buses, trolleybuses and minibuses). As one option, these vehicles would run on cleaner fossil fuels such as compressed natural gas (CNG)/liquefied natural gas (LNG), liquefied petroleum gas (LPG) and diesel Euro 5/6. As another option, their fuel/power would be generated by renewable resources (wind, solar, hydro).
The project contained four main activity areas and outputs:
an initial scoping and analytical stage
development of a programme costing methodology
design of a programme in line with international good practices
preparation of an analytical report and training.
First, a market analysis determined the need for public support in the target sector – i.e. public transport – given the programme’s objectives.
The second and third activity areas constituted the backbone of the project. They aimed to demonstrate in practice how to use scarce public funds to incentivise the private sector to invest in clean and socially important projects.
As part of the second activity, a model was designed to support the analysis of the programme and its development. This Excel-based tool, Optimising Public Transport Investment Costs (OPTIC), helps convert the environmental and climate-related targets into finances needed to achieve them.9 The model helps calculate total programme costs, both for the public financier and private sector investors. It also optimises the return on investment for service providers with the amount of subsidy required to stimulate the market, given the air pollution and GHG emission reduction targets. In other words, it identifies the optimal level of financial support for public transport operators to stimulate demand for cleaner transport vehicles and to achieve the intended environmental effects. The model is an analytical tool that can help the decision-making process become more objective and more transparent (see Section 2.2).
The final analytical reports (OECD, 2017[6]), (OECD, 2019[7]) and (OECD, 2019[8]), which are the major outcome of the three country projects, draw on several elements. They reflect an extensive review of environmental legislation, particularly that of the focus country and the European Union, as well as technical regulations regarding public transport. They are also informed by extensive primary and secondary in-country data collection in the areas of environment, transport and public services.
Box 1.1. Process of project implementation
In 2016-18, the project team10 visited each country on several occasions (four-five visits per country). They discussed the investment programme with experts from government offices and local public administrations in the pilot cities (Kostanay and Shymkent in Kazakhstan, Chisinau and Balti in Moldova, and Bishkek and Osh in Kyrgyzstan). They also met with experts from various international organisations active in the country.
The meetings took several forms. Mostly, they were bilateral meetings. However, in each focus country, the project team organised two stakeholder meetings – kick-off and final – with the partner ministry.
The final stakeholder meetings achieved three goals. First, they introduced the prepared green public investment programme in the respective country.11 Second, they presented in brief the outcomes of the market study (with a focus on clean fuels and technologies). Finally, they outlined the main elements to operationalise the programme (programme costing and financing, institutional arrangements, etc.).
The implementation of each country programme ended with a training workshop. This provided government officials and other relevant experts (with experience in environmentally- or transport-related public programmes) with practical insight into two key issues. First, it focused on the design and costing of medium- to long-term green public investment programmes (e.g. estimating costs, setting an optimal level of subsidy). Second, it examined implementation (appraisal and selection techniques, monitoring and evaluation processes, etc.). The OECD team presented how some European Union (EU) countries (Austria, Poland and the Czech Republic) implement similar programmes.
Originally, the workshop aimed to identify a relevant institution/department to train in programme preparation and implementation. Unfortunately, no country could identify the relevant implementing institution due to shortcomings in the capacity of relevant stakeholders. This problem was explained in the relevant sections of the programme development.
At the training workshop, the identified participants were interested in two issues:
presentation and discussion of the particular programme
presentation and discussion of the case studies of the programme preparation and implementation, especially in other countries.
Participants were especially interested in programme preparation. The trainings gave them a good opportunity to enhance their knowledge. However, they were not necessarily going to be involved in implementation. Thus, the training component related to implementation was always of less interest. In each case, the project team prepared for a longer training, but cut it short in response to requests from relevant ministries.
As an important part of both events, participants agreed on the next steps in project completion. They also outlined major (potential) challenges in programme design and implementation. These challenges include priority (legal, regulatory) policy actions needed to enable programme implementation.
1.2. Country-specific project implementation
1.2.1. Kazakhstan
The government of Kazakhstan expressed interest to continue working with the OECD on designing green public investment programmes that would support implementation of the Green Economy Concept of Kazakhstan and the associated Action Plan (EO PoK, 2013[9]). It recognised that previous experience in the EECCA region and other relevant (general) tools developed by the OECD12 could be deployed to design other green public investment programmes, either at a national or local level in Kazakhstan.
The continued/renewed co‑operation had already taken place as a part of an official OECD "Kazakhstan Country Programme 2015-2016". The Department of Green Economy at the Ministry of Energy of Kazakhstan (MoE) had become the main counterpart for this work.13
In this regard, the government of Kazakhstan (represented by its MoE) and the OECD (represented by the OECD Environment Directorate) signed an agreement. Together, they would implement a project that would contribute to the promotion of green growth and low-carbon development in Kazakhstan. It would also provide analysis and support to policy dialogue on key governance elements of the green economy concept in the country.
As its main objective, work aimed to help the MoE to design a green investment programme. This programme, to be financed by public funds, would seek to stimulate demand for green investments in the country. In preliminary discussions with the OECD, the ministry requested support for designing an investment programme to reduce air pollution from the transport sector.14
The first (i.e. pilot) phase of the investment programme identified two participating cities: Kostanay and Shymkent. Neither city was a “capital” of the country.15 In a second phase, the programme would cover the major urban centres (19 or 21 of 23 regional cities) in the country.
Over 2016, the project team visited Kazakhstan on several occasions. It discussed the investment programme with experts from government offices in Astana, Kostanay and Shymkent, as well as from various international organisations active in the country.
1.2.2. Moldova
Similar to the case of OECD co-operation with Kazakhstan, the (former) Ministry of Environment of Moldova (MoEnv) had requested the OECD to help design and cost a selected climate-related investment programme. This programme had two aims. First, it sought to increase the government staff capacity to prepare and implement such programmes. Second, it aimed to serve as a model for preparing other low-carbon investment programmes. The basis for this work was laid in 2011 with the targeted training on designing and managing environmental investment programmes provided by the OECD to Moldovan environmental experts.16
The main objective of this work was to assist the newly created Ministry of Agriculture, Regional Development and Environment (and before, the MoEnv) in two areas. First, the ministry wanted to design a green public investment programme in line with good international practices. Second, it needed to estimate its cost with the aim of stimulating demand for green investments in the country, both from the national budget and international financing sources.
During preliminary discussion, the MoEnv – as the MoE in Kazakhstan – suggested that the future investment programme focus on reducing air pollution from the transport sector.
There seemed to be a few important reasons for this choice. On the one hand, until then, the Moldovan government had done little in this sector. On the other hand, the government had launched – with support from the German Development Cooperation through GIZ – the preparation of a new Air Pollution Reduction Strategy, Law on Air and air regulations. They saw the project as a natural ally and a good practical contribution to their work.
Again, two cities were identified to participate in the first (i.e. pilot) phase of the investment programme. These were Chisinau (capital) and Balti. The latter is the second most populated city in Moldova and the only other one in the country with a public transport network. Contrary to Kazakhstan, in a second phase, the programme would cover the suburban areas of the two pilot cities, as well as inter-city connections.
From the end of 2016 to the beginning of 2018, the project team visited Moldova on several occasions. They discussed different elements of the investment programme with experts from government offices and local public administrations in Chisinau and Balti. They also met with experts from various international and national organisations active in the country.
1.2.3. Kyrgyz Republic
The selection of Kyrgyzstan as the third country was mainly influenced by a demonstrated high level of ownership of the Kyrgyz partners.17 The delegation of Kyrgyzstan and the OECD initially discussed the project at the meeting of the GREEN Action Task Force on 25-26 October 2017 in Almaty. The OECD, which hosts the GREEN Action Secretariat, expressed its readiness to support Kyrgyzstan. Together, they could design a well-functioning finance system to achieve efficient, inclusive and greener economic growth in the country.
As its main objective, work sought to help the Ministry of Economy (MoEcon) to design a green public investment programme in line with good international practices and estimate its cost. This, in turn, would aim to stimulate demand for green investments in the country, both from the national budget and international financing sources.
The focus of the investment programme was on reducing air pollution and GHG emissions from the public transport sector. Two cities were identified to participate in the pilot phase: Bishkek (the capital) and Osh (the second most populated city in the country). In the second phase, the programme would cover the suburban areas of the two pilot cities, as well as some indicative inter-city connections.
In the first half of 2018, the project team visited Kyrgyzstan on several occasions. They discussed different elements of the investment programme with experts from government offices and local public administrations in Bishkek and Osh. They also met with experts from various international and national organisations active in the country.
References
[5] Eckstein, D. et al. (2019), Global climate risk index 2019: Who suffers most from extreme weather events? Weather-related loss events in 2017 and 1998 to 2017, Briefing Paper, Germanwatch, Bonn,, http://www.germanwatch.org/sites/germanwatch.org/files/Global%20Cli.
[9] EO PoK (2013), Concept for Transition of the Republic of Kazakhstan to Green Economy, Executive Office of the President of Kazakhstan, Astana, http://gbpp.org/wp-content/uploads/2014/04/Green_Concept_En.pdf.
[4] GoK (2016), Third National Communication of the Kyrgyz Republic under the UN Framework Convention on Climate Change, Government of Kyrgyzstan, Bishkek, https://unfccc.int/sites/default/files/resource/NC3_Kyrgyzstan_English_24Jan2017.pdf.
[10] GoK (2015), Intended Nationally Determined Contribution – Submission of the Kyrgyz Republic, Government of Kyrgyzstan, Bishkek, https://www4.unfccc.int/sites/submissions/INDC/Published%20Documents/Kyrgyzstan/1/Kyrgyzstan%20INDC%20_ENG_%20final.pdf.
[2] GoM (2017), National Inventory Report 1990-2015: Greenhouse Gas Sources and Sinks in the Republic of Moldova, Submission to the UNFCCC, Government of Moldova, Chisinau, http://www.clima.md/download.php?file=cHVibGljL3B1YmxpY2F0aW9ucy80MjAwODJfZW5fbmlyNV9lbl8yOT.
[11] GoM (2015), Republic of Moldova’s Intended National Determined Contribution, Government of Moldova, Chisinau, https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Republic%20of%20Moldova%20First/INDC_Republic_of_Moldova_25.09.2015.pdf.
[7] OECD (2019), Promoting Clean Urban Public Transportation and Green Investment in Kyrgyzstan, Green Finance and Investment, OECD Publishing, Paris, https://www.oecd-ilibrary.org/environment/promoting-clean-urban-public-transportation-and-green-investment-in-kyrgyzstan_b6b91b9a-en.
[8] OECD (2019), Promoting Clean Urban Public Transportation and Green Investment in Moldova, Green Finance and Investment, OECD Publishing, Paris, https://dx.doi.org/10.1787/31925aae-en.
[6] OECD (2017), Promoting Clean Urban Public Transportation and Green Investment in Kazakhstan, Green Finance and Investment, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264279643-en.
[13] OECD (2007), Handbook for Appraisal of Environmental Projects Financed from Public Funds, OECD Environmental Finance Series, OECD Publishing, Paris, http://www.oecd.org/env/outreach/38786197.pdf.
[12] UNECE/OECD (2003), Good Practices for Public Environmental Expenditure Management in Transition Economies, Background Document, Fifth Ministerial Conference Environment for Europe, 21-23 May, Kiev, http://www.oecd.org/env/outreach/34089042.pdf.
[1] UNFCCC (2016), Status Report of the Annual Inventory of Kazakhstan, Secretariat of United Nations Framework Convention on Climate Change, Bonn, http://unfccc.int/national_reports/annex_i_ghg_inventories/national_inventories_submissiones/items/9492.php.
[3] USAID (2017), Greenhouse Gas Emissions in Kyrgyzstan, USAID Factsheet, United States Agency for International Development, Washington, DC, http://www.climatelinks.org/sites/default/files/asset/document/2017_USAID_GHG%20Emissions%20Factsheet%20Kyrgyzstan.pdf.
Notes
← 1. Kazakhstan’s unconditional goal was 15% reduction of GHG emissions by 31 December 2030 compared to the baseline year 1990. Its conditional goal was 25% reduction of GHG emissions by 31 December 2030 compared to the baseline year 1990. The latter goal was subject to additional international investment, access to the mechanism for the transfer of low-carbon technologies, green climate funds and the mechanism of “flexibility” as a country in transition (GoK, 2015[10]).
← 2. Moldova’s unconditional reduction target varies between 64-67% depending on the scenario selected. A scenario of self-sufficient power system development had a reduction target of 64%, while a scenario of imported electricity had a 30% reduction target. The reduction targets have been set for the January 2021 – December 2030 emission budget. The conditional target is set at 78% (GoM, 2015[11]).
← 3. The country’s unconditional mitigation target is to reduce GHG emissions in the range of 11.5-13.8% compared to BAU by 2030, and by 12.7-15.7% below BAU by 2050. The conditional target is to reduce GHG emissions in the range of 29.0‑30.9% below BAU by 2030, and from 35.1-36.8% below BAU by 2050. These latter targets are subject to international support available to the country (including low-cost financial resources, technology transfer and technical co-operation) (GoK, 2015[10]).
← 4. For INDC submissions, see https://www4.unfccc.int/sites/submissions/indc/Submission%20Pages/submissions.aspx.
← 5. According to the climate pact, the INDC becomes the (country’s first) NDC upon its ratification of the Paris Agreement. However, countries may request not to convert their INDCs into NDCs upon ratification. They can also revise the submitted INDC and offer a different plan/roadmap to reduce the GHG emissions.
← 6. Kazakhstan has made voluntary commitments to retain GHG emissions in 2020 at a level not lower than 15% below the base year level. Therefore, GHG emissions can grow up to 5.5% from the current level, as long as they do not exceed the committed target.
← 7. The high contribution of the energy sector notwithstanding, the Kyrgyz Republic has significant potential for unconventional and renewable energy sources. These include solar, hydropower and geothermal energy and biogas; wind power is not economically feasible. However, from the late 1990s until 2005, the percentage of the energy generated by hydropower stations, as well as the energy generated by burning of fossil fuels, remain practically constant (GoK, 2016[4]).
← 8. See CAIT 2.0 WRI’s Climate Data Explorer at: www.climatewatchdata.org/countries/KGZ.
← 9. More specifically, it had been envisaged to use a programme costing methodology developed by the OECD, with support by Germany (again, through its IKI), and tested previously in Kazakhstan (OECD, 2017[6]). From 2011 to 2012, the OECD supported the Ministry of Environmental Protection of Kazakhstan in designing a public investment programme for energy efficiency measures in the residential sector. As part of the "Climate-smart public spending at the national level in Kazakhstan" project, the OECD developed a methodology for climate-related investment programmes. It included, among others, an Excel-based model to assess the costs of the programme and environmental impacts.
← 10. Given the complexity of the project, an international consulting company was needed to support project implementation. An international tender – which the OECD organised from October 2015 to February 2016 – was won by a consortium of Kommunalkredit Public Consulting (KPC) from Austria and SST-Consult from Poland. Subsequently, a 29-month implementing contract was signed in March 2016.
← 11. This also considered the latest developments, such as large-scale administration reform in Moldova that included a substantial personnel reshuffle.
← 12. Examples include Good Practices for Public Environmental Expenditure Management in Transition Economies (UNECE/OECD, 2003[12]), or the Handbook for Appraisal of Environmental Projects Financed from Public Funds (OECD, 2007[13]).
← 13. The "Memorandum of Understanding Concerning a Country Programme between the Government of the Republic of Kazakhstan and the OECD" was signed on 22 January 2015 by the Prime Minister of Kazakhstan, Mr. Karim Masimov, and the OECD Secretary-General, Mr. Angel Gurria. The memorandum included environment as one of the substantive areas of co‑operation between Kazakhstan and the OECD.
← 14. However, given the large number of different types of investments that can be made within this area, the programme scope needed to be further clarified before the work on its design actually started.
← 15. Given the concentration of investment projects supported by different international financing institutions in Astana and Almaty, the project team decided to consider other cities. However, MoE made the final decision.
← 16. Training had the official title "Environmental programmes as part of medium-term expenditure planning".
← 17. Originally, Ukraine was also considered to be a suitable candidate.