This chapter outlines the main elements and approaches to designing and implementing public investment programmes with priority environment and climate-related targets. The design phase presents an overall structure and operating instructions of an OECD support tool called the Optimising Public Transport Investment Costs (OPTIC) model. For implementation, it presents possible strategies and ways to set optimal co-financing levels from the public purse. The chapter concludes with examples of good practices from the EU countries in achieving cost-effective and transparent public environmental spending targeted at domestic transport sectors.
Promoting Clean Urban Public Transportation in Kazakhstan, Kyrgyzstan and Moldova
Summary Report of Project Implementation 2016-2019
Green Finance and Investment
2. Description of green public investment programmes and their costing methodologies
Abstract
2.1. Green public investment programmes
2.1.1. Objectives and main elements
The green public investment programmes aim to contribute to national objectives related to the country’s climate change mitigation efforts; to air pollution reduction in main urban areas; and, ultimately, to countries’ transition to a greener economy.
In practice, this overall objective will be accomplished by supporting investments (i.e. creating a demand) for a needed replacement of outdated (depreciated) diesel-powered urban public transport vehicles (both municipally owned, as well as private ones).
The designed Clean Public Transport (CPT) Programmes incorporate multiple objectives:
reduce greenhouse gas (GHG) emissions in the public transport sector, especially of carbon dioxide (CO2)
reduce emissions of hazardous air pollutants in urban areas: carbon oxide (CO), nitrogen oxides (NOx), particulate matter (PM) – especially PM2.5, and sulphur dioxide (SO2)
increase the reliability and efficiency of public transport through modernisation of the urban transport fleet, i.e. increase the ratio of new buses (less than five-years-old) used for urban public transport
stimulate the domestic market to produce, or at least assemble, modern buses and trolleybuses (or other types of modern buses powered using cleaner fuels).
The environmental objectives of the CPT Programme are expected to be accomplished by using budget support to replace the public transport fleet with modern vehicles powered by cleaner fuels or technologies. In terms of emissions reductions, the most significant improvements are expected to be less CO2 and NOx in absolute terms and less PM2.5 and SO2 in relative terms. Air pollution caused by small PM is associated with increased cardiopulmonary and lung cancer mortality. Increased air pollutants carry a risk of mortality, in particular among people more than 65-years-old. A clean public transport programme could thus be justified from a public health standpoint.
The public service objectives are in line with the country’s transport strategies (municipal and national). They will be achieved by purchasing modern (brand new) vehicles (to increase reliability and comfort) and extending/improving service delivery outside of cities (to increase outreach).
By modernising the urban transport fleet, the CPT Programme will also contribute to the socio-economic development of municipalities and, ultimately, of the country. This will be achieved, for instance, through increasing the efficiency, reliability and radius of public transport networks. Improved mobility not only fosters productivity (access to jobs, markets), but also social inclusion (access to hospitals, schools), especially for low-income groups. The CPT Programme could also stimulate the domestic market to produce, or at least assemble, modern buses and trolleybuses. It could accomplish this through supporting the purchase of new buses rather than the modernisation of engines. This, in turn, could also generate new employment opportunities.
In practice, these environmental, public service and socio-economic development objectives will be accomplished by supporting investment to replace the dominant diesel-powered bus and minibus fleet used in urban, suburban or inter-city public transport. Modern vehicles would be powered by cleaner fossil fuels, or by electricity generated by renewable energy resources or cleaner fossil fuels.
Each country case study analysed the market, identifying up to four groups of projects (“pipelines”1) to replace the old urban, suburban and inter-city bus fleet:
1. investment in vehicles fuelled by compressed natural gas (CNG)
2. investment in vehicles fuelled by liquefied petroleum gas (LPG)
3. investment in vehicles fuelled by diesel that meets Euro 5 and Euro 6 emissions standards
4. investment in electricity-powered vehicles (trolleybuses and battery trolleybuses).
The public transport fleet of the focus countries is ageing. Therefore, the proposed “pipelines” are intended to support the purchase of new vehicles (buses/minibuses and trolleybuses) rather than the modernisation of existing engines. Renewing the bus fleet will increase the reliability and efficiency of public transport. Meanwhile, the domestic market will be encouraged to produce, or at least assemble, modern buses and trolleybuses.2
The proposed investment pipelines should be accompanied by other investments in infrastructure. This could include new trolleybus lines, CNG/LPG refuelling and electricity charging stations. In addition, other supporting activities could improve the transport system in urban centres. These include the creation of bus lanes, improvement of bus stops and smart traffic control.
For instance, extending the trolleybus power-delivered network (trolleys) to cover the whole area would be too costly. In more remote areas, the trolleybus power-delivered network is not available. However, the network can be supported through battery trolleybuses. Even though these have only small batteries, they are cheaper to buy than electric buses.3
The public investment programme is designed to include two phases:
The first (pilot) phase will be launched in selected pilot cities and focus primarily on urban transport (inner cities). The results will determine whether a second phase implementation on a larger scale is necessary/possible.
The second (scaling-up) phase will extend the pilot phase. There are more possible scenarios for this phase: it can focus on additional cities with public transport networks (Kazakhstan), suburban areas of the pilot cities (Kyrgyzstan, Moldova), or even some indicative inter-city public transport across the country (Kyrgyzstan, Moldova).
The scaling-up phase in Kyrgyzstan is designed as a single-option case compared to Kazakhstan and Moldova, whose two-step approach included a moderate (Scenario 1) and a more ambitious (Scenario 2) alternative. In Kazakhstan, Scenario 2 includes two additional cities and a more advanced vehicle replacement in urban public transport fleets (i.e. replacing 10-year-old buses instead of the 15-year-old buses in Scenario 1). Scenario 2 in Moldova adds inter-city connections to suburban transport (in pilot cities chosen in Scenario 1). These connections serve as a substitute of a public transport network in other towns/cities in Moldova. Kyrgyzstan’s arrangement is similar to Moldova. However, since inter-city connections in Phase 2 are only indicative, only one scenario was designed.
Before the first phase of the programme is launched, a preparation period will include the programme financial provisions in the state budget process. It will also identify and apply for funding from additional financing sources, including external donors.
As shown in Figure 2.1, the pilot phase was designed to last only one year (after one year of programme preparation). Scaling-up phases vary between two and five years, depending on the scenario and level. Some regional measures of the second phase might take less time (for instance, Osh in Kyrgyzstan). In all cases, the programme as such will take six years (plus one) to implement.
Figure 2.1. Proposed timeline
The second phase will require establishment of a programme implementation unit (IU) at the national level. This unit will market the programme, announce calls for proposals, collect applications, appraise and select projects, disburse funds, and monitor and evaluate the rollout and results.
The experience of other countries with similar publicly supported investment yields valuable lessons. It suggests that programmes are best carried out over the medium- to long-term and related to government targets. Thus, the CPT Programme could be carried out over five years and then reviewed in detail. At that time, it can be extended or closed based on possible new policy objectives and government goals or market developments.
In addition, annual evaluations of the CPT Programme should assess whether the selected and implemented projects are helping meet government objectives. Remedial measures could be taken if necessary. Since the programme is designed to be co-financed through the state budget, any update should be co‑ordinated with the multi-year budget/requirements. On this basis, annual financial plans should be prepared for financing through the regular annual budget.
2.1.2. Approach to costing of the environmental programmes
The review of different climate-related public investment programmes identified three costing methods:
Bottom-up approach: This involves collecting information from the field (prospective investors, such as local governments, utilities, etc.) and then aggregating on a higher (regional, national) level.
Top-down approach: This involves imposing rules and procedures that ensure only projects within a specific (scope, costs, environmental effect) margin are implemented.
Average cost method: This involves dividing the total cost of goods in inventory by the total number of items available for sale (weighted average).
Each method is used for a different type of environmental public investment programme.
The bottom-up approach is appropriate for large investments that are not replicable. An example of such a programme would be implementing the wastewater collection and treatment where each locality has different costs and solutions. Thus, separate design and before-concept documents have to be prepared at the local level. Such investments usually require separate feasibility studies for each project.
The top-down approach is used when a programme promoter decides on a relatively small margin of the project’s scope and costs. The programme may contain a number of types of projects, but the promoter needs to know the details of each type (usually through research studies or pilot projects). Then the programme is comprised of many replicable and relatively small elements, mostly by buying equipment. An example of such an approach would be financing solar collector or photovoltaic (PV) on a household level, where the costs of solar collector or PV per square metre are well known.
The average unit costs method is used for costing when many replicable elements are implemented, and the programme promoter cannot decide on a relatively small scope and costs margin. This would be used, for example, in CPT Programmes that buy cleaner-fuel buses that may differ one from another. These differences could be due to procurement, but also beneficiary needs such as bus size. The average type of the bus and average unit costs are used to calculate the programme costs. To increase accuracy, the promoter can propose more than one type of bus and investigate average costs.
2.1.3. Determining the optimal subsidy level
Calculating the optimal level of public co-financing for the purchase of new, cleaner vehicles is an important element of the analysis. Estimates suggest the level of public funds should not exceed the rates provided in Table 2.11. These rates, which represent the optimal subsidy level per project pipeline, were calculated using the OPTIC model based on the net present value (NPV) of each type of investment.
The rate of financial assistance (subsidy rate) should be set to ensure that it leverages, rather than replaces, beneficiaries’ spending. This calculation will ensure the subsidy encourages potential beneficiaries to participate in the CPT Programme without aiming to make a profit based on the subsidy. Therefore, the level of the subsidy should be kept to the absolute minimum, especially given the scarcity of public resources. This optimal minimum can be defined as the rate of assistance that makes environmentally and economically important projects financially viable (for further discussion, see Annex B to the country reports – “Determining the subsidy level”).
The calculation of the subsidy level considers the marginal costs of new, clean buses (compared to old bus models) and the current unit price of fuel. The model checks that bus replacement does not lead to financial losses for the public transport operator. Thus, a social discount rate of 5-10% is used to determine the NPV of a typical project (e.g. bus replacement for CNG, LPG or Euro VI diesel bus). This discount rate is similar to the rate used by other public financing institutions that support similar investments.
Box 2.1. Determining the optimal subsidy level
The level of the subsidy should be sufficient to attract potential investors/beneficiaries to apply for support from the CPT Programme without making the implemented projects profitable. To evaluate a given project, the net present value (NPV) is first calculated by totalling the expected net cash flows (cash inflows/receipts minus cash outflows/expenses) over the project operating period. These net cash flows are then discounted using the rate that reflects the costs of a loan of equivalent risk on the capital market. An investment will yield a profit if the NPV is positive. All measures that yield a positive NPV using a discount rate that corresponds to the applied rate of return can be deemed beneficial.
The NPV is calculated as in the following formula:
where:
NCFi is the net cash flow in the i-th year
r is the discount rate.
Using discounting considers two factors: the investor’s expectations with respect to the measure and the capacity of the NPV to be greater than zero during the operating period.
The calculation of the subsidy level should be based on economic principles. If the project is socially significant rather than profitable for the beneficiary, the subsidy should generate a small amount of profit. In simple terms, the financial NPV, including the subsidy, should be approximately at the level of zero KGS. This means the project yields an acceptable rate of return for the investor/project promoter.
The “determination of the subsidy level” module uses this principle by making a simple financial analysis of the cash inflows and outflows in each year of the analysis. Cash inflows (receipts) generated by the project include fuel savings expressed in terms of the money saved by customers (public transport providers). In terms of cash outflows (expenses), the simple financial analysis totals the difference in investment costs of a clean and traditional bus calculated in the other modules. In the subsidy module, the subsidy is included on the cash outflow side as a negative value.
It was assumed that the project will invest during its first year and that savings are averaged over the nine years of operation. Together, the period of analysis is ten years, a typical lifespan for this type of project. The subsidy is calculated so that the result of the NPV calculation is equal to zero KGS.
This approach to calculating the subsidy will enable the government to avoid over-investing. At the same time, it will provide an investment incentive for potential beneficiaries without making it too profitable for investors. Essentially, the subsidy level should provide only the necessary leverage for individual potential beneficiaries to undertake clean transport investments.
Two issues arise regarding the calculation of this optimal subsidy level. First, if a public transport operator has already modernised its fleet, buses will not likely need replacement in the near future. (A modern fleet, for example, would have already replaced ageing buses, especially those more than 15-years-old). Thus, calculation of the subsidy level only considers the price difference between modern clean buses and traditional buses.4 Second, some fuels will be cheaper than diesel. For example, CNG and LPG are cheaper than diesel even after considering increased consumption. Therefore, calculations of the subsidy level consider savings in fuel costs for public transport operators.
2.1.4. Financing requirements, options and sources
Analysis suggests that the total costs of the CPT Programme will be substantial. The second (scaling-up) phase of the programme would require from public financiers an estimated KZT 41 818 million (USD 121.98 million) in Kazakhstan (Scenario 2). It would require between MDL 2 394‑5 542 million (USD 129.4‑299.6 million) in Moldova (Scenario 2). Finally, it would require KGS 3 762 million (USD 54.63 million) in public financing in Kyrgyzstan.
It will therefore be challenging for the public financier in all three countries to cover all these costs alone. Public financial and guarantee support will be needed, including from international public financiers.
The analyses identified two possible options for funding the CPT Programme pipelines. In the first, the local banking sector would be involved, while in the second it would not. The proposed combinations of financing instruments are as follows:
Option 1. Commercial loans, combined with public support in the form of loan guarantees and a relatively smaller subsidy (a grant) to help public transport operators repay a portion of the loan (Figure 2.1).
Option 2. Public support in the form of a relatively larger subsidy (a grant) to motivate public transport operators to allocate more of their own financial resources to purchase cleaner vehicles. Such vehicles generally require a higher initial investment (in terms of purchase cost), but are less expensive to operate (in terms of fuel costs) (Figure 2.2).
In general, the investment programme foresees public grants, commercial and preferential loans, and public loan guarantees as the most targeted support options. Finance is available, primarily through national public authorities (grants), or international/development financial institutions (preferential loans and grants). For an immediate programme implementation, Option 1 is recommended only for Moldova (Table 2.1). In the future, however, the involvement of national commercial banks (commercial loans) together with national public authorities (loan guarantees) could broaden the scheme and its financing options in Kazakhstan and Kyrgyzstan as well.
Table 2.1. Summary of public support for the CPT Programmes
Note: Percentage values denote the level of public support from the bus purchase costs; *minibuses are foreseen only for Moldova; **conversely, 100% private co-financing when the number of CNG buses exceeds 100.
Source: OECD calculations, OPTIC model.
The provision of the loan guarantee (under Option 1) is a particularly important element in the CPT Programme financing in Moldova. The overall financial support (in the form of subsidies) may not be that high. However, the Ministry of Finance (as the main guarantor of public debt) can issue guarantees on bank loans. This would overcome the lack of creditworthiness of smaller municipalities and private operators (in addition to municipal transport operators in Chisinau and Balti). Involving the Ministry of Finance in programme design is therefore of crucial importance.
It is proposed that the loan guarantee consist of two components:
a fixed cost for issuing the guarantee (equal to 0.5% of the loan)
cost of the guarantee in case of default by borrowers (equal to 5% of the loan provided by the bank).
These shares are based on similar international programmes. The 5% guarantee cost – although rather low – is achievable provided the government sets strict conditions on loan provision. This will result in a low default rate. In any case, should there be a need to change the rates, all major programme outputs (e.g. total programme cost, level of subsidy) will need to be recalculated.
Banks will sign an agreement with the Ministry of Agriculture, Regional Development and Environment (MARDE) to provide the loan component. The source of financing for the loans granted by the banks could include:
the banks’ own resources
loans to banks from international financial institutions (IFIs).
Figure 2.2. Option 1 – Financing from commercial loans
Figure 2.3. Option 2 – Financing from own sources and public grant
2.2. OPTIC model
The spreadsheet-based OPTIC model was developed to cost and calculate the environmental impact of the CPT Programme. The model supports costing of the following project pipelines:
Replacement of the old bus fleet in urban centres with modern buses equipped with engines that run cleaner fossil fuels/power carriers, including:
compressed natural gas (CNG)
liquefied petroleum gas (LPG)
diesel using (or importing) of Euro 5/6 fuel
electricity (trolleybuses).
Since the bus fleet in the partner countries is ageing, the proposed pipelines are intended to support the purchase of new buses, not simply the modernisation of bus engines.
Minibuses that dominate in the public transport are not excluded, normal buses (>10 m length) are preferred.
Only investment projects (i.e. those involving capital outlays) are eligible for financing under the programme. The list of eligible projects will be reviewed annually by the programme’s IU to ensure the identified project types are relevant with regard to national environmental, climate and energy policy goals.
OPTIC is a simple, easy-to-use tool to support decision making around proposed project pipelines. It is used exclusively to estimate programme costs, CO2 emission reductions and emission reductions of other pollutants from urban public transport (CO, NOx, PM, SO2).
Box 2.2. The OPTIC model
The Optimising Public Transport Investment Costs (OPTIC) model was developed along with this study and is one of the main outputs of the project.
OPTIC’s spreadsheet-based model is a simple, easy-to-use tool to support decisions. It was prepared exclusively to calculate and optimise total programme costs, as well as the emission reductions of CO2 and other pollutants from urban public transport (CO, NOx, PM, SO2) that might be achieved by implementing the proposed project pipelines. The model also enables calculation of the optimal level of subsidy for potential beneficiaries.
Optimisation of costs and benefits implies achieving given targets at the lowest possible cost for the public financier. Both targets and subsidy levels can be recalculated (or optimised) and adjusted accordingly if underlying economic conditions in the country change over the programme period and/or available public financing is reduced or augmented. Examples of economic factors include higher tariffs or lower interest rates on commercial loans.
The model consists of seven modules: i) assumptions; ii) emission factors; iii) transport sector overview with information on current bus fleet and age; iv) subsidy level; v) cost calculation; vi) emission reductions calculation; and vii) programme costing and environmental effects.
Similar models on the market focus on estimates of GHG emission reductions for a country or for groups of countries. These models mainly focus on GHG emissions from industry and consider different scenarios for the country’s economic development. These models, however, are not particularly suitable for this investment programme, which focuses on reducing emissions only from urban public transport.
The model could be used in two ways. On the one hand, it could optimise GHG emission reductions given a specified programme budget. On the other, it could optimise the programme budget for an assumed level of reduction of GHG emissions. As such, the model acts as an analytical tool to make decisions more informed and transparent. At the same time, it allows the calculation of the optimal level of subsidy that would encourage potential beneficiaries to make necessary investments.
2.2.1. Overall structure and use of the OPTIC model
OPTIC consists of seven modules: i) assumptions; ii) emission factors; iii) transport sector overview with information on current bus fleet and age; iv) subsidy level; v) cost calculation; vi) emission reductions calculation; and vii) programme costing and environmental effects. The model has been prepared in Excel and uses macros. The user fills the cells that are highlighted in yellow in the Excel sheets.
1. Assumptions
2. Emission factors
As the model uses the average unit costs method for costing, users enter the average price of a new CNG, LPG, diesel bus equipped with a Euro 4/IV engine and trolleybus. The model supports two sizes of buses (normal and minibuses).
Users then provide the average level of fuel consumption of each bus. This information will also include old diesel buses that will be replaced. For the purpose of the model, old diesel buses were divided into several categories: new and more than 5-, 10- and 15-years-old.
Users provide information on fuel costs for each type of bus. The information on average kilometres per vehicle per day (kpvpd).
After providing basic assumptions, users input information on unit emissions from buses. The proposal is included in the model, but can be adjusted for the country specifics.
3. Transport sector overview with information on current bus fleet and age
Users provide information on the urban public transport sector by dividing the fleet by bus type.
4. Subsidy level
The model contains the module on determining the subsidy level. It considers both investment costs and savings that public service providers may achieve by replacing old buses. New buses using alternative fuels are more efficient because of technological improvements, as well as the lower price of CNG and LPG fuels compared to diesel.
5. Cost calculation
This module shows the estimated investment costs and the required subsidy by the programme. A table contains data on public transport in the country, the number of buses to be replaced, the type of new buses, total investment costs, the level of subsidy and the net costs to beneficiaries. In this module, users simply input factual information without making any decisions on the programme.
6. Emission reductions calculation
This module shows the estimated annual emission reduction by type of pollutant.
7. Programme costing and environmental effects
This module supports decision making, either for automatic calculation of programme costs or for manual adjustments.
Users may define one of the following programme targets:
investment costs
subsidy budget (amount of funding available for subsidies)
CO2 emission reduction
CO emission reduction
NOx emission reduction
PM2.5 emission reduction
SO2 emission reduction.
By clicking on the “Go” button to the right of the respective target, the model calculates the programme financial envelope necessary to achieve the target (i.e. it excludes other targets).
The algorithm for the programme cost calculation is as follows:
The model reviews the information on public transport for each city. The review is done in three iterations (urban centres, suburban centres and inter-city connections).
The model determines whether the city has any potential for CNG buses; if so, it proposes replacement of an old bus by a CNG bus.
The previous step is repeated until the target is reached or all old buses in a given iteration are replaced.
If the city does not have the potential for CNG buses, the model completes the same steps with Euro VI diesel buses.
If the city lacks the potential for either CNG or Euro VI buses, the model proceeds through the same steps with LPG buses.
The results are presented in an Excel table that contains basic information on the number of new buses, investment costs, subsidies and emission reductions per year.
Users may change the project pipelines by providing their own information on the number of new buses. Calculations are updated accordingly.
2.2.2. Potential future use of the OPTIC model
The OPTIC model is well developed, but it focuses narrowly on clean public transport programmes. It also has four predefined project pipelines (CNG, LPG, modern diesel buses and trolleybuses) and two sizes of buses (normal and minibuses). The user manual is part of the country report on specific programmes.
The model will need adjusting if the development of the future programmes goes beyond the predefined project pipelines (e.g. including electric buses). An Excel expert can make the adjustment, including using the macros. The development of the different scenarios may also require some knowledge of Excel.
The programme may be based on the similar principles described above and narrowed to the pipelines in the OPTIC model. In these cases, the model can be used for costing, estimating environmental effects and developing the different scenarios of the respective programmes.
2.2.3. Training toolkit
The training toolkit aimed to provide participants with a better understanding of issues involved in designing public investment programmes.
The toolkit consists of three main parts:
1. designing medium- to long-term public environmental expenditure programmes
2. implementing environmental expenditure programmes with a focus on project cycle management
3. implementing practical exercises.
The toolkit was partially based on the Handbook for Appraisal of Environmental Projects Financed from Public Funds (OECD, 2007[1]). The handbook aims to help governments design and implement public environmental expenditure (investment) programmes, as well as to supervise and evaluate the performance of agencies implementing such programmes. It was based on a study by the OECD with regard to opportunities for, and obstacles to, integrating multi-year public environmental programmes into medium-term expenditure frameworks. Several countries of Eastern Europe, Caucasus and Central Asia (EECCA) have introduced these programmes.
This analysis is summarised in a report on Greening public budgets in Eastern Europe, Caucasus and Central Asia (OECD, 2011[2]). The report aimed to help EECCA environmental administrations harness the potential benefits of ongoing public finance reforms in the region. The benefits are described in terms of both medium-term and performance-oriented budgeting. Thus, the toolkit was targeted at both decision makers who set rules for expenditure programmes, as well as managers who appraise, select and finance projects on a daily basis.
2.2.4. Exercises
The training toolkit contained two exercises designed to help participants learn practical skills.
First, participants designed a public environmental expenditure programme, setting objectives, specific targets and priorities. With a sample problem, they developed a problem tree, objective tree and a proposed title for the programme, as well as a draft logframe matrix. Participants then formulated targets for the specified programme, focusing on indicator, quantity, quality, time and sources of verification. In the last step, participants calculated costs of the hypothetical programme.
Second, participants focused on project appraisal using different environmental efficiency indicators. They reviewed five projects, ranking them based on the following three criteria: dynamic generation costs, emissions reduction/investment outlays, emissions reduction/annualised cost. Through this exercise, participants used Excel spreadsheet and Dynamic Generation Costs (DGC) software.
Due to time constraints, the exercises were shortened during the training sessions.
2.2.5. Software tools
An OPTIC model was prepared and then presented during the training workshops. It was also delivered to participants on USB memory drives. The user manual was part of the programme report.
DGC software, developed for previous OECD trainings, aimed to help calculate the environmental efficiency indicators, especially the DGC indicator. As the three programmes focused primarily on public transport, the DGC software tool was adjusted for this purpose.
The user manual was part of the training toolkit.
2.2.6. Participants
As the training workshop followed the presentation of the programme, usually the same group took part. The presentation of the programme and case studies interested a wider group of participants, including higher level representatives of respective ministries. The next day focused on training for programme preparation, project cycle management and selection of individual projects. This training was of chief interest to specialists of ministries, as well as representatives of cities, non-governmental organisations (NGOs) and other institutions. Additional training in the city of Balti was attended by eight persons that are directly involved in urban public transport.
The selection of participants was a challenge. Experts working in the respective ministries responsible for environment were the first choice. Representatives of ministries such as transport and economy interested in programme implementation were the second choice. However, no country where the programmes were implemented had an IU (or organisation that could play this role). Only Moldova had broad experience in operational environmental (and other) funds. However, due to changes in the ministries and a shortage of employees, the respective experts were not available. Thus, the selected participants were not optimal, especially for the part of the training related to programme implementation.
The availability of participants was also a challenge because the workshop took place over the summer holidays. As a result, in the Kyrgyz Republic in July 2018, no representative of the Ministry of Finance or Ministry of Transport and Roads attended the workshop.
If the countries prepare the programme and create or select the respective IU, it will need further support to train experts.
2.3. Examples of good practices
Establishing and managing green public investment programmes require public financiers to follow essential elements for setting minimum requirements to ensure transparency and cost-effectiveness of public spending. The essential elements of good international practices include the following:
clearly defined objectives that are specific, measurable, realistic and time-bound, and priorities that are few and unambiguous
clearly defined timeframe of the programme
specified cost estimates of achieving the objectives
specified sources of financing, specified eligible project types and eligible beneficiaries
clearly defined terms of financing including, among others, financial instruments (eligible form of subsidy), co-financing requirements and minimum/maximum level of support
well-documented principles, rules and operating procedures for project cycle management
clearly defined and robust criteria for appraisal, selection and financing of investment projects.
Source: (OECD, 2007[1]).
A public investment programme consists of two main stages: analysis and design (defining essential elements) and implementation. Implementation requires that public authorities select the best institutional arrangement; ensure stable and predictable sources of finance; and hire qualified managers. While these elements may look rather obvious and logical, their practical application is often quite challenging.
In the recent past, the OECD prepared several practical tools – including expenditure guidelines or models – that support an efficient use of public resources in state-supported programmes (Box 2.2). The costing methodology developed for the CPT Programmes (OPTIC model) builds upon previous work in this area (such as good practice handbooks). As such, it complements the range of support offered by the OECD to partner countries.
Box 2.3. OECD toolbox for strengthening green public finance in EECCA countries
The OECD has assisted the countries of Eastern Europe, Caucasus and Central Asia (EECCA) to improve management of their public resources allocated for green investments. The OECD has a number of practical tools to help prepare public investment programmes:
Good Practices for Public Environmental Expenditure Management http://www.oecd.org/env/outreach/38787377.pdf (OECD, 2006[3]).
Handbook for Appraisal of Environmental Projects Financed from Public Funds http://www.oecd.org/env/outreach/38786197.pdf (OECD, 2007[1]).
The OECD also developed an Excel-based model called Optimising Public Transport Investment Costs (OPTIC) and a methodology to support design of green investment in the public transport sector. The methodology, developed as part of the study on Kazakhstan, calculates the main financial and environmental parameters of the programme.
Several case studies from EU countries were assembled to help participants better understand what makes a well-prepared green investment programme. The following chapters review three case studies and summarise good and bad examples.
2.3.1. Austria
In Austria, different programmes cover “green” subsidies in the transport sector at the level of the federal government, federal states (Länder) and/or municipalities.
At the federal level, the klimaaktiv mobil programme is embedded in the broader climate protection initiative klimaaktiv. The latter was set up by the Ministry of Environment (currently Ministry of Sustainability and Tourism) in co‑operation with the Ministry of Finance. It was supported by the Austrian Climate and Energy Fund and the Ministry of Transport. The Austrian Rural Development Programme 2014-2020 co-finances some klimaaktiv projects through the European Agricultural Fund for Rural Development and stimulates green mobility in rural areas.
The klimaaktiv mobil programme provides financial support to Austrian businesses, as well as towns, cities, municipalities, regions and individuals. It promotes an environmentally friendly transition towards electric mobility, cycling, intelligent mobility management and innovative mobility services. It also includes consulting and awareness-raising programmes, partnerships, and training and certification initiatives.
The klimaaktiv mobil portfolio of financial supports includes the following, among others:
action package to enhance e-mobility with renewable energy
investment in climate-friendly vehicle fleets and electric charging stations
climate-friendly mobility management in enterprises (industry solutions, measures regarding logistics, public transport tickets for employees, fleet management, etc.)
climate-friendly mobility management in tourism industry (shuttle services, etc.)
car sharing
promotion of cycling.
The financing support is covered by a flat rate or a fund rate support.
Flat rate support is granted for specific core themes like e-vehicles, vehicles using alternative fuels or charging stations depending on size and technology used. An overview of these flat rates, valid till the end of July 2018, is provided in Table 2.2.
Table 2.2. The key parameters for public support under Austrian klimaaktiv mobil programme
Note: * With an additional contribution of EUR 1 500 from importers.
Source: Data obtained from KPC.
Projects with a wider focus receive a standardised funding rate of 20% of the environment-related investments costs. This rate can be upgraded to a maximum of 30% with an additional funding bonus (5% each) if the project meets these conditions:
It combines at least two different measures.
It implements awareness-raising measures.
It includes further companies or stakeholders.
The subsidy is, however, capped with the maximum funding according to the environmental effect:
EUR 450/year of reduced tCO2 + EUR 50/year of reduced tNOx + EUR 10/year of reduced kg dust.
The financial support within the klimaaktiv mobil programme is managed by a private company (Kommunalkredit Public Consulting GmbH). This support ranges from the technical and financial appraisal of grant applications to submission of applications to the Ministry of Environment. It also includes fiduciary management such as disbursement of grants throughout the agreements.
The successful outcomes of the programme since 2006 are the following:
around 12 000 supported projects
financial support for mobility projects amounting to around EUR 100.5 million + EUR 7.6 million from EU funds
around 2.7 million tonnes of CO2 saved
around 6 000 so-called green jobs secured or saved.
The following further achievements can also be attributed to the programme:
awarded European Best Practice twice
contributed towards reaching energy, climate and environmental targets of the European Union and Austria
helped protect the environment and counteract climate change
provided an important incentive for eco-friendly mobility
improved citizens’ quality of life.
Success factors included the following:
partnerships with auto importers and two-wheeler importers, as well as sports retailers, to fund e-vehicles
the huge number of awareness-raising campaigns promoting green transport involving different kind of media and stakeholders
partnerships with organisations such as the Austrian Economic Chamber, the Institute for Economic Promotion, the Associations of Cities and Municipalities, etc.
2.3.2. Czech Republic
In the Czech Republic, there is no one single programme to highlight. However, good co‑ordination has generated interesting results. The key actors and legislature in sustainable transport include three ministries:
Ministry of Industry and Trade:
In 2005, the government adopted the Support Programme for Alternative Fuels in Transport – Natural Gas.
In 2015, the ministry drafted the National Action Plan for Clean Mobility. It states that by 2020, CNG should represent 10% of total energy consumption in the transport sector; alternative fuels as a group should represent 20-23%.
Ministry of Transport:
It negotiated with the European Commission how to enable EU funds to support development of refuelling/recharging infrastructure in the Czech Republic.
Ministry of Finance:
It regulates value-added tax, road and excise taxes, and highway tolls.
In 2006, the Ministry of Transport and nine gas distribution companies agreed to provide public transport operators with a CNG station if these run at least four CNG-powered buses (with a minimum consumption of 100 000 m³/year/bus). The minimum number of recharging and filling stations according to the National Action Plan for Clean Mobility (2015)5 is provided in Table 2.3.
Table 2.3. The minimum number of recharging and filling stations according to the National Action Plan for Clean Mobility (2015)
Source: Ministry of Industry and Trade of the Czech Republic (www.mpo.cz).
Financing is split between several public support programmes supported by both Czech and EU funds (national/operational programmes). They are focused on different aspects of introducing eco-vehicles and building up the related infrastructure:
Operational Programme Transport II
Integrated Regional Operational Programme
Operational Programme Enterprise and Innovation for Competitiveness
National Programme Environment
Epsilon Programme
Operational Programme Prague – Growth Pole of the Czech Republic
Tax exemptions and other fees/waivers.
As the development of clean transport is complex, one example of the CNG-fuelled vehicles is provided below to illustrate.
Between 2006-10, the Ministry of Transport supported a programme to replace city and inter-city bus fleets. It compensated half the difference between a diesel and a CNG-powered bus (up to EUR 20 000 per vehicle). Annual (ad hoc) allocation for the programme was EUR 8-12 million. Currently, gas distribution companies provide subsidies of EUR 8 000 per CNG-powered bus.
Compared to 2007-13, the 2014-20 period of Operational Programme Environment puts more emphasis on supporting sustainable forms of transport and reducing adverse impacts of this sector on the environment. It offers grants of up to 90% of total eligible expenses. Additional national public co-financing (state budget or the State Environmental Fund) is not only possible but also required.
Three criteria are used to identify inefficient buses for replacement. Vehicles need to be at least ten-years-old, to comply with Euro 1-3 emission standards, and have at least 500 000 km in mileage.
As a result, about 21 900 different CNG vehicles were in the Czech Republic at the end of 2018, as well as 185 CNG filling stations (25 in Prague). Of these vehicles, over 1 230 CNG buses were used for public transport in more than 60 cities. There was a 20% increase in the number of CNG-powered vehicles between 2017 and 2018.
The results of the implementation are also illustrated in Figure 2.4.
Figure 2.4. CNG vehicles and filling stations in the Czech Republic, 2004-17
Source: Czech Gas Association (www.cgoa.cz).
In addition to the programmes above, the city of Prague prepared a Sustainable Mobility Plan that is integrated with sustainable urban development. The plan envisages three development scenarios: Efficient Prague, Rational Prague and Liberal Prague. Together, the scenarios list priority measures required to develop sustainability in the city’s transport. It contains a long list of 414 potential actions for a cost of EUR 13.6 billion. A reduced list contains 141 measures for a cost of EUR 2.5 billion. The plan was expected to be approved by the end of 2018.6
2.3.3. Poland
The programme “Gazelle BIS – Low-emission collective urban public transport” was prepared by the Polish National Fund for Environmental Protection and Water Management (NFEP&WM). The pilot phase was implemented, but the second phase was postponed. Still, it is a good example of preparation for a country-wide green investment programme.7
As its general objective, the programme seeks to reduce human exposure to the effects of air pollution in areas with significant excesses and target concentration levels of these pollutants. To that end, it will develop air protection programmes and reduce emissions of pollutants, particularly PM (PM2.5, PM10) and CO2 emissions. The programme budget was estimated at PLN 425.5 million (~ EUR 100 million). Grants are intended to provide PLN 125 million of this amount, while soft loans provide PLN 300 million.
The programme implementation was set to take place over 2016-23. However, as it has not started yet, it is under significant review. The programme is supposed to co-finance the following vehicles:
Hybrid buses:
Length < 13m: up to PLN 1.6 mln (< 400 thous. EUR)
Length > 13m: up to PLN 2.1 mln (~ 500 thous. EUR)
Electric buses:
Length < 13m: up to PLN 1.8 mln (~ 450 thous. EUR)
Length > 13m: up to PLN 2.4 mln (~ 550 thous. EUR)
Gas-fuelled buses (like CNG):
Length < 13m: up to PLN 1.1 mln (~ 250 thous. EUR)
Length > 13m: up to PLN 1.5 mln (~350 thous. EUR)
Trolleybuses:
Length < 13m with battery: up to PLN 1.9 mln (>450 thous. EUR)
Length < 13m without battery: up to PLN 1.6 mln (<400 thous. EUR)
Length > 13m with battery: up to PLN 2.2 mln (~500 thous. EUR)
Length > 13m without battery: up to PLN 1.9 mln (>450 thous. EUR)
Trams:
Length < 31m: up to PLN 8 mln (< EUR 2 mln)
Length > 31m: up to PLN 10 mln (< EUR 2.5 mln).
In addition, the programme is supposed to co-finance this additional infrastructure:
CNG/LNG stations
electricity charging stations
traffic control to ensure high priority for public transport (including area control systems and traffic light systems)
bus lanes
park & ride not farther than 100 m to the bus/tram stop
passenger information system at bus stops, in the vehicles, online
ticket sale systems
parking fee payment stations
bike roads
trolleybus infrastructure.
The co-financing rate is up to 100% of the investment costs. However, new transport cannot exceed 80% of the total costs. Supporting infrastructure (automatic control, bus lanes, park & ride, CNG stations) cannot exceed 50% of total costs. The beneficiaries are local governments (cities) and municipal associations. They must ensure that at least 20 km of public transport services are available per citizen. At the same time, they should provide at least 3 parking spots per 1 000 citizens. Project selection criteria include environmental effects, project financing structure (not only new transport means, but also supporting infrastructure), project feasibility and cost efficiency.
The programme is implemented by the NFEP&WM Fund. The Fund’s webpage provides information, as well as application forms, general rules for co-financing and methodology to calculate the environmental effects. Applications are submitted using a web-based software (“application generator”). It also provides information on the two stages of project appraisal.
In 2018, the government of Poland introduced an excise tax relief for CNG and LNG fuel, as well as an “emission fee” for other fuels. The emission fee will be the major source of financing of the revised programme. The fee is expected to generate at least PLN 10 billion (EUR 2.4 billion) over ten years. The government has also introduced legislation giving the cities authority to design clean transport zones.
2.4. Conclusions
As the OPTIC model calculations and experience from other countries have shown, the total cost of implementing the CPT Programme will be substantial. New technologies are more expensive before they reach market maturity. Therefore, public financial support will be necessary to help public transport operators (both municipal and private) to upgrade to a modern and environmentally friendly vehicle fleet.
The investment programme foresees public grants, commercial and preferential loans, and public loan guarantees as the most targeted support options. Finance is available, primarily through national public authorities (grants) or international/development financial institutions (preferential loans and grants). In Moldova, the involvement of national commercial banks (commercial loans) and national public authorities (loan guarantees) provides additional financing options.
When calculating the optimal level of public support (subsidies in the form of grants), the programme analysis considered several factors. Vehicles using alternative fuels incur lower running costs as these fuels/sources of power are less expensive. They also incur lower operational and maintenance costs due to higher reliability of new vehicles and the need to replace vehicles that have been fully depreciated.
For these economic reasons (i.e. achieved savings in operational costs), the CPT Programme need not be completely financed by grants. The programme is designed to increase investment by public transport operators in the vehicle fleet without making the replacement too much of a drain on public resources (or to support purchases that would/could take place without public support).
In any case, applying a robust methodology can make the CPT Programme more credible for both national and international public financiers. Such a methodology could estimate the costs of the investment programme, set the optimal level of subsidy and forecast the expected environmental benefits.
References
[2] OECD (2011), Greening public budgets in Eastern Europe, Caucasus and Central Asia, OECD Publishing, Paris, https://doi.org/10.1787/9789264118331-en.
[1] 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.
[3] OECD (2006), Recommendation of the Council on Good Practices for Public Environmental Expenditure Management, OECD, Paris, http://www.oecd.org/env/outreach/38787377.pdf.
Notes
← 1. As used here, a “project pipeline” is a set of projects in a given sector. These projects have been conceived and developed to achieve the objectives of the investment programme. Thus, the project pipeline is a repeatable procedure according to which priority projects are identified for their compliance with the programme’s objectives.
← 2. There is no (clean) bus production in Moldova because there is no demand for new buses. However, the European Bank for Reconstruction and Development funded a project in Chisinau that led to a follow-up project for the licensed assembly of Belarusian trolleybuses. This has demonstrated that creating demand through the CPT Programme may help start domestic production in co‑operation with a bigger producer, or at least support local assembly.
← 3. Battery trolleybuses can travel for a limited number of kilometres depending on battery capacity, which is proportional to the costs of the battery price. However, most of the journey uses the typical electricity-supplied wire network in the city. The batteries can be charged while the trolleybus travels in the urban centre.
← 4. Given that most public transport operators would rather buy used, but relatively new buses, the price of a used bus served as the basis for the calculation.
← 5. The document is available (in Czech) at: https://www.mpo.cz/assets/dokumenty/54377/64225/657999/priloha001.pdf.
← 6. For more information, see the “Tune up Prague” website: http://www.poladprahu.cz/en/sustainable-mobility-plan-for-prague-and-its-suburbs.
← 7. This programme is a part of a larger project on “Improvement of air quality”. For more information (in Polish), see https://nfosigw.gov.pl/oferta-finansowania/srodki-krajowe/programy-priorytetowe/poprawa-jakosci-powietrza.