Transition to a market economy: GHG implications of business as unusual

I. Basmakov, Center for Energy Efficiency, Moscow

1 Comparative analysis of the longterm energy development and GHG emissions for the former USSR and Eastern Europe

The purpose of this section is to compare the results of the most recent publications and model runs for the Former USSR (FUSSR) and Eastern Europe (EE). This comparative study was made for IIASA Challenge Project in October 19931.

Some of the results presented were developed for the FUSSR only, others for FUSSR and Eastern Europe (EE) being grouped in two sections: FUSSR and FUSSR+EE. This approach allows to identify the scale and noncommon trends for FUSSR alone and for the larger section which includes the EE region. For all data reported in Tables 14 average, minimum, and maximum numbers are presented. It makes it easier to read the tables and get most important information on consistency and inconsistency of the vision of the future energy systems in the FUSSR or FUSSR+EE.

GDP Projections.2 An average annual rate of economic growth in 1990-202(3)0 is expected to be 2.4 percent with variations from 1.4 to 3.2 percent per year. (See Table 1). Then the rates of growth will decline however staying below 2.2 percent level in 202(3)0-2100.

Primary Energy Consumption.3 The annual rates of primary energy consumption growth in 1990-2020 vary between 1.4 and 1.8 percent with an average equal to 0.1 percent per year. (See Table 2). All negative rates resulted from scenarios with some sort of carbon tax. Energy consumption growth rates could be either negative or positive varying between +1 percent per year in 2020-2100 with average values close to zero.

Energy Intensity. All projections are positive that energy intensity of the FUSSR and FUSSR+EE will decline in future. However, they somewhat differ about the rates of this decline. (See Table 3). This would be a new trend for the FUSSR: according to many studies energy intensity had positive rates of growth in this region for a long time. Comparison of average numbers for primary energy consumption and energy intensity reduction illustrates that it is energy efficiency improvements which about neutralize GDP growth as a driving force for energy consumption. Average annual rates of decline are expected to be about 2 percent in 19902020 with variations from 4.2 to 0.78. For longer term those rates would be about 0.7 to 1.5 percent in 2020-2050 and 1 to 2 percent in 20502100.

Table 1.Comparisons of GDP projections (billion $US).

                     1985   1990   2020   2025   2030   2050   2100          AAGR           

                                                                     1990-2 202(3)0 2050-21 
                                                                     02(3)0  -2050    00    

WEC "A" (US$ 1985)           1676   3300   4998   5706                 2.28                 

GREEN: Ref. (US$             2329    199    195   2620          2836   2.58                 

GREEN: 200$ (US$      2180   2329    195   5706                        3.03                 

FFEF (US$) Base       2180          5085   5085   5085   5085          3.18            2.09 

FFEF (US$ 1985)                                                        2.55            0.62 

12RT: BAU                     100                                      2.32    1.61         

12RT: 200$ tax        1747    100          8382   6033  11408          2.24                 

Bashmakov (Base)      1225   1748   8608   6033  11408                 1.36                 

Sinyak & Nagano       1833   1640          8904   6771                 2.01    1.66         
(US$ 1990)                                                                                  

Average FUSSR         1225   1418          3630   6435   3630   8904   2.39    1.64    1.36 

Minimum FUSSR         2180    100                                      1.36    1.61    0.62 

Maximum FUSSR                2329                                      3.18    1.66    2.09 

IPCC (a)                     3766                  322                 2.31    1.45    1.22 

IPCC (c)                     3766   5950   3136    322   5950  12018   1.35    0.32   -0.02 

IPCC (e)                     3766   6526  19839         12794   6526   3.22    2.24    1.98 

ECS (US$ 1991)               2300  19839                       37767   2.68                 

Average FUSSR+EE             3400  10469                               2.39    1.33    1.06 

Minimum FUSSR+EE             2300  24118  10469  37767  20828   5931   1.35    0.32   -0.02 

Maximum FUSSR+EE             3766  49556         25438   5931  49556   3.22    2.24    1.98 

Table 2.Comparison of GDP primary energy consumption projections (Mtoe).

                     1985    1990   2020    2025    2030   2050    2100           AAGR           

                                                                         1990-20 202(3)0 2050-21 
                                                                          2(3)0   -2050    00    

WEC "A"                     1447.0 1528.00                                  0.18                 

WEC "C"                     1447.0 1268.00                                 -0.44                 

GREEN: Ref.                 1608.9 2731.00                                  1.78                 

GREEN: 200$ tax             1608.9 1067.00                                 -1.36                 

FFEF                1234.20                        1241.2         1304.5    0.01            0.07 
                                                        0         0                              

12RT: BAU                   1365.4 1456.10                1892.66           0.21    0.88         

12RT: 200$ tax              1365.4 1283.60                                  0.21                 

Bashmakov (Base)    1299.51 1362.7 1546.36                                  0.42                 

Bashmakov           1299.51 1362.7 1099.30                                 -0.71                 
(Efficiency)                     3                                                               

Sinyak & Nagano             1355.0                        2250.00           0.85                 
(BAU)                            0                                                               

Sinyak & Nagano             1355.0                        1835.00           0.51                 
(Efficiency)                     0                                                               

Average FUSSR       1277.74 1427.8 1497.42         1241.2 1992.55           0.11    0.88    0.07 
                                 1                      0                                        

Minimum FUSSR       1234.20 1355.0 1067.00         1241.2 1835.00          -1.36    0.88    0.07 
                                 0                      0                                        

Maximum FUSSR       1299.51 1608.9 2731.00         1241.2 2250.00           1.78    0.88    0.07 
                                 0                      0                                        

IPCC (a)                    1844.1         2889.09        2950.56           1.29    0.08    0.25 

IPCC (c)                    1844.1         2294.88        1885.08 1304.5    0.63   -0.78   -0.99 
                                 0                                     0                         

IPCC (e)                    1844.1         3462.81        4098.00 1304.5    1.82    0.68    0.67 
                                 0                                     0                         

ECS                         1802.0 2515.00                        1304.5    1.12                 
                                 0                                     0                         

Average FUSSR+EE            1833.5 2515.00 2882.26   0.00 2977.88 3339.8    1.21   -0.01   -0.02 
                                 8                                     7                         

Minimum FUSSR+EE            1802.0 2515.00 2294.88   0.00 1885.08 1085.9    0.63   -0.78   -0.99 
                                 0                                     7                         

Maximum FUSSR+EE            1844.1 2515.00 3462.81   0.00 4098.00 5716.7    1.82    0.68    0.67 
                                 0                                1                              

Table 3.Comparison of energy intensity projections.

                     1985   1990   2020   2025    2030   2050   2100           AAGR           

                                                                      1990-20 202(3)0 2050-21 
                                                                       2(3)0   -2050    00    

WEC "A"                      0.86   0.46                                 2.05                 

WEC "C"                      0.86   0.38                                 2.66                 

FFEF                  0.57                         0.14          0.03    2.94           -1.97 

GREEN: Ref.                  0.69   0.55                                 0.78                 

GREEN: 200$ tax              0.69   0.19                                 4.26                 

12RT: BAU                    1.00   0.54                  0.43           2.06   -0.72         

12RT: 200$ tax               1.00   0.48                                 2.40                 

Bashmakov (Base)      0.74   0.78   0.59                                 0.92                 

Bashmakov             0.74   0.78   0.42                                 2.04                 

Sinyak (BAU)                 0.83                         0.38           1.29                 

Sinyak                       0.83                         0.31           1.63                 

Average FUSSR         0.68   0.83   0.45           0.14   0.37   0.03    2.09   -0.72   -1.97 

Minimum FUSSR         0.57   0.69   0.19           0.14   0.31   0.03    4.26   -0.72   -1.97 

Maximum FUSSR         0.74   1.00   0.59           0.14   0.43   0.03    0.78   -0.72   -1.97 

IPCC (a)                     0.49           0.34          0.25   0.16    1.00   -1.35   -0.85 

IPCC (c)                     0.49           0.38          0.29   0.18    0.72   -1.10   -0.97 

IPCC (e)                     0.49           0.30          0.21   0.12    1.36   -1.53   -1.28 

ECS                          0.78   0.49                                 1.52                 

Average FUSSR+EE             0.56   0.49    0.34          0.25   0.15    1.15   -1.32   -1.03 

Minimum FUSSR+EE             0.49   0.49    0.30   0.00   0.21   0.12    1.52   -1.53   -1.28 

Maximum FUSSR+EE             0.78   0.49    0.38   0.00   0.29   0.18    0.72   -1.10   -0.85 

CO2 Emission. CO2 emission estimates are in the center of many longterm projections made in recent years. A comparison of CO2 emissions is presented in Table 4. Almost all projections agree on CO2 emission decline in 1990202(3)0 with just two exceptions4. An average rate of decline is estimated equal to 0.5 percent per year, and the maximum is 1.7 percent per year. For longer term future projections available disagree on the direction of CO2 emission evolution.

Table 4.Comparison of CO2 emissions (MtC).

                     1990    2020   2050    2100                AAGR              

                                                   1990-202( 202(3)0-20 2050-2100 
                                                      3)0        50               

WEC (b)             1080.00 1030.0                     -0.16                      

FFEF                 880.00 520.00  280.00    0.00     -1.74      -2.04   -100.00 

GREEN: Ref.         1059.90 2021.5                      2.18                      

GREEN: 200$ tax     1059.90 658.20                     -1.58                      

12RT: BAU            959.00 872.80 1028.90             -0.31       0.55           

12RT: 200$ tax       959.00 571.30                     -1.71                      

Bashmakov (Base)     990.00 1127.0                      0.43                      

Bashmakov            990.00 716.00                     -1.07                      

Sinyak (BAU)        1071.00        1455.00              0.51                      

Sinyak              1071.00         425.00             -1.53                      

  Average FUSSR     1011.98 939.60  797.23    0.00     -0.50      -0.75   -100.00 

  Minimum FUSSR      880.00 520.00  280.00    0.00     -1.74      -2.04   -100.00 

  Maximum FUSSR     1080.00 2021.5 1455.00    0.00      2.18       0.55      0.70 

IPCC (a)            1700.00 2400.0 2100.00 2500.00      0.99      -0.53     -3.97 

IPCC (c)            1700.00 1800.0 1100.00  400.00      0.16      -1.95      1.34 

IPCC (e)            1700.00 3000.0 3300.00 4600.00      1.64       0.38           

ECS                 1241.60 1613.1                      0.88                -0.64 

  Average FUSSR+EE  1585.40 2203.2 2166.67 2500.00      0.92      -0.70     -3.97 

  Minimum FUSSR+EE  1241.60 1613.1 1100.00  400.00      0.16      -1.95      1.34 

  Maximum FUSSR+EE  1700.00 3000.0 3300.00 4600.00      1.64       0.38           

One can conclude from this brief review that the present vision of longterm energy related GHG emissions by economies in transition is very uncertain. However, according to the author's own estimate energy related CO2 emission for economies in transition will stay below the 1990 level up to the year 20205.

2 Reasons for uncertainty

2.1 Modelling problems

In many longterm world energy and GHG emissions models the FUSSR and EE regions were two most important and most difficult regions for modelling. Now FUSSR and several EE countries are split into 27 independent states. This makes the modelling process even more difficult. On the one hand, collecting energy and economic data has always been a nightmare, and ever more so now. On the other, economic policies of the NIS countries are not alike; neither are time periods these economies will need to manage through the transition to a market economy.

There are many methodologies and models for energy system evolution projections developed in the Former USSR and EE. Many of these methods are not valid any more and should be replaced for at least two reasons:

the system of decision making is under significant evolution and models tuned to the commandadministrative economy with no incorporation of market parameters are unable to predict final energy consumers and energy producers behavior and responses to market signals;

all the models were developed to simulate growth of energy system and there is not enough knowledge available for the description of energy system in periods of rapid economic decline or revival.

Those who are trying to incorporate market variables in their models face another significant challenge: lack of more or less reliable information to calibrate parameters of energy producers and consumers reaction to market signals.

2.2 "Business as unusual" scenario for the future development

The old economic system demonstrated astonishing waste of production factors utilization, including energy comsumption on the background of a near total disregard for the environment. That was the major reason for the crisis in the former inefficient wasteful planned economy. Such economy was unable to promote goods, capital and manpower distribution in accordance with the society's real needs.

Former planned economies smoothly entered an economic crisis in early 80s. But in late 80s early 90s this smooth economic crisis resulted in an "earthquake" which destroyed the former communist block. Revolutionary shocks of late 80s and early 90s drastically changed the global political climate, as well as the political map. On the ruins of the former communist block 27 new independent states with the total population of about 430 million people appeared. In 19891992 they, one after another, started transition to democracy and free market economies. This transition process appeared to be painful and actually comprises several simultaneous transitions:

the monolithic, topdown government must be transformed into a bottomup system of regional authority and decisionmaking;

the centrally planned system must be recast for the economy to develop marketbased interactions;

the emphasis should be transferred from the military production and heavy industry to consumer goods and light industry;

isolationism must give way to international trade and participation in foreign markets. And the people must alter their way of thinking and working - in order to survive in a competitive world.

Mr. V. Klaus, Prime Minister of the Czech Republic, splits the transition of a society from one form to another into two stages (using medical terms): operation and rehabilitation. He says that the Czech economy now seems to have entered the second stage recovering from the surgical operation and gaining physical force to start "climbing the mountain" in the near future6.

As to the economies in many other countries, they are still under the knife. Mr.V. Advadze, Georgian Ambassador in Russia, titled his article "Georgia: Looking Up From the Gap"7. The Georgian national income in the first quarter of 1994 accounts for 2930% of the 1990 level, the industrial output was 31%, with 25% in the agricultural sector. The retail turnover was negligible: 7% of the 1990 level. His impression is that Georgia is right in the gap now and it will be a long time before they manage to get out.

How deep the gap is which a country in transition falls down into before it starts "climbing mountains" depends on how successfully it passes three major steps8.

macroeconomic stabilization by way of hard budget and financial policy;

liberalization of the internal and external markets through market prices and liberalization of the foreign trade;


These three steps ought to be made one after another by any economy in transition. This is the only way to change the policies of enterprises and improve their efficiency. If this is not done, neither hard macroeconomic measures, nor strict government orders will help.

In other words, there is not too much room left for economies in transition to do "business as usual".

2.3 Transition through crisis

The transition path is going through the Crisisland. (See Figure 1 and 2, Table 5). All countries take different paths and move at different speeds, often wasting time or making circles. The people are unsettled and the governments falter. Political instability puts obstacles to economic reforms, limits possibilities for timely response to aggravating economic problems. Production is slumping, inflation is accelerating. Many activities in the industrial and energy sectors are crippled by mismanagement, power struggles, increasing production costs, and diminishing government handouts.

Table 5.Some indicators of the Russian economy evolution.

                                              1991    1992     1993     1994    

GDP                                              -13     -19      -12      -5-8 
                                               -18.2   -20.6    -12.4      -7-9 

Industry                                          -8     -18      -16        -6 
                                               -18.2   -20.0    -16.3    -10-12 

Investment                                     -15-5     -40      -15         0 

Primary energy consumption (Mtoe)                808     786      731       696 

Living Area (million m2)                        2461    2478     2485      2493 

Wholesale prices (%)                             238    3400     1100           

Consumer price index (%)                         210    2600      980      1000 

Sources: "Business World", N1, 11.01.94; Russian Federation in 1992. Goscomstat of Russia, 1993; "Delovoi Express", N1, 11 January, 1994; "Moscow News", No 3 (denominator), 1994, 1994, p. B3. Author's estimates.

Figure 1.Economies in transition: 1993 GDP (1991=100).

Figure 2.Consumer price indexes, 1991-1993.

Today, the most risky countries to invest in are those with economies in transition. Lack of investment guarantee mechanisms and uncertainty of economic climate limit not only foreign, but also domestic investments in the economy.

2.4 Sharp growth of energy intensity

Economies in transition have much higher energy intensities S GDP than Western countries.

High energy inefficiency (see Figure 3) reduces economic productivity, consumes badly needed capital, and employs energy resources that could otherwise be exported in exchange for valuable hard currency.

Figure 3.Energy intensity of national income: Russia versus the USA, and Western Europe: 1993.

Exhausting cheap oil, gas, and coal resources economies in transition simultaneously have been accumulating very significant energy conservation potentials.

Several studies made by local energy efficiency experts with the support of Battelle Pacific Northwest Laboratories show that:

300 Mtoe/year could be saved up to the year 2005 in Russia with specific capital investments less than $ 5564/toe/year9;

Ukraine is planning to reduce energy intensity in 2030 to less than half of what it was in 199010;

in Poland the internal rate of return for energy efficiency projects is above the threshold for 10 TWh/year for electricity saving technologies, and for about 50 TWh/year of heat saving measures11.

Transition through crisis lead to energy intensity growth of the already inefficient economies.

This growth was equal to about 10 percent for Czech Republic in 1990199212 and about 45 percent in Russia in 19901993. (See Figure 4). In early 90s energy demand did not decline as drastically as the production in Eastern Europe and the NIS countries. As a result energy efficiency improvements become even more important and are considered as the most important factor by many economies in transition13.

Figure 4.Energy consumption, national income, and energy intensity: 1985=100.

A number of structural factors had contributed negatively to the energy intensity:

the economic output declined on the background of stable and even growing energy consumption in residential and commercial sectors. As a result, these sectors' relatively stable consumption in the background of the reduced national income has contributed negatively to energy intensity;

negative structural changes in the industrial sector (at the two digit level) made another contribution to the reduction of energy efficiency in Russia. Structural changes reduced the shares of less energy intensive industries;

the share of energy consumption which is volume of production related has decreased and a larger share of energy is consumed regardless of a plant throughput.

This trend appeared on the background of growing energy prices.

2.5 Energy prices and energy costs are growing

Previously, construction of new energy monsters was a topic for press coverage in Russia. Today, energy price growth is the major energy topic for press for economies in transition.

Energy prices are growing really fast and becoming more and more visible (see Figure 5): from January 1991 to May 1994 Russian gasoline prices in $US grew 88 fold; natural gas prices 19 fold; industrial electricity 165 fold, and residential electricity 20 fold.

Figure 5.Russian energy prices. Moscow Region.

Energy price hikes are responsible for about a quarter of overall inflationary price growth in the very energy intensive economy.

In some economies in transition and in some regions of these countries prices for energy already exceed the world prices (see Figure 6).

Figure 6.Average electricity prices in Russian Regions, May 1994.

2.6 Recent and anticipated energy price increases have created favorable conditions for energy conservation activities

Many private and state firms are now looking for assistance in reducing their energy bills. Energy efficiency improvements have appeared in the list of major purposes for production investments (see Table 6). The major problem in moving energy efficiency above in the investment priorities list is financing for these projects.

Table 6.Purposes of innovations at Russian enterprises in 1992-1993.

                                                             percent of      

1. Innovations or improvements of products                                   

 a) growth of variety of products                                36          
 b) modification of products                                     23          
 c) production of non-traditional for this enterprise            14          

2. Innovations or technology improvement                                     

 a) growth of flexibility of production                          19          
 b) growth of labor productivity                                 12          
 c) reduction of material intensity                              11          
 d) improvements of labor conditions                             9           
 e) reduction of energy intensity                                7           
 f) improvement of environmental protection                      7           

Source: "Business World", N1, 11.01.94.

Many regional governments are developing their energy efficiency programs and institutional infrastructure to implement them14. They very often lack experience in developing and implementing energy efficiency programs and are looking for consultations.

3 How expensive is crisis as a mitigation strategy?

3.1 GHG emissions reduction

Eastern European and NIS countries are among a few nations who presently not only speak of the necessity to reduce GHG emissions, but also act in this direction. In Russia CO2 emission in 1993 was 90 million t C, or 14 percent lower than in 1990. (See Table 7). It is clear that the economic crisis is a major driving force after this reduction. It is also clear that due to the specific shape of this crisis GHG emissions reduction wasn't as significant as the economic decline.

Table 7.GHG emissions decline in 1990-1995.

Years             CO2          CH4           CO           NO2           GHG      
               min. t C       min. t       min. t        min. t        min.t     

1990             622.1        16.75         26.27         5.75         2939      
1991             590.5        15.68         23.20         5.44         2782      
1992             570.8        15.63         21.89         5.20         2695      
1993             534.2        14.60         21.32         4.67         2516      
1994             518.2        14.98         20.71         4.52         2458      
1995             528.1        15.21         21.10         4.62         2504      

Source: Author.

3.2 Price of GHG emissions reduction

Russian GDP losses in 19911995 are estimated equal to 2023 billion 1980 $US15. Cumulative GHG emissions reduction in 19911995 is estimated equal to 474 million ton of carbon. In other words, costs of every ton of carbon reduced are $US 4260 (1980 prices) of GDP loss. Price for GHG mitigation through economic crisis is extremely high.

4 Business as unusual

4.1 Energy efficiency scenario

Improvement of energy efficiency is not yet a usual business in the NIS countries and Eastern Europe. The tendency for energy intensity to decline is a longterm historical trend16. There is no definite answer if this trend ever existed in many economies in transition prior to this transition.

Economic revival would be accompanied by dynamic reduction of energy intensity. Energy efficiency should be the cornerstone of any general economic efficiency improvement programs, as well as any GHG emission mitigation strategy for economies in transition.

It was proven by many studies that: energy efficiency improvements are the cheapest and the most effective way to halt further environmental degradation in as well as to contribute to the solution of the global climate stabilization problem.

But the knowledge of the energy efficiency potential and even willingness to promote some technologies through government programs will have limited usefulness unless new market based mechanisms enabling realization of this potential are not developed.

The problem is not simply very inefficient equipment but also very inefficient practices and policies which discourage improvements.

This problem should be addressed with not just equipment and technologies in mind, but also with proper institutional infrastructure, management and planning tools, efficient legislation and regulation practices, financial incentives, education and training, standards, data and informational needs.

4.2 Creating mechanisms for energy efficiency scenario implementation

Institutional infrastructure will determine how the technical potential of energy efficiency improvements be translated into practice

Analysis of present institutional infrastructure's efficiency Federal and regional parliament commissions, central and local governments, academic institutions, utilities large enterprises, NGOs, and others in developing and implementing energy efficiency policy should be of top priority.

Development of the most effective and flexible institutional structures responsible for the development and implementation of energy efficiency policy should constitute a core of this policy. Special attention should be devoted to the creation of local energy efficiency authorities.

Passing the legislation on improving energy efficiency

Pressing institutional need concems legislation and policy. Governments at the federal and local levels have little experience creating effective policies for improving energy efficiency. Thus policy makers need to learn how to develop and pass effective legislation to promote energy efficiency.

Only reliable statistical data on energy use would make it possible to develop a robust government energy efficiency policy

Lack of information on how energy is used presents an acute barrier to improving energy use in Russia, as well as in many other economies in transition17. Identification of the most useful formats for mandatory energy consumption data collection and reporting should be followed by presentation of proposals to introduce new regulation on metering and reporting energy consumption data according to new formats by the Central Statistics Agencies and Energy Ministries.

Better quality statistical data openly available are necessary also for making more solid basis for the procedure of energy programs discussion and for calculating costs and benefits of various investments both for individual enterprises and for federal or local strategies.

Development of marketing tools to sell efficient equipment is no less important than production of this equipment

Decisionmakers in former planned economies traditionally concentrated their attention on the production end without looking for tools promoting market penetration of new technologies. Analysis of potential efficiency of energy efficiency labelling programs by type of equipment should be implemented including: identification of types of equipment appropriate to start energy efficiency labelling program; proposals for institutional process for energy efficient labelling.

The first type of such label for refrigerators called ENERGOCOMPASS was recently developed by CENEF (see Figure 7).

Figure 7.

Energy efficiency standards

Analysis of most promising areas and mechanisms to introduce or enforce energy conservation standards should be implemented. This analysis will answer the following questions:

What are most promising areas for energy efficiency standards?

What is the best scheme to introduce new standards?

How to develop an efficient system to supervise them?

What is the best control mechanism?

What sanctions and incentives should be provided?

The new building codes will allow significant reduction of energy use of newly built and reconstructed buildings

Russian Building Codes generally are updated every five years. The new concept of the building standards should take into account energy efficiency. The new Codes18 were developed for Moscow with the purpose of making buildings more energy efficient. Historically, building standards had focused on a safe structural design, proper sanitary and hygienic conditions, minimizing the cost of construction, etc. with the objective of minimizing risks to health and life.

Building energy certificate should should be used in deals on developing real estate market.

Development of databases on technological and policy options to improve energy efficiency will significantly help to identify new opportunities

Selection of proper formats and software for the development of databases on technological options to improve energy efficiency will allow to disseminate technological information. Those formats should be friendly for databases users.

Collection of information for the database should include costs, economic and other environmental benefits, technical, economic and environmental performance of technologies, factors important for their market penetration and other parameters.

Education and training should be a high priority

Training courses should include material on energy efficient and wastereducing technologies as well as the issues, logistics and methodologies of setting up industrial energy audit programs and in general economic management and decisionmaking which would significantly effect energy managers' ability to launch and implement energy efficiency projects. The new generation of management must be trained in cost minimization, in which energy efficiency is a component.

A personnel infrastructure on the regional level is important. Local experts in each region must be able to address energy efficiency policy problems without longterm relying on foreign advisers or experts from large cities.

Energy efficiency demonstration projects could be also used for education and training. The purpose of such projects should be not to demonstrate technical potentials, but to provide concrete examples of how energy and economic efficiency can be improved. They are probably even more important as visible vehicles to educate policymakers and planners and to promote efficiency in general.

Support of energy efficiency innovations will significantly enlarge the technical energy emciency potential

Support of scientific activities in energy efficiency improvement areas through existing scientific facilities and through the process of conversion of scientific units previously specialized on military research would allow to increase energy efficient technologies potential.

Development of new tools for providing government financial support of energy efficiency R&D and transferring technological knowledge from the scientists and engineers to industry and other energy consuming sectors should form a core of this activity.

Analysis of institutional feasibility and financial efficiency of different economic incentives will let identify proper incentives without wasting time on trying inefficient ones

Energy pricing is a key determinant of future energy system evolution. Policy recommendation on energy pricing and taxing will help policy makers determine the best action plan in the transition to market economy. These recommendations are to be based on cost allocation methodologies, and evaluation of sensitivity of different energy consumption sectors' reaction to price changes. Identification of barriers on the way of price signals impacts on final energy consumers' behavior will allow to develop a policy to remove these barriers.

The efficiency of all financial incentives should be tested against general economic environment evolution growth of demand, inflation rates, interest rates, equipment and energy prices trends etc. to identify the policies which will provide the best results in any foreseeable general economic situation or flexible policies easily adaptable to fluctuations of the economic situation. Methodologies of calculations of external social gains from the realization of energy efficiency projects, including indirect additional energy conservation, reduction of capital intensity of the economy, growth of energy export potential, and ecological effects, should be developed to conduct cost/benefit analysis of different energy efficiency policies from the society standpoint.

Integrated resource planning considers on the equal basis both supply and demandside options19

This approach has never been applied in the former planned economies. This system of planning differs substantially from the traditional ones used previously because it necessitates taking into account both supplyside and demandside opportunities. Specific methods and alternative scenarios allow system planners to consider uncertainty in the search for solutions and means of adapting to changing conditions of energy supply and demand, including the use of economically justified energy conservation.

Aggressive energy auditing is necessary to identify and measure the potential of energy efficiency improvement

Unfortunately, economies in transition possess insufficient experience in energy auditing or in the production and use of energy efficient equipment including metering tools and diagnostic devices.

Western countries experience shows that energy audits and following performance contracting could help capture cheap and rapid energy efficiency improvements. In former planned economies the main potential for energy efficiency improvements is in the industrial sector. Industrial energy audits could significantly reduce energy consumption and costs.

Energy audits and performance contracting would also provide extremely valuable information for further development and introduction of the Demand Side Management and Integrated Resource Planning concepts.

It is necessary to clarify market prospects for domestic production of energy efficient equipment and auditing equipment. Chances of attracting foreign producers to the local market should be investigated.

Table 8.Action plan for institutional issues.

                                                      1994-1995    1996-1998  

International level                                                           
  Inter-governmental agreements on developing and         +            +      
implementation of energy efficiency policy.                                   
  Soft credits from the international financial           +            +      
institutions for providing financial resources to                             
the federal programs on improving energy                                      
efficiency.                                               +            +      
  Establishment of direct foreign regions to EE and                           
NIS regions joint programs on energy efficiency.          +            +      
  Implementation of inter-governmental projects as                            
part of energy efficiency policy.                         +            +      
  Support of Western-Local NGOs in energy                                     
efficiency field.                                                              

  Creation of powerful and experienced Federal            +                   
Energy Efficiency Agencies.                                                   

  Creation of Regional Agencies of Energy                 +                   

  Privatization and clear division of the                 +            +      
responsibility for financial health of the                                    
enterprise.                                               +            +      

Table 9.Action plan for legislation issues.

                                                      1994-1995    1996-1998  

International level                                                           
  International expertise of the draft laws on            +                   
improving energy efficiency.                                                 
  International assistance in training experts from       +            +      
federal and local Energy Efficiency Agencies and                              
local energy commissions on utility regulation.                               

  Passing the law on improvement in energy                +            +      
  Development and implementation of federal energy        +            +      
efficiency programs.                                                          

  Development of regional regulations on energy           +                   
  Development and implementation of regional energy       +            +      
efficiency programs.                                                          

  Prescription of the responsibility for                  +            +      
supervising the energy efficiency projects at a                               
factory level.                                                                

Table 10.Action plan for regulation issues.

                                                      1994-1995    1996-1998  

International level                                                           
  Training of EE and NIS statistical experts on           +                   
methodologies and procedures for collection energy                            
consumption statistics.                                                       
  Harmonization of energy efficiency standards and        +            +      
certification procedures.                                                     
  Exchange of data on energy efficient technologies       +            +      
available in the country and abroad-                                          
  Joint international energy efficiency R&D.              +            +      

  Development of statistical formats for reporting        +                   
energy consumption data by different sectors of the                           
  Publication of a number of statistical databooks                            
on energy consumption.                                                        
  Development of energy efficiency standards and          +            +      
building codes, as well as certification procedures                           
for energy efficient equipment.                                               
  Development of consumer information programs.           +            +      
  Support of energy efficiency research and                                   
development.                                              +            +      

  Publication of regional statistical databooks on        +                   
energy consumption.                                                           
  Development of regional building codes, as well         +            +      
as certification centers.                                                     
  Development of consumer information programs.           +            +      
  Development of training programs for factoru            +            +      
managers and engineers.                                                       
  Support of regional energy efficiency research          +            +      
and development.                                                              

  Preparation of internal regulations and rules for       +            +      
energy efficiency groups activities and for energy                            
conservation reporting systems.                                               
  Utilization of databases on energy efficient            +            +      

Table 11.Action plan for developing financial incentives.

                                                      1994-1995    1996-1998  

International level                                                           
  Recommendations for energy pricing policy.              +                   
  Sharing experiences on regional energy                                      
commissions activities.                                   +                   
  Training on costs/benefits analysis for cost                                
reduction projects.                                       +                   
  Training for the development of proposals for                               
international financial institutions.                     +                   

  Developing the abilities to efficiently finance         +                   
energy efficient projects.                                                    
  Developing and implementing energy pricing policy       +            +      
to promote energy efficiency.                                                 
  Developing procedures for getting har currency          +                   
for foreign investments in energy efficiency.                                 
  Developing a set of financial incentives to             +            +      
improve energy efficiency.                                                    

  Developing pricing policy for electric and gas          +            +      
  Developing a system of regional incentives              +            +      
promoting energy efficiency projects.                                         

  Developing personal incentive system to motivate        +            +      
a plant staff to implement energy efficiency                                  

Table 12.Action plan for integrated resource planning.

                                                      1994-1995    1996-1998  

International level                                                           
  Training of energy experts in IRP methodology.          +            +      
  Sharing the experience on legislative and               +                   
regulatory status of IRP.                                                     
  Sharing the experience of introduction of IRP to        +                   
utilities' business in different countries.                                   
  Assistance in manufacturing the necessary energy        +            +      
efficient equipment and hardware for demand side                              

  Passing legislation requiring that integrated           +                   
resource plans be made for utilities' development                             
and prescribing procedures of their consideration                             
and approvement.                                                              
  Creating legislative base for regional energy           +                   
commissions to regulate the process of utilities                              

  Creating regional regulation to incorporate             +                   
integrated resource planning to the process of                                
utilities' development.                                   +                   
  Developing necessary conditions to make demand                              
side management financially attractive for                                    

  Creation of offices in utilities responsible for        +            +      
development and realization of DSM programs.                                  
  Implementation of pilot DSM programs, market            +            +      

Table 13.Action plan for issues on energy auditing.

                                                      1994-1995    1996-1998  

International level                                                           
  Sharing experience in energy audits and                 +                   
performance contracting.                                                      
  Assistance in starting ESCO companies.                  +                   
  Investment guarantees for joint-ventures                +                   
producing equipment for energy audits and IV ESCOs.                           

  Development of a federal program to promote             +                   
energy auditing.                                                              
  Development of a legal basis for ESCO activities.       +                   

  Development of regional programs to identify            +            +      
opportunities for energy efficiency.                                          
  Courses for training energy auditors.                   +            +      

  Performing energy audits to identify energy             +            +      
efficiency improvement potential.                                             
  Production of equipment for energy audits and           +            +      
energy efficient equipment.                                                   


1. Several major publications were taken as data sources for such comparison:

a. WEC Commission. Energy for Tomorrow's World. The Realities, the Real Options and the Agenda for Achievement. Draft Global report. April. 1993. 348 pp.

b. Emission Scenarios for the IPCC. An Update. Assumptions, Methodology, and Results. Prepared for the Intergovernmental Panel on Climate Change. Working Group 1. May 1992. Prepared by W. Pepper, J. Legget, R. Swart, J. Wasson, J. Edmonds, I. Mintzer. 115 pp.

c. Towards a Fossil Free Energy Future. The Next Energy transition. A Technical Analysis for Greenpeace International. Stockholm Environment Institute. Boston Center. April 1993.

d. Bashmakov, I. World Energy: Lessons of the Future. Moscow, 1992, 445 p. (Russian). Results from this publication were revised using the same model to adjust for more deep economic decline in the FUSSR. More detailed results are presented in I. Bashmakov and others. The System of Statistical Indexes for World Energy. (Russian). Moscow, 1993. 137 pp.

e. Sinyak, Yuri; K. Nagano. Global Energy Strategies to Control Future Carbon Dioxide Emissions. Status Report. IIASA. October 1992; and Yu. Sinyak. The ExSoviet Energy system: Ways of Getting out of the Crisis? IIASA.

In addition to above mentioned publications results of resent models runs:

GREEN, model developed by the OECD, and presented by J.O. Martins to CHALLENGE, July, 1993);

12RT, developed by A.S. Mann, and presented in the report "International Trade the Impact of Unilateral Carbon Emission Limits", July 1993;

IIASA ECS'1992 model runs, presented as computer printouts.

2. Initial GDP volumes differ in all studies. There are two major reasons behind that:

there is no agreement on the methodology of measurement real FUSSR's GDP in $US terms. Some researchers use the World Bank data others use Purchasing Power Parity data developed by Summers and Heston;

the base year for presenting data in constant prices also vary thought studies.

3. There are at least two sources of inconsistence of initial data in different studies:

differences in evaluating hydro and nuclear power in Mtoe, and

differences in data presented in various statistical databooks and publications on the same titled statistical variables.

4. As for primary energy there is disagreement on level of CO2 emission in 1990 for the FUSSR. In addition to differences in calculation of fossil fuels contribution to the energy balance there are differences in specific CO2 emission coefficients for different kinds of fuels. As a result there is 200 million t of C uncertainty in the level of CO2 energy related FUSSR emission.

5. Bashmakov, I. "World Energy Development and CO2 Emission". March 1992. In: "Perspectives in Energy", 1992, vol. 2, pp. 1-12.

6. Klaus, Vazlav. Czech Republic: We have entered the rehabilitation period. "Business World", April 18-24, 1994.

7. Advadze V. Georgia: Looking Up From the Gap. "Business World", May 23-29, 1994.

8. Klaus, V.

9. Energy Strategy for Russian Federation. 1994. Ministry of fuel and Energy of Russian Federation. Moscow.; Bashmakov I., Yu. Matrosov, and V. Zhuze. Introduction and Promotion of Energy Efficiency in russia. January-February 1994. CENEf. Subcontract No. 164506-A-Q2, Supplement No. 2 with Battelle, Pacific Northwest Laboratories. 73 p.

10. Raptsoun, N., and Tonkal, V. "Energy Efficiency in Ukraine - Present Day Situation and Prospects". Presented at the Symposium on Energy Efficiency and Economic Transition in Central and Eastern Europe, Paris, May 1993. p. 11.; Tonkalm V.E., Gnegoym N.V., Kulik, M.N., Mints, M.I., Raptsoun, N.V. 1993. Case Study of the Potential for Energy Conservation in Ukraine. Washington, Richland: Battelle, Pacific Northwest Laboratory, USA.

11. Evaluation of the Feasibility and Profitability of Implementing New Energy Conservation Technologies in Poland. May 1993. Polish Foundation for Energy Efficiency. p. 57.

12. Energy in the Czech Republic. November 1993. Ministry of Industry and Trade. Energy Division. p. 43.

13. Shpek R. Minister of Economy, Ukraine. The situation is complicated, but I would not call it hopeless. Business World, May 16-22, 1994.

14. Energy Saving Program for Moscow in the Period to 1995. Government of Moscow. Department of Power Engineering and Energy Conservation. Moscow. 1992. 19 p.

15. Russian GDP in 1980 US$ was estimated based on PPP data published by R. Summers and A. Heston. A New Set of International Comparisons of Real Product and Price Levels Estimated for 130 Countries, 1950-1985,/Review of Income and Wealth, No. 4, 1988, pp. 1-25.

16. Energy Balances of the OECD Countries, 1987-88 (Paris: Organization for Economic Cooperation and Development, 1990); Energy Policies and Programs, 1989 Review (Paris: Organization for Economic Cooperation and Development, 1990).

17. Schipper L. Personal communication.

18. 7. Bogoslovsky V.N., Yu. A. Matrosov, and others. K. Voprosu ob Energeticheskoy Contseptsii Proyektirovanya Zdaniy. In Zhilishchnoye Stroitelstvo, No. 8, 1992, pp. 7-10.

19. Presented here based on the proposal for USAID discussed in Moscow at June 24-25 and then at November 30-December 3, 1993.

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