G l o b a l E n v i r o n m e n t F a c i l i t y36402 O f f i c e o f M o n i t o r i n g & E v a l u a t i o n CLIMATE CHANGE PROGRAM STUDY 2004 GEF CLIMATE CHANGE PROGRAM STUDY September 2004 Study Team PROF. ANTON A. EBERHARD, LEAD EVALUATOR SIV E. TOKLE, SENIOR M&E SPECIALIST, GEFME ANNA VIGGH, CONSULTANT ANTONIO DEL MONACO, CONSULTANT HARALD WINKLER, CONSULTANT STEPHEN DANYO, CONSULTANT Miguel Navarro-Martin (Cover Photo) Studio Spark (Design) Master Print (Printing) i ii TABLE OF CONTENTS Foreword vi Abbreviations and Acronyms vii Executive Summary viii 1. Introduction 1 1.1 Background and Purpose of the Study 1 1.2 Past Studies and Lessons Learned 1 1.3 The Evaluation Framework 2 1.4 Methodology and Process 4 1.5 Organization of the Report 4 2.Climate Change Overview 5 2.1 Review of Climate Change Science and Impacts 5 2.2 Status of Climate Agreements and Negotiations 6 2.3 Future Scenarios and Responsibilities 8 2.4 Role of the GEF in Supporting the UNFCCC 9 2.5 The Evolving Climate Change Agenda: Response Measures 10 2.5.1 Mitigation 10 2.5.2 Sequestration 11 2.5.3 Adaptation 11 2.5.4 Flexible Mechanisms and the Development of Carbon Markets 12 2.6 Recent GEF Internal Developments and Trends 13 2.6.1 Strategic Priorities and Results Orientation 13 2.6.2 Evolution in Roles, Responsibilities, and Policies of GEF Partners 14 3.GEF Portfolio Overview 16 3.1 Evolution of the Portfolio 16 3.2 Current Status 16 3.3 Operational Programs and Project Clusters 18 3.4 Regional Distribution 20 3.5 GEF Allocations and Implementing Agencies 24 3.6 Looking Toward the Future 25 4.Overall Results and Performance 27 4.1 Key Results: Greenhouse Gas Impact 27 4.1.1 Background and Approach 27 4.1.2 Greenhouse Gas Impact of Closed Projects 28 4.1.3 Greenhouse Gas Impact Targets for Active Projects 30 iii 4.1.4 Key Issues 32 4.2 Key Results of Market Transformation 33 4.2.1 Background 33 4.2.2 Emerging Results 34 4.2.3 Factors Influencing Results 37 4.3 Evaluating Performance: The Effectiveness of GEF Climate Change Strategies 38 4.3.1 Energy Efficiency (OP5) 39 4.3.2 Renewable Energy (OP6) 46 4.3.3 Reducing the Long-Term Costs of Low-GHG-Emitting Energy Technologies (OP7) 53 4.3.4 Promoting Environmentally Sustainable Transport (OP11) 56 4.4 GEF Strategic Response 58 4.4.1 Strategic Alignment and Focus 58 4.4.2 Responsiveness 60 4.4.3 Overall Effectiveness 63 5. Key Findings and Recommendations 66 5.1 Strategic Issues 66 5.1.1 Strategic Coherence 66 5.1.2 Strategic Choice 68 5.2 Results and Performance 69 5.2.1 Overall Impact on Greenhouse Gas Emissions 69 5.2.2 Market Transformation 70 5.2.3 Emerging Issues: Energy Efficiency (OP5) 71 5.2.4 Emerging Issues: Renewable Energy (OP6) 72 5.2.5 Emerging Issues: Long-Term Costs of Low-GHG-Emitting Technologies (OP7) 73 5.2.6 Emerging Issues: Environmentally Sustainable Transport (OP11) 74 5.3 Management and Implementation 74 5.3.1 Knowledge Management and Documentation Systems 74 5.3.2 Monitoring and Evaluation Systems 75 5.3.3 Implementation Issues 76 5.4 Concluding Remarks 77 Annexes 78 A. Methodology Issues 78 B. List of Climate Change Projects 83 C. COP Decisions and GEF 91 D. Management Response to the Climate Change Program Study 93 Endnotes 98 References 103 Figures 1.1 Evaluation Framework 3 2.1 Contributions to Global Warming 6 3.1 Number of GEF Climate Change Projects in Work Program 17 3.2 Financing of GEF Climate Change Approved Projects in Work Program 17 3.3 GEF Climate Change Approved Funding by Project Type 18 3.4 Approved Climate Change Projects by Type 18 3.5 Operational Program Funding Allocation for GEF Climate Change Projects 18 3.6 Number of Active Projects 19 3.7 Cluster Evolution by GEF Phase 20 3.8 Cluster Distribution per Implementing Agency.. 25 iv 3.9 Future Allocations from Project Development Facilities 26 4.1 CO2 Reductions for Closed Projects 29 4.2 Projected Total Lifetime CO2 Reduction from Closed Projects, by Cluster 29 4.3 Projected CO2 Reductions for Active Projects 30 4.4 Projected Total Lifetime CO2Reduction for Active Projects 30 4.5 Intended CO2 Reductions per Dollar of GEF Allocation 31 4.6 Knowledge Management Economies 34 4.7 Sample Decision Tree for Energy Efficiency Financing Programs 44 4.8 Rural Electrification/Renewable Energy Business Models 48 4.9 Distribution of GEF Project Funds per Country versus Greenhouse Gas Mitigation Potential 59 4.10 Number of Energy Efficiency Projects Approved 60 4.11 Portfolio Characteristics at Country Level 61 4.12 Number of GEF Mitigation Projects per Country 62 4.13 India GEF Timeline 64 5.1 Possible GEF Climate Change Strategic Framework 68 Tables 2.1 Climate Change Indicators for Select Countries 7 2.2 Climate Change Strategic Priorities and Future Targets 13 3.1 Climate Change Project Allocations in GEF Phases 16 3.2 Distribution of Closed and Active Projects per Cluster 19 3.3 Population, Gross National Income, and CO2 Emissions in Countries with GEF Climate Change Projects 22 3.4 Countries with Largest Allocations of GEF Climate Change Funds, 1991­2004 21 3.5 Approved Projects by Implementing Agency 24 3.6 GEF Future Climate Change Projects by Status 25 4.1 Greenhouse Gas and GEF Incremental Costs by Cluster 32 Boxes 2.1 Convention Parties 8 4.1 Nearly 75 Percent of Reductions Are from 12 Projects, Mostly in China 31 4.2 Financing Instruments: Conditions and Use 42 4.3 Energy Efficiency in Heating and Hot Water 45 4.4 GEF Biomass Projects 54 4.5 Landfills and Methane Gas 55 v Foreword One of the key tasks of the GEF Office of Monitoring and team and the development of the evaluation methodology. Evaluationistoreviewtheprogressandresultsof thefocalareas Professor Eberhard was able to apply his vast experience with of the Global Environment Facility. Independent studies of the the energy sector to provide positive guidance and conceptual Biodiversity, Climate Change and International Waters focal clarity to the study work. The report also drew on the expertise areas were conducted during 2003-2004. These studies provide of Anna Viggh, who contributed analysis on both cluster and the GEF stakeholders with an assessment of how the focal areas country reviews. Steve Danyo is commended for his patient are performing and recommendations on how to continue their determination in analyzing greenhouse gas emissions. development. Together, these three areas represent more than 1,100projectswithfundingof justoverUS$4billion.Obviously, Special thanks are due to the GEF Climate Change Task it is difficult to do full justice to the wealth and depth of such a Force, under the leadership of Richard Hosier, with members vast portfolio. fromtheGEFSecretariat,ImplementingAgenciesandScientific TechnicalAdvisoryPanel.Theirconstructivesuggestionsduring The studies report notable contributions from interventions several workshops were instrumental in guiding the work. The for global environmental benefits. The present study ­ on report also benefited from the insights of a large number of climatechange­points toachievementsin avoidingorreducing other staff within and outside the GEF family. The Office is greenhousegasemissions.Itprovidesusefulinsightsinsuccessful particularly appreciative of the active support of the country strategies to promote, by barrier removal, the development of offices and project staff in the countries visited. renewable energy markets and increased energy savings. The greatest progress has been made within the energy efficiency The three program studies will serve as inputs to the Third portfolio. Global environmental benefits cannot be achieved Overall Performance Study of the GEF during 2004-05, the andsustainedwithoutinternationalandlocalpartnerships.This GEF Trust Fund replenishment process and the GEF Assembly. is of particular importance to renewable energy technologies. The GEF Council will find, in each of the program studies, Climate-friendly energy remains, in general, more expensive findings and numerous recommendations ranging from andlessaccessiblethantraditionalhigh-emittingenergysources, improvements in the definition of GEF policy and mechanisms despite sustained efforts at volume increases, cost reduction, tomaximizeimpactsandoutcomestorecommendationsonhow and market aggregation. Within these limitations, the GEF to enhance project design, preparation and implementation. has contributed to emerging market changes in specific energy The GEF focal area Task Forces have a particularly important sectors and niches. role to play in the implementation of the management response to the studies. We also believe that the lessons will be relevant to The studies report weaknesses that are common to the three other international programs in sustainable development, in a focal areas. The impact of GEF efforts could be enhanced by collective effort to understand which strategies work best, under refining strategic frameworks and concepts, tools and processes, which circumstances, in protecting our global environment. as well as communicating these better to stakeholders. Furthermore, there is a call for improvements in monitoring, evaluation, indicators, and knowledge sharing. The three studies were undertaken by staff from the Office of M&E and independent and external consultants. The climate Robert D. van den Berg change report was written by Siv Tokle and Anton Eberhard. Director As the study task manager, Ms. Tokle ably led the evaluation GEF Office of Monitoring and Evaluation vi Abbreviations and Acronyms ADB Asian Development Bank IREDA Indian Renewable Energy Development CDM Clean development mechanism Agency CEEF Commercializing Energy Efficiency JI Joint implementation Finance project LAC Latin America and Caribbean Region CEO Chief Executive Officer LDC Least developed country CER Certified Emission Reduction LULUCF Land use, land use change and forestry CFL Compact fluorescent lamp M&E Monitoring and evaluation CH4 Methane MENA Middle East and North Africa Region CO2 Carbon dioxide MSP Medium-size project COP Conference of Parties NAI Non-Annex I country CRESP China Renewable Energy Scale-up OECD Organisation for Economic Co-operation Program and Development DAC Development Assistance Committee OP Operational Program DSM Demand-side management OPS Overall Performance Study EA Enabling activities PDF Project development facility EBRD European Bank for Reconstruction and PELP Poland Efficient Lighting Project Development PIR Project implementation review EE Energy efficiency ppmv Parts per million by volume EIT Economy in transition PPP Purchasing power parity ERT Energy for Rural Transformation project PV Photovoltaics ESCO Energy service company PVMTI Photovoltaic Market Transformation ESD Energy Service Delivery project Initiative FCB Fuel-cell bus RAF Resource allocation framework FCCC Framework Convention on Climate RE Renewable energy Change REDP Renewable Energy Development Project FP Full-size project REEF Romania Energy Efficiency Fund FY Fiscal year RESCO Rural energy service company GEF Global Environment Facility SHS Solar home systems GEFME GEF Office of Monitoring and SME Small and medium enterprise Evaluation SP Strategic priority GHG Greenhouse gas SPA Strategic priority on adaptation GNI Gross national income STAP Scientific and Technical Advisory Panel HEECP Hungary Energy Efficiency Co-Financing STRM Short-term response measure Program UNDP United Nations Development Programme IA Implementing Agency UNEP United Nations Environment Programme IFC International Finance Corporation UNFCCC United Nations Framework Convention on IPCC Intergovernmental Panel on Climate Climate Change Change vii Executive Summary BACKGROUND the international arena. Poorer countries and communities are particularly vulnerable to the impacts of climate change. Thepurposeof thisstudyistoprovideanoverallevaluation The United Nations Framework Convention on Climate of the results and performance of the Global Environment Change (UNFCCC) stipulates that "Parties should protect Facility's (GEF) Climate Change Program from its inception the climate system...in accordance with their common but in 1991 to mid-2004. The study will contribute to the third differentiated respon sibilities and respective capabilities." GEF Overall Performance Study and serves as a guide to While the more wealthy countries (in Annex I) should take future strategic directions. It draws on information gathered the lead in combating climate change, carbon dioxide (CO2) from a comprehensive portfolio review, greenhouse gas emissions from fuel combustion in developing countries have (GHG) emission data and development statistics, and two increased considerably over the past decade (38.9 percent), in-depth project cluster reviews within energy efficiency and resulting in a share of 40 percent of annual global emissions renewable energy. The analysis was enhanced by several in 2000. implementing agency reviews, other GEF monitoring and evaluation (M&E) reviews, and select country visits. As the financial mechanism of the UNFCCC, the GEF supports developing countries, mainly through long-term The study evaluated results in terms of outcomes and mitigationprojects.Ithasalsosupportedshort-termresponse impacts, based on the mandated GEF catalytic role in measures, some of which focus on carbon sequestration, and promoting, by barrier removal, a primary outcome of continues to support countries in fulfilling their Convention market transformation that leads to the reduction or commitments through the preparation of "national avoidance of greenhouse gas emissions. This primary communications" on climate change. In response to recent outcome can be supported by contributory outcomes such UNFCCC Conference of Parties (COP) guidance, the GEF as enabling policies, increased access to finance, adequate is also developing a pilot funding window for adaptation to business/enterprise capability and infrastructure, increased climate change effects, introducing a new strategic approach awareness, and diffusion of technology and innovation. to enhancing capacity building as free-standing activities, Performance is evaluated in terms of the strategies that and paying increasing attention to synergies between focal contribute to these results. An important element of this areas. It has not, as yet, engaged programmatically in other study is the identification of strategies that are effective in international activities in the climate change arena, such as achieving market transformation and GHG reduction or carbon trading, although its Implementing Agencies (IAs) avoidance. have become active in facilitating carbon finance for GHG emission-reduction projects. THE INTERNATIONAL CONTEXT AND THE GEF The GEF Assembly, the Third GEF Trust Fund Replenishment process, and the GEF Council have made a numberof recommendationstoenhanceGEFperformance. The GEF faces a tremendous challenge in its mandate Theyhavecalledforamovetowardgreaterresultsorientation to provide catalytic support for measures in developing and, within climate change, a "shift from technology-based countries that minimize climate change damage. There is a towards market-based approaches" (GEF Business Plan). To large gap between what is required to address the problem do so, seven strategic priorities will guide GEF programming and the current commitments that have been negotiated in from 2003 onward. It is still uncertain how a number of viii GEF Climate Change Program Study 2004 other initiatives will influence the Climate Change Program Proactive future planning for the climate change portfolio in the future, including the proposal for a resource allocation isdifficult.Thenewstrategicprioritiesarelikelytoencourage framework; initiatives to make the internal GEF processes a more focused portfolio from 2004 onward, but it remains and systems more responsive and efficient, especially the unclear how to treat the overlap of strategic priorities in project cycle; and exploration of knowledge management overall market transformation and barrier removal. to promote strengthening and acceleration of cross-learning processes. OVERALL RESULTS AND PERFORMANCE THE GEF CLIMATE CHANGE PORTFOLIO MARKET TRANSFORMATION TheGEFhasallocatedUS$1.63milliontoclimatechange The GEF is mandated a catalytic role in promoting, by projects and activities since its official establishment in barrierremoval,aprimaryoutcomeof markettransformation October 1991, representing close to a third of overall GEF that leads to the long-term reduction or avoidance of program funding in this period. Many of the 207 full- and GHG emissions. This catalytic effect can be gauged by medium-sized projects have been approved recently; to date how successfully the GEF barrier removal strategies lead to only 43 projects have been completed. replication. Market transformation is a long-term challenge and a dynamic process--and is starting to become evident Subsequent to the GEF Pilot Phase (1991­1994), with in the GEF Climate Change Program. The greatest progress its focus on technology demonstration, the GEF climate has been made within the EE portfolio, where achievements change portfolio has been managed within four Operational can be observed in specific countries and sectors, such as Programs (OPs). OP6, renewable energy (RE), accounts for financial markets in Hungary; energy-efficient appliances the largest part of the portfolio and currently represents and products in Mexico and Poland, and industrial boiler 44 percent of active project allocations. About a third of conversion in China. For many evolving markets, GEF can projects fall within OP5, energy efficiency (EE). OP11 on be seen to help drive changes forward. environment-friendly transport, formally established by the GEF Council only in 2001, and OP7, which aims to The experience of the RE cluster is more mixed, because reduce the long-term costs of low GHG- emitting energy the GEF is often trying to develop markets from a much technologies, have not yet developed into sizable programs. lower baseline. RE remains, in general, more expensive A total of 269 enabling activities (EAs), with 11 percent of and less accessible than traditional fossil-fuel based energy the resources, facilitate implementation of effective climate sources, despite sustained efforts at volume increases and change response measures and preparation of national market aggregation. Nevertheless, GEF has contributed to communications. emergingmarketchangesinspecificenergysectorsinspecific countries, such as for mini-hydro energy in Sri Lanka and The great diversity of the GEF climate change portfolio the wind market in India. Although photovoltaics (PV) are is best illustrated by the range of project clusters and not yet affordable by major target groups, particularly the their evolution over time, although a coherent, consistent rural poor in Africa, some PV-oriented projects have been categorization of clusters is not available. Projects aiming successful in niche market areas such as clinics, schools, for electrification through renewable energy account for and where households have adequate levels of disposable the largest group, followed by projects promoting energy income. Global market aggregation of specific renewable efficient products or markets. There are also a number technologies, as envisaged in OP7, lies far in the future. of projects aiming for productive uses of RE, including co-generation of electricity and, recently, a growing trend GHG IMPACT toward stimulating RE products and markets. A smaller group of EE projects aim to develop financial mechanisms The portfolio has suffered from mixed and unclear or support public energy efficiency. The different clusters expectations on how to address the tradeoff between have experienced considerable fluctuations in size from year long-term catalytic market transformation and immediate to year. Although programming decisions shift over time (for GHG impacts. Nevertheless, most of the long-term barrier example, more emphasis on EE financing mechanisms or removal mitigation projects also have GHG targets and RE for productive purposes), this is not always obvious in the achievements.Theperformanceof theGEFportfoliooverall portfolio project data. in avoiding GHG emissions is satisfactory. It has brought Executive Summary ix about considerable GHG reductions, at relatively total low The overall policy environment, and power sector reform incremental costs. For 27 closed projects, estimated avoided and regulatory frameworks in particular, are crucial for more direct and indirect emissions amount to 224 million metric widespread and sustainable applications of RE and EE. A tons CO2 at an incremental cost of US$194 million. number of GEF projects have contributed directly to the development of RE policies through the drafting or revision While GHG impacts do not capture the full range and of national RE strategies and action plans, and GEF projects complexity of outcomes from GEF climate change projects, have been successful in the development of EE and RE they do provide insights into which program strategies and standards, testing, certification, and labeling, all of which target areas have the potential to yield greater effect. Some are vitally important to improve quality, reliability, and parts of the portfolio, such as energy efficiency and short- consumer acceptance. However, there are as yet insufficient term response measures (STRMs), are better at producing examples of GEF projects that have seized opportunities immediate GHG impacts. Meanwhile, those individual for new regulatory frameworks, financial instruments, and projects most responsible for high achievements in GHG institutional mechanisms within power sector reform. avoidancemayhavelittlepotentialforreplicationorsustained barrierremoval.Inthefuture,the104activefull-andmedium- The GEF has longer experience in supporting access size projects are collectively intended to enable more than 1.7 to finance for RE and EE. The range of finance models billion tons of CO2 avoidance over 10 to 30 years. promoted within OP5 are more sophisticated. In OP6, the effectiveness of financial mechanisms has often been The availability and quality of portfolio data on GHGs tempered by problems of affordability, and there is room leave much to be desired. Although data quality has for more experimentation. Many EE projects are now improved in recent years, there is considerable room for successfully incorporating financing components that make further improvement to address lack of targets or estimates; use of partial guarantees and other innovative financial unrealistic estimates, especially for replication and vague or instruments depending on the specific context and set of unavailable data. The GEF has missed out on an opportunity market barriers being addressed. Experience in this area has to provide timely guidance on GHG potential that could been captured systematically in an excellent practitioners save time and effort for all parties involved in project design handbook. The same needs to be done in other GEF climate and implementation. A coherent, pragmatic and GEF-wide change cluster areas. methodology on GHG estimates is urgently needed; it has been discussed in the Climate Change Task Force for some Inallcases,theneedforfinanceisaccompaniedbytheneed time. This study points to the need for such guidance to be for technical assistance to support business infrastructure in comprehensive, that is, to cover the range of technologies and RE and EE project development. The GEF RE portfolio clusters and the GHG reduction or avoidance calculation has explored different business models suitable for rural method and factors to be used. The systems and approaches electrification, with a trend away from fee-for-service to sales to monitoring, reporting, and measurement of GHG impact models. More still needs to be known about the degree to also need improvements, and should be based on the GHG which sales models provide effective after-sales maintenance methodology. and service. Fee-for-service models have a number of potential advantages, especially for poorer households, and EFFECTIVENESS GEF STRATEGIES OF it is hoped that the GEF will continue to explore this model. Within EE, energy service company (ESCO) development is Within the GEF Climate Change Program, a combination still a challenge, but complementary business models--not of favorable external circumstances, appropriate choice of full-service ESCOs--are possible in underdeveloped project strategies, good and flexible implementation, and markets. There is also need for better integration of GEF adequate GEF resources have contributed to the removal projects with country small and medium enterprise (SME) of barriers and have facilitated significant investments in and enterprise-support programs. sustainable energy technologies and programs. Projects are more successful when they have a clear concept of market Recent RE projects envisage a broader range of development, know which market they wish to transform technologiesandagreaterfocusonmarketdevelopment,but and which market barriers have to be overcome, have a programmatic learning from these projects is not yet evident well-defined target group, are based on a "minimum" level in the portfolio. More experimentation and systematic of existing market development, and receive sufficient and learning is needed, in particular to develop a clearer set of sustained support. GEF conclusions on PV that could shape future strategic x GEF Climate Change Program Study 2004 choices for this technology, and new areas such as RE for Third, the current system has led to cases of inconsistent productive purposes. Within EE, the potential for energy programmatic focus within countries where the GEF is not savings and GHG reductions is immense, and the GEF consistently addressing the major climate change needs, may put its catalytic and innovative role to good use by even in countries with considerable potential for benefits. disseminating and replicating its succeful strategies in other National communications have, in general, not been circumstances. valuable in guiding GEF country programming, nor do the agency country programs easily establish GEF priorities. Finally, well-designed strategies have to be implemented Similar concerns can be raised on the strategic focus and competently and dynamically. The habitual delays in the alignment in the composition of the GEF project portfolio. GEF project process have particularly severe effects for The great diversity in the climate change focal area is also climate change projects because the projects address rapidly reflected in the portfolio across focal areas and countries, changing markets. GEF projects are often not well equipped with the consequence that the portfolio has had difficulties to respond strategically and quickly to new policy or market in reaching a critical mass that helps generate overall results opportunities. GEF work to remove market barriers could be and maximize learning within groups of projects. mademoreeffectivewithcleartargetingof sectorsandusers, correctly balancing and prioritizing barriers, and systematic FINDINGS AND RECOMMENDATIONS coordination between projects. STRATEGIC RESPONSE The GEF has an important role to play in the worldwide effortstocombatclimatechange.Asthefinancialmechanism The GEF has positioned itself strategically to add value for the UNFCCC, GEF has made a significant contribution in three ways in response to global climate change concerns, tobothmitigationeffortsandcapacitybuildingindeveloping national needs, and changes in national development countries. contexts. First, the GEF has been fully responsive to its mandate as defined by the UNFCCC and guidance from However, with time GEF has met with increasing successive COPs and has performed its role effectively. The expectations with regard to its role and mandate in climate COP to the Convention has been closely involved in major change, so that the linkages between GEF's overall mission strategic decisions regarding the GEF. The question of or goals, its strategic priorities, OPs, project clusters, whether the guidance has been helpful in defining a clear and performance measurement indicators are no longer niche for the GEF is more open. This report seconds the conceptually clear nor are they entirely consistent. A more recent study commissioned by the UNFCCC on capacity coherent way of formulating GEF's strategic framework building, which recommended that "Overall guidance, such would betomake explicitits overarching goalof theremoval as that provided by the UNFCCC framework, should be of marketbarriersandsustainablemarkettransformationfor complemented by a more precise, country-specific definition energy savings or clean technology applications that achieve of needs and priorities." reduced or avoided GHG emissions. Market transformation outcomes that contribute to this goal are enabling policies, Second, to what extent has the GEF focused its activities available financing, adequate business infrastructure, in countries where it is able to maximize impact? GEF information and awareness, appropriate technology, and climate change allocations are distributed across nearly all adequate capacity. GEF strategic priorities could be those eligible countries, and those countries with the highest GHG strategies that contribute to these market transformation emissions receive the most funding. In this broad sense, the outcomes and associated GHG impacts. GEF climate change portfolio is responsive to country needs. However, the pattern does conceal considerable disparities Nevertheless, the GEF has performed a credible job in in allocations and focus--both in terms of low potential responding to country needs regarding climate change in the for maximizing replication effects and missed mitigation eligible countries, through a complex array of approaches opportunities. Although there may be good reasons why and strategies. The current dispersion of the GEF portfolio, some countries receive disproportional allocations in terms however, does not favor extensive replication and market of emission reduction potential or do not have a significant transformation and reflects cases of missed opportunities in portfolio, GEF allocations in medium- and low-emitting terms of potential impact. The climate change portfolio has GHG countries do not, in general, reveal any evidence of by now reached a scope that is, for the most part, sufficient strategic choice. to identify successful project strategies and conditions; this Executive Summary xi should allow strategic choice of areas, both geographically The GEF should retain its four OPs as the basic and operationally, that hold most promise of impact on programmingpillarsof itsClimateChangeProgram.Within market transformation, barrier removal, and replication for this framework, issues that require greater clarification GHG emissions reductions. Any strategic framework, while include (a) what is understood by barrier removal and focused, must contain sufficient flexibility to incorporate market transformation; (b) broad overall desired outcomes innovation and important country-specific circumstances. and associated market transformation strategies for each OP; (c) identification of priority project clusters and strategic Because of the diversity in project clusters within climate priorities within each OP; and (d) how to monitor and assess change, the challenges to effective learning are great but, at strategies (performance) and outcomes/impacts (results) in a the same time, learning is a success factor for replication and conceptually clear and logically consistent framework. The market transformation. The Climate Change Program has strategic framework needs to be kept current by judiciously benefited from some good knowledge-sharing initiatives, but debating GEF support options and emerging trends, could further improve with better communication on GEF adjusting strategic priorities in a transparent manner, and priorities, especially at the formulation stage; more exchange communicating the evolving GEF agenda to stakeholders. within clusters during implementation; and active work with projects to extract portfolio-wide experiences and lessons (2)TheGEFshouldimprovestrategicchoiceandresourceallocation learned for groups of projects. Without such systematic within its Climate Change Program, in order to ensure that the learning, the GEF innovation and replication will be less bulk of the portfolio is directed toward mitigation efforts in effective. countries with relatively higher levels of GHG emissions and market transformation potential. For countries with significant Active knowledge sharing must be supported by M&E GEF portfolios, integrated GEF country strategies need to be systems.Improvementsareneededinsystemstomonitorand developed; smaller portfolios require, at least, explicit priorities. evaluate qualitative results such as market transformation, replication, and barrier removal. Although data quality has The GEF Climate Change Program is not so extensive as improved in recent years, the current quality and availability to require an administratively complex financial entitlement of GHGtargets,estimates,calculations,reporting,andM&E system; it is important that GEF retains flexibility in order to are still not satisfactory. To assess performance, guidance respond to opportunities where they arise. would be useful on the relative importance of immediate GHG impacts versus longer-term cumulative results on (3) The GEF Secretariat should provide explicit guidance regarding sustainable market transformation. the realistic calculation of GHG avoidance or reduction in project design and implementation and the manner in which Finally, the GEF Climate Change Program has also been impacts should be monitored and reported. influenced by some implementation issues. In particular, the long and cumbersome project approval process seems to This should include clear and comprehensive guidelines yield diminishing returns in terms of quality projects since and methodologies for calculating and estimating GHG projectsarestilllikelytorunintofurtherdelaysanddifficulties impacts for various technologies and various assumptions duringimplementation.Aproject-by-projectapprovalsystem and serve to establish realistic expectations and goals for at the GEF Council level was likely appropriate in earlier the portfolio. The GEF Secretariat should be provided with times, but cannot be sustained efficiently with the current additional resources to implement and maintain improved volume of projects. This study finds that there are currently M&E and data management systems in this area. no effective mechanisms for managing and monitoring the progress of the climate change portfolio as a whole. With (4) The GEF Secretariat, together with the IAs and assisted by the the above findings in mind, the study makes the following GEF Office of Monitoring and Evaluation (GEFME) and recommendations: the Scientific and Technical Advisory Panel (STAP), should develop a strategic and pragmatic approach to capturing and (1) The GEF Secretariat should take the lead in improving overall sharing information and knowledge within the climate change strategic coherence by clarifying the overarching goal of market area, both among projects and between headquarters and the transformation outcomes that contribute to GHG emissions field and supported by electronic knowledge systems. reduction or avoidance, and the manner in which existing Operational Programs and associated strategies contribute to (5) The GEFME should provide support to the suggested task of this overall goal. improvingthestrategiccoherenceof theClimateChangeProgram xii GEF Climate Change Program Study 2004 by providing guidance, tools, and indicators for assessing GHG the progress of the Climate Change Program by sharing impacts, market transformation outcomes, and the effectiveness knowledge, facilitating a timely decision making process, and of associated strategies in specific OPs and priority areas. communicating transparently with stakeholders. (6) The GEF should move toward a greater decentralization in To maximize its impact and reach its potential as a project-by-project approvals, based on clear design principles for strategic partner for developing countries and a more climate change project cluster types and a focus on results. effectiveagentatthegloballevel,theGEFfaceschallengesin ensuring programmatic and strategic coherence and solving Such principles need not be prescriptive or narrow so as the conundrum of RE. The GEF financial contribution, to limit innovation, but should rather reflect lessons learned although not negligible, cannot by itself generate all the from the portfolio and elsewhere and help to facilitate changes that stakeholders desire within climate change. Its analysis during the project design process. This should be future success depends on the GEF's ability to maximize the coupled with a more active management of the portfolio generation and use of ideas and knowledge from experience, as a whole, through the Climate Change Task Force, led by innovation, and risk-taking to promote behavioral change. the GEF Climate Change Team. The purpose is to support Executive Summary xiii xiv GEF Climate Change Program Study 2004 1. Introduction 1.1 BACKGROUND AND URPOSE P will finance agreed and eligible enabling, mitigation, and OF THE TUDYS adaptation activities in eligible recipient countries." Thepurposeof thisstudyistoprovideanoverallevaluation The GEF has pursued this goal through a mixed strategy of the results and performance of the Global Environment wherein projects meet either one of the long-term program Facility's (GEF's) Climate Change Program from its priorities or one of the short-term program priorities.3,4 inception in 1991 to mid-2004. The program constitutes The GEF Operational Strategy emphasizes the long-term the largest and most comprehensive global portfolio of mitigation measures, grouped into four climate change investments in energy efficiency, renewable energy and other Operational Programs (OPs): climate-friendly projects. This evaluation presents a unique opportunity for deepening our understanding of which OP5: Removal of barriers to energy efficiency and energy strategies work best, under which circumstances, and with conservation what results. The portfolio of projects offers a rich source of information and a potential set of lessons that can inform OP6: Promoting the adoption of renewable energy by more effective project design and implementation as well removing barriers and reducing implementation costs as the strategic development of the GEF portfolio in the future. Many of the lessons will also be relevant for other OP7:Reducingthelong-termcostsof low-GHG-emitting international programs in sustainable energy development. energy technologies The GEF Climate Change Program1 is the second-largest OP11: Promoting environmentally sustainable transport GEF portfolio, after the Biodiversity Program, and consists (added in 1999). of more than 500 projects and activities2 amounting to GEF allocations of US$1.63 billion. 1.2 PAST STUDIES AND ESSONS EARNED L L In addition to this study, the Office of Monitoring and TheGEFclimatechangeportfoliohasevolvedconsiderably Evaluation of the GEF (GEFME) has also reviewed the sinceitsconceptionoveradecadeago,inpursuitof astrategic focal areas of biodiversity and international waters. These focus that at the same time would maximize impact and the three independent studies will support the Third Overall GEF catalytic role. Initially, the GEF approach, guided by Performance Study (OPS3) of the GEF, to be conducted the GEF Scientific and Technical Advisory Panel (STAP), in 2004­05 as a contribution to the GEF Trust Fund was based on demonstration of many relevant climate- replenishment process. friendly technologies and applications. The Evaluation of Pilot Phase (1991­94) determined that such an approach This study is based on the goal of the Climate Change was spreading resources too thin. Program, as expressed in the GEF Operational Strategy (1995), namely that "The overall strategic thrust of GEF- Consequently,thereisaconsiderabledistinctiontobemade financed climate change activities is to support sustainable between the programs of the Pilot Phase and subsequent measures that minimize climate change damage by reducing GEF replenishment periods. The GEF Operational Strategy the risk, or the adverse effects, of climate change. The GEF (1995) and Programs (developed from 1996­2000) served Chapter 1 - Introduction 1 as the basis of programming for GEF-1 (1995­97) and SP1:Transformationof MarketsforHigh-VolumeProducts GEF-2 (1998­2002). The First Overall Performance Study and Processes - to catalyze both demand and supply sides found that these changes had articulated the GEF mission, with relatively small resource input, resulting in a significant focused GEF investments, and improved the management and lasting market penetration or transformation; of GEF operations. On climate change, it recommended greater emphasis on combining barrier removal projects SP2: Increased Access to Local Sources of Financing and cost buy-down projects, and pointed out that "projects for Renewable Energy and Energy Efficiency - to provide must ultimately succeed or fail within the high-emitting capital for investment in (near-) commercial energy-efficient countries and they should be the main focus of GEF climate equipment, energy conservation, or renewable energy funding."5 technologies for modern energy services; The last comprehensive Program Study of Climate SP3: Power Sector Policy Frameworks Supportive of Change was presented to the GEF Council in May 2001. It Renewable Energy and Energy Efficiency - to incorporate did not make recommendations, but identified a number of clean energy into energy policy frameworks; emerginglessonsconcerningindirectGEFimpacts,including contributions to poverty alleviation; replication of project SP4: Productive Uses of Renewable Energy - to provide results; project risk management; transfer of technological income generation and other essential social services; know-how; long-term programmatic approaches, and the potential for GEF projects to influence policy. SP5:GlobalMarketAggregationandNationalInnovation for Emerging Technologies - to support the reduction of cost The Second Overall Performance Study (OPS2) of the in the long run of emerging clean energy technologies; and GEF (2002) stressed, among other things, the importance of replication, private sector involvement, coordination of SP6:ModalShiftsinUrbanTransportandCleanVehicle/ GEF projects with national strategies and needs, and fully Fuel - to emphasize public transit (such as bus rapid transit), utilizing the potential for influencing policy. The OPS2 nonmotorized transport (such as bicycles and pedestrian recommended focusing of the climate change portfolio to areas), and nontechnology measures (such as traffic demand create enabling environments for market transformation management and economic incentives). and to promote innovative approaches to productive uses of energy in rural economies. It also pointed out that the This study considers these Strategic Priorities within the catalytic role of the GEF needs more attention, and that the context of looking forward. Although they reflect a vision of GEF does not systematically monitor replication impact. a future comparative advantage of the GEF, they build on A major thrust of the OPS2 conclusions was that the GEF lessons learned regarding demonstrated past performance should demonstrate a shift from an "approval culture" to a and potential impact and can also be observed in past "culture of quality and results." Many of these issues are projects. still in the process of being addressed and are also covered in this study. 1.3 THE EVALUATION FRAMEWORK The Third Replenishment of the GEF Trust Fund (in This study evaluates results--namely, what has been 2002) emphasized the need for the GEF to continuously achieved, and performance--how it was achieved. Results seek to be more effective and efficient. It called for a set may be evaluated at different levels: outputs, outcomes, and of strategic targets for the GEF program to be developed impact.7Projectsproducedirectoutputs,whichinturnleadto that, while fully consistent with climate change Convention certain developmental outcomes that should have an impact guidance, would provide the basis for additional project on market barriers and contribute to the overall objective of criteria beyond the existing eligibility checks. reducing or avoiding greenhouse gas (GHG) emissions in the long term. Given the size of the GEF portfolio and the need TheGEFClimateChangeTaskForce,withmembersfrom to identify overall lessons, this study focuses on outcomes the GEF Secretariat and the Implementing Agencies (IAs), and impacts of groups of mitigation projects, rather than responded by shaping "strategic priorities" that will apply detailed or immediate project outputs. to the GEF-3 phase from 2003 onward. Thus, the GEF's current business plan identifies six Strategic Priorities for the For the first time, a concerted and comprehensive attempt climate change portfolio:6 has been made to quantify the overall impacts of the GEF 2 GEF Climate Change Program Study 2004 FIGURE 1.1 EVALUATION FRAMEWORK GHG emissions Impacts reduction or avoidance TS Outcomes Sustainable market transformation for RESUL increased energy savings or applications of renewable energy Enabling policies, Adequate Adequate Awareness Innovation and strategies, standards, finance business created technology and certification in place available infrastructure diffused Develop enabling Develop financing Develop business models Develop and Demonstrate creative policies, standards, instruments and and provide enterprise disseminate information project approaches and and certification mechanisms support and knowledge technologies PERFORMANCE Strategies ClimateChangeProgramintermsof reductionoravoidance demonstrating creative project approaches that promote of GHG emissions. However, it is recognized that GEF's climate-friendly growth.10 role is mostly a catalytic one: new strategies and approaches are explored that have long-term or indirect benefits once The evaluation framework is shown in Figure 1.1. Results there has been sufficient replication or sustainable market areevaluatedintermsof outcomesandimpacts.Performance transformation.Thestudythusgivesagreatdealof attention is evaluated in terms of the strategies that contribute to these toassessingoutcomes.8ThisapproachisreflectedintheGEF outcomesandimpacts.Theframeworkreflectsthemandated Operational Programs which seek "to expand, facilitate, GEF catalytic role in promoting, by barrier removal, a and aggregate the markets for the needed technologies...by primary outcome of market transformation that leads to removing barriers to implementation and reducing costs."9 the long-term reduction or avoidance of GHG emissions. The emphasis on market transformation was further This primary outcome can be supported by contributory developed in the GEF report "Measuring Results from outcomes, such as enabling policies, or increased awareness Climate Change Programs" (2000) and the GEF Strategic and diffusion of technology. Each of these outcomes is Priorities listed above. achievedthrougheffectiveemploymentof relevantstrategies that encompass the various market barriers the GEF This study also aims to assess how achievements were addresses. The catalytic effect of the GEF can be gauged by obtained, in order to draw lessons of use for replication on how successful its barrier removal strategies are in creating a what worked and why, and to evaluate the performance of ripple effect in the market. the GEF Climate Change Program. This implies an analysis of the strategies applied in achieving results. The study has The evaluation framework facilitates analysis at the examined a variety of strategies applied by GEF projects program level; the results and strategies generally cut across that consistently lay emphasis on removal of market barriers the goals of the OPs, project clusters, technologies, and local to increase market transformation and penetration; building circumstances. Perhaps more importantly, the framework policymakers' capacity with the purpose of developing captures both past approaches and future strategies of climate-friendlysectoralpolicies,laws,regulationsorrelevant the GEF. For the purposes of the study, the analysis will power sector policies; building business infrastructures by concentrate on the first three strategies and outcomes: triggering financing or demonstrating business viability; enabling policies, availability of finance, and adequate adding to social reservoirs of knowledge and awareness; and business infrastructure. Chapter 1 - Introduction 3 Furthermore, most GEF climate change projects have The emphasis was on overall vision of achievements and key involved either energy efficiency (EE) or renewable energy issues at the country level, impacts, market transformation (RE) technologies. This study will thus focus on OP5 and outcomes and strategies, and primarily focusing on a OP6. Annex A presents further details on the study's scope comparative review of which strategies are more effective in and methodology as well as on the process of data collection achieving specific outcomes and impacts. Focused interviews and analysis. and data searches provided valuable information and insights that would not have been possible simply through 1.4 METHODOLOGY AND ROCESS P a desk review. A comprehensive portfolio review was undertaken to The study was developed by staff of the GEF Office of capture the current nature and composition of the portfolio, Monitoring and Evaluation and independent consultants, as well as the status of OPs, project clusters, and country with the support of the GEF Climate Change Task Force. focus. This was complemented by emissions data and It was enriched by consultations, interviews, and stakeholder development statistics. meetings, including workshops on the methodology and brainstorming on the key findings. Two in-depth project cluster reviews were undertaken within EE (OP5) and RE (OP6), respectively: one addressed 1.5 ORGANIZATION OF THE EPORT R rural electrification with RE, and the other EE programs with an emphasis on access to finance. They were enhanced The structure of this report reflects its varied audiences. by IA reviews, other GEFME reviews including the Local The report presents overall trends, findings, and lessons of Benefits Study, and country visits. interest to GEF policymakers and stakeholders. Chapter 2 highlightssomekeytrendsinglobaleffortstocombatclimate The field visits were important for a more in-depth change within the context of the UNFCCC, the Kyoto understanding of certain key projects as well as assessing the Protocol, and the development of carbon markets. This is effectiveness of country strategies for market transformation the framework within which the GEF fulfills its mandate. for the adoption of renewable/energy-efficient technologies. Chapter 3 describes the GEF climate change portfolio and The 2003­04 visits informing the study include five Eastern highlights important trends. Chapter 4 presents the main European countries, Senegal, Ghana, China, Pakistan, the analysis of results and performance, and chapter 5 outlines Philippines,India,andCuba.Thevisitswerenotintendedto key findings and recommendations for the future. evaluate project performance at a detailed operational level. 4 GEF Climate Change Program Study 2004 2. Climate Change Overview The purpose of this chapter is to place the evaluation of are expected to warm more than oceans. The mean average the GEF portfolio of climate change projects in the context surface temperatures over the 20th century increased by of the broader effort of addressing climate change and to about 0.6ºC (± 0.2ºC).13 Different scenarios for the growth understand how GEF's role in the area has evolved and of GHG emissions in the future are shaped by a number of developed over the past decade. The chapter begins with a major drivers, in particular economic growth, demographic brief review of the state of knowledge of climate change changes, and technological innovation.14 science and impacts as assessed by the Intergovernmental Panel on Climate Change (IPCC). Next it reports on the Climate change is likely to have a significant impact on status of the United Nations Framework Convention on the global environment. In general, the faster the climate Climate Change (UNFCCC) and its Kyoto Protocol. Trends changes, the greater will be the risk of damage. The mean in climate change mitigation and adaptation funding and sea level is expected to rise 15­95 centimeters15 by the year programsarealsodiscussed. Finally,thechaptersummarizes 2100, causing flooding of low-lying areas and other damage. GEF's role as the financial mechanism supporting the The list of impacts is long, but a few examples will convey Convention and highlights the evolving priorities within the scale of the problem: the viability of key ecosystems is GEF programs and partnerships. put at risk by a temperature change of only 1­2ºC, including coral reefs, arctic ecosystems, and coastal wetlands; the 2.1 REVIEW CLIMATE CHANGE OF Greenland ice sheet, which contains sufficient water to raise SCIENCE sea levels by about 7 meters, would become unstable with a AND MPACTS I local warming of 3ºC, and gradually lose its ice mass.16 The major greenhouse gases (GHGs) that are being Regional impacts have been studied by the IPCC, released into the atmosphere are CO2 from energy use and which finds that poor countries and communities are most fromchangesinlandusepatterns,methane(CH4)andnitrous vulnerable to the impacts of climate change because of their oxide (N2O) from agriculture, and "trace gases" or artificial higher sensitivity to climate disruptions, lower capacity, and chemicals including halocarbons and sulfur hexafluoride. limited resources to adapt.17 Human society will face new The concentration of CO2 has already increased from risks and pressures on food security, water resources, and about 275 parts per million by volume (ppmv), prior to the physical infrastructure and from extreme events--floods, commencement of the Industrial Revolution in the 18th droughts, and storms. Adaptation is needed for both human century, to 368 ppmv in 2000,11 an increase of 34 percent. and ecosystems to cope with future climatic regimes. Carbon that has been stored in the earth's crust (in the form of oil, coal, and other fossil fuels) over millions of years is What matters for future climate change is cumulative being released into the atmosphere relatively rapidly. emissions. Reductions that will be required in this century are in the order of magnitude of 1,100­1,500 billion metric Rising levels of GHGs in the atmosphere are causing tons of CO2-equivalent, while mitigation potential ranges climate change. If growth in emissions continues, global from 13.2­18.3 billion metric tons of CO2-equivalent per temperatures are expected to rise between 1.4 and 5.8ºC by year.18 There is a large gap between what is required to the end of the 21st century.12 This is 2 to 10 times more than address the problem and the current commitments that have observed global warming in the 20th century. Land areas been negotiated in the international arena.19 Chapter 2 - Climate Change Overview 5 FIGURE 2.1 CONTRIBUTIONS TO GLOBALWARMING The uneven contribution of different regions of the world of renewableenergyandstatusinratifyingtheKyotoProtocol to global warming is shown graphically in Figure 2.1, which and submitting national communications. The current and redraws the map of the world with areas proportional to historical situation presented in these figures provides the historic cumulative CO2 emissions (1900­90) from fuel context for considering future targets and scenarios. combustion. 2.2 STATUS OF CLIMATE AGREEMENTS AND Regional analysis as shown in the map hides significant differences between countries (and indeed within countries). NEGOTIATIONS Since most countries are Parties to the UNFCCC and the Kyoto Protocol, some indication of national-level efforts The global response to climate change was initiated with made to control GHG emissions is appropriate. The Global theadoptionof theUNFCCCatthe1992RioEarthSummit. Governance Initiative report to the World Economic Forum The ultimate objective of the UNFCCC is to stabilize provides some useful--albeit imperfect--indicators for GHG concentrations at levels to prevent dangerous climate some major countries (see Table 2.1), both industrialized change, while allowing ecosystems to adapt, ensuring food and developing.20 The notion of responsibility is captured security and allowing sustainable economic development in relation to several indicators, while national income gives (UNFCCC, Article 2). This will require significant some sense of capability to mitigate. It also records the share effort. Given an expanding world economy and growing 6 GEF Climate Change Program Study 2004 TABLE 2.1 CLIMATE CHANGE INDICATORS FOR ELECT OUNTRIES S C RESPONSIBILITY / EMISSIONS CAPABILITY RENEWABLES STATUS IN NEGOTIATIONS CONTRIBUTION EMISSIONS CHANGE PER CAPITA CARBON CHANGE IN TO THE IN (TONS OF INTENSITY TONS ( CARBON GDP SHARE OF PER KYOTO SUBMISSION OF COUNTRY GLOBALCO2 CO2 RENEWABLES IN EMISSIONS CARBON OF CARBON PER INTENSITY CAPITA(USD PROTOCOL NATIONAL COM- CONCENTRATION (1990­ ELECTRICITY MIX EQUIV., US$ GDP- (1990­ PPP, 2000) RATIFICATION MUNICATIONS INCREASE (2000) (1950­2000) 2000) 2000, ALL PPP, 2000) 2000) GASES ) Australia 1 % 26 % 6.6 193 -11.4 % 25,693 9 % No Yes Canada 2 % 22 % 6.0 172 -7.8 % 27,840 61 % Yes Yes European 23,645 15 % Yes Yes Union 17 % 0 % 2.9 99 -18.1 % Japan 5 % 12 % 2.8 104 -2.4 % 26,755 10 % Yes Yes Russia 9 % -32 % 3.8 427 2.6 % 8,406 19 % No Yes United 34,142 9 % No Yes States 26 % 18 % 6.6 162 -14.5 % China 10 % 39 % 1.1 201 -46.8 % 3,976 17 % Yes No Brazil 1 % 53 % 1.8 73 17.6 % 7,604 90 % Yes No India 3 % 64 % 0.5 99 -3.6 % 2,358 14 % Yes No South 17,470 2 % Yes Yes Korea 1 % 85 % 3.0 185 2.1 % Mexico 1 % 25 % 1.5 125 -11.3 % 8,985 19 % Yes Yes South 9,466 1 % Yes No Africa 1 % 17 % 2.6 200 -1.7 % World 100% 14 % 1.6 147 -13.1 % 7,295 18.7 % - - GDP, gross domestic product; PPP, purchasing power parity Source: Adapted from Global Governance Initiative, 2004; data from World Resources Institute, 2003. populations, dramatic improvements in energy efficiency are (UNFCCC, Article 3.1). Under the Convention, both needed, as well as a switch to cleaner sources of energy and developing and developed countries accept commitments to fundamental changes in other economic sectors. submitnationalcommunications,includingGHGinventories. They agree to adopt national programs for mitigation and The COP is the decision making body of the UNFCCC. adaptation. Cooperation in technology transfer is another All states (currently 188) that have ratified or acceded to the broad commitment. All Parties agree to take climate change Convention are Parties to the Framework Convention on considerations into account in policies, to cooperate on Climate Change (FCCC). The COP meets annually, with its scientific matters, and to promote education and public two subsidiary bodies --the Subsidiary Body for Scientific awareness related to climate change. It is recognized that and Technological Advice and the Subsidiary Body for implementation of the above commitments by developing Implementation-- meeting between sessions. The COP and countries will depend on financial and technical assistance subsidiary bodies are serviced by a secretariat. The COP can from the developed countries (UNFCCC, Article 4.1). See review existing commitments or adopt new commitments Box 2.1 on Convention Parties. such as those agreed under the Kyoto Protocol in 1997. Although the Convention includes commitments, these are In line with the differentiated responsibilities, the not binding. developed21 country Parties and other Parties included in Annex I should take the lead in combating climate change. The first principle of the FCCC is that "Parties should ThesecountrieshadmorespecificcommitmentsunderArticle protecttheclimatesystem...inaccordancewiththeircommon 4.2 to take measures aimed at returning their emissions to butdifferentiatedresponsibilitiesandrespectivecapabilities." 1990 levels by the year 2000, but this goal was not achieved Chapter 2 - Climate Change Overview 7 Box 2.1 Convention Parties emissions accounting for at least 55 percent of the CO2 emissions from Annex I countries in the year 1990.22 The · UNFCCC Annex I parties (35 countries): To take emissions (CO2 only) for the base year (mostly 1990) are listed in Annex B of the Protocol. As of June 2004, 122 the lead in combating climate change (essentially Europe, North America, Japan, Australia). countries had ratified the agreement, but only 44.2 percent of Annex I emissions were included. Ratifying Parties · UNFCCC Annex II Parties: The 24 richest include many major developing countries as well as the countries among Annex 1, with commitments to European Union (and its members), Japan, Canada, and provide additional funding. a few other industrialized countries. Absent are the United States, Australia, and Russia, although the Russian Cabinet · UNFCCC Non-Annex I Parties: The developing signed off on the Protocol in September 2004. countries (138 or so) with commitments to submit National Communications, but no emissions reductions. 2.3 FUTURE SCENARIOS AND ESPONSIBILITIES R · Kyoto Annex B parties: Essentially the same as Annex I, with target commitments to reduce emissions. Industrialized countries have contributed most to GHG emissionsovertime.Figure2.1showsthisgraphically,andthis fact underlies the Convention's first stated principle, which requires developed countries to take the lead. by many countries. The richest countries agree to provide "new and additional financial resources" and facilitate The Parties should protect the climate system for the benefit of technology transfer. Annex II countries pay the "agreed full presentandfuturegenerationsof humankind,onthebasisof equity cost"of non-AnnexInationalcommunicationsunderArticle and in accordance with common but differentiated responsibilities 4.3. They also help fund transfer of environmentally sound and respective capabilities. Accordingly, the developed country technologies, particularly for developing country Parties. Parties should take the lead in combating climate change and the adverse effects thereof. (UNFCCC, Article 3.1) Specificmitigationcommitmentsforindustrializedcountries were negotiated and included in the subsequent Kyoto Hence, the Kyoto Protocol quantified emission reduction Protocol. The Parties agreed by consensus that Kyoto Annex targets only for Annex I (under the Convention, or Annex B countries would have a legally binding commitment to B, under the Protocol) Parties. Clearly, annual emissions reduce their collective emissions of six GHGs by 5 percent on from developing countries (non-Annex I, hereafter NAI) average compared with 1990 levels during the period 2008­ are increasing. According to data from the World Resources 012. The Protocol establishes three flexible mechanisms: an Institute,CO2emissionsfromfuelcombustionindeveloping emissions trading regime that allows assigned amounts to be countries have increased 38.9 percent over the 1990­2000 traded under Article 17; Joint Implementation (JI), a project- period, resulting in a share of 40 percent of annual global based mechanism involving Annex I parties under Article emissions in 2000.23 However, CO2 emissions per capita 6; and the Clean Development Mechanism (CDM), which were 11.9 tons of CO2 for Annex I and 2.0 tons of CO2 for allows investment by Annex I parties in projects in developing NAI countries in 2000. countries under Article 12. These mechanisms assist Annex I parties in achieving their emission reductions at least cost. Future emissions and "cross-over" dates (when NAI emissions would exceed those of Annex I as a group) are TheCDMincludesasecondobjectiveof assistingdeveloping highly sensitive to the assumed emissions scenario24 and countries in achieving sustainable development, as the Kyoto the basis and units of comparison. Cross-over will occur Protocol was also structured to assist in generating funding to soon if one looks at annual CO2 emissions of developing address adaptation needs. Parties to the Protocol have agreed, countries and emerging economies. If the analysis is based initsArticle12.8,"toensurethatashareof theproceedsfrom on cumulative CO2 emissions and contributions to global certified[CDM]projectactivitiesisusedto...assistdeveloping temperature increases, cross-over is much later. Another country Parties that are particularly vulnerable to the adverse issue complicating this analysis is the fact that Annex I effects of climate change to meet the costs of adaptation." countries emit primarily CO2, while developing economies with large agricultural and forestry sectors can be expected The Kyoto Protocol has not yet entered into force. To do to have a higher share of methane and nitrous oxide in so, it must be signed and ratified by 55 countries, with total their total emissions. 8 GEF Climate Change Program Study 2004 Whatever analytical approach is taken, it is clear that After the adoption of the UNFCCC, the GEF became the contribution of developing countries as a group will the Convention's financial mechanism and a key channel constitute a growing share in the future. It is equally evident for climate change funding for developing countries.29 The that Annex I responsibility will remain higher for a long climate change focal area is one of six GEF focal areas, and time to come if the analysis is based on per capita emissions, thesecondlargestintermsof financialinvestment.Theother criticalif theanalysisistobefair,25orif cumulativeemissions focal areas include biodiversity, international waters, and are considered, which are the ones that matter most to the ozone depletion. In addition, the areas of land degradation climate.26 and persistent organic pollutants were recently included (in 2002). The gap between current targets and the projected emissions means that greater mitigation effort is needed. Article11of theFCCCestablishesafinancialmechanism, The IPCC's second assessment report summarized the which can be entrusted to one or more international entities implications of continued emissions and required effort as with "an equitable and balanced representation of all Parties follows. within a transparent system of governance." The COP entrusted the operation of the financial mechanism to the If net global anthropogenic emissions (i.e. anthropogenic sources GEF, initially as an interim measure and since 1999 on a minus anthropogenic sinks) were maintained at current levels continuing basis. The financial mechanism is accountable (about7GtC/yrincludingemissionsfromfossilfuelcombustion, to the COP, which reviews it every four years. The COP cement production and land-use change), they would lead to a provides guidance on policies, program priorities, and nearlyconstantrateof increaseinatmosphericconcentrationsfor eligibility criteria. at least two centuries, reaching about 500 ppmv (approaching twice the pre-industrial concentration of 280 ppmv) by the end Although the GEF is sometimes regarded as the exclusive of the 21st century. Carbon cycle models show that immediate financial mechanism for the UNFCCC, the term "financial stabilisation of the concentration of carbon dioxide at its present mechanism" correctly refers to the totality of legal, level could only be achieved through an immediate reduction in institutional, and procedural arrangements that regulate and its emissions of 50­70% and further reductions thereafter. 27 make possible the flow of financial resources mandated by the Convention. The purpose of the financial mechanism Continuing the established FCCC principle that Annex is to give effect to the resource commitments set out in I countries take the lead, deeper cuts in emissions by Articles 4.3, 4.4, and 4.5 of the Convention. The purpose these countries will be required in the future.28 Annex II of the GEF is broader; it supports the Convention but it commitments under the Convention and Protocol to assist can also fund climate activities outside of the Convention's developingcountriesfinanciallywillalsocontinue.Indeed,as framework.30 There are also additional financial flows, other the need for quantified mitigation targets in the more rapidly than the GEF, that support the FCCC. industrializing developing countries grows, the requirements for funding may increase. The Kyoto Protocol, in its Article 11, refers back to the financialmechanismof theConventionandappliesthesame 2.4 ROLE OF THE GEF guidance. The Protocol directs the financial mechanism to "provide new and additional financial resources to meet the IN UPPORTING THE S UNFCCC agreed full costs" of Kyoto Protocol Article 10 and FCCC Article 4.1a (reporting on inventories, emission factors, etc.). GEF started initially in 1991 as a pilot within the World Annex II parties are to provide the "agreed full incremental Bank and then later was officially established in the lead-up costs" of items in Protocol Article 10, which include to the Rio Earth Summit in 1992. The GEF Council, with mitigation and adaptation programs. 16 members from developing countries, 14 from developed countries, and 2 from economies in transition, develops, At the first UNFCCC COP, the Parties decided to adopt a adopts, evaluates, and funds projects in support of a mixedsetof prioritiesfortheGEFclimatechangefocalarea, number of international environmental conventions and includingsupportforlong-termprojects,short-termresponse agreements. The GEF has three implementing agencies: measures, and enabling activities.31 Subsequently, the largest the United Nations Environment Programme (UNEP), the share of GEF resources has been assigned to long-term United Nations Development Programme (UNDP), and mitigation projects. These were envisaged to have "much the World Bank. greater impact because the projects would drive down costs, Chapter 2 - Climate Change Overview 9 build capacity, and start to put in place the technologies that cost of climate-friendly technologies, as reflected in the can ultimately avoid GHG emissions" (FCCC/CP/95/4 to GEF Pilot Phase and OP7. Renewable energy and energy COP-1). These climate change mitigation projects fall under efficiency were seen as the most promising areas. The first the four OPs approved by the GEF Council, on barrier two OPs (OPs 5 and 6) of the GEF reflect this focus, and removal to energy efficiency and energy conservation (OP5); market barrier removal was thought to promote win-win renewable energy (OP6); reducing the long-term costs of situations in terms of meeting local needs and achieving low-GHG-emittingtechnologies(OP7);andenvironmentally global environmental benefits. sustainable transport (OP11). In the UNFCCC negotiations, the exclusion of specific A smaller share of funds has been committed to short- technologies was resisted. "Negative lists" of technologies term response measures (STRMs). These include projects to be excluded (for example, cleaner coal or nuclear energy that "maximize short-term cost-effectiveness, by for technologies) were not endorsed in COP decisions. Parties example, ...sequestering or abating the emissions of carbon were reluctant to pick technology winners. EE and RE were, dioxide that have the lowest unit incremental costs" (FCCC/ in part, no-opposition, no-regret options. CP/95/4). The Third Replenishment negotiations pointed out that strategic targets for the GEF program "may involve Supporting research and literature also supported limiting further commitments in the mature programs such investigation of different technologies and policies.33 The as...short-termmeasures...."Therelativeimportanceof the IPCC reviews key developments in the knowledge around STRMs was consequently reduced in the last GEF Business technological options to mitigate GHG emissions.34 These Plan. analyses, and those of the GEF STAP, provide a useful framework for informing GEF strategic choices. Finally,althoughlimitedinfinancialterms,GEF-supported enabling activities (EAs) form a key part of Convention As its second decade begins, GEF aims to "accelerate adherence by the Parties. "The requirement for all Parties the shift from technology-based towards market-based to report on their greenhouse gas emissions and climate approaches, emphasizing policies and institutions...." (GEF change activities is one of their most important obligations, Business Plan FY04­06, presented to the GEF Council in providing the basis for the COP to assess the implementation document GEF/C.21/9). In broad terms, there has been of theConventionanditseffectiveness."32TheGEFprovides a discernable shift from technology demonstration to the funding, on an agreed full cost basis, for the preparation of removal of barriers to RE and EE penetration, then market national communications, as well as for capacity building aggregationandtheremovalof economicbarriers.Transport activities. was added as an additional operational program. Of the 40 national communications from Annex I Thedebatesonclimatechangemitigationhavebroadened countries, GEF supported three (Belarus, Croatia, Slovenia). toincludelinkageswithsustainabledevelopment.35Choosing Of the 115 national communications from NAI countries, a more sustainable development path implies that GHG only 10, mainly small island states or newly industrialized emissions should be lower than in other possible futures. countries, were not supported by the GEF. In addition, 23 The IPCC's Third Assessment Report found this choice of countries with EAs in various stages of progress have yet to future "world" as important as other drivers determining submit their first national communication. Based on a 2000 GHG emissions. A key finding of this report is that "...low- Review of Climate Change Enabling Activities, the GEF is emission futures are associated with a whole set of policies improving the consultative process for formulation of the and actions that go beyond the development of climate procedures for subsequent communications. policy itself."36 2.5 THE EVOLVING CLIMATE CHANGE However, shifting development paths require transitions in AGENDA: RESPONSE MEASURES larger systems, not least energy economies, including those in developing countries and emerging economies. A future negotiation round on quantified mitigation commitments for 2.5.1 MITIGATION the larger emerging economies is not on the official agenda, butincreasinglyisbeingdiscussedbyresearchorganizations.37 Debates and discussions on mitigation strategies and However, with a review of "demonstrable progress" due priorities have evolved over time. Initially the emphasis in 2005 (under Protocol Article 3.2) these discussions may was on demonstrating technologies and bringing down the become formal in the next few years. Inevitably, the spotlight 10 GEF Climate Change Program Study 2004 begins to fall on the larger developing countries that are Article3.2).TheearliestguidancegiventotheGEF,atCOP- significant total GHG emitters, such as China, India, Brazil, 1 in Berlin, provided for a staged approach to adaptation and Indonesia (taking account of methane and CO2). It is (Decision 11/CP.1, 1995). In this decision, the financial interesting to note what energy savings have already been mechanism was asked to consider criteria for supporting achieved in China as a result of structural change in its planning and studies of climate change impacts under the economy. first stage. The second stage would explore measures to prepare for adaptation. The third, and most advanced stage, 2.5.2 SEQUESTRATION is concerned with measures to facilitate adaptation. The staged approach has influenced activities that received GEF Mitigation has tended to focus on reducing emissions from support under NAI national communications. sources.Theothersideof thecarboncycle,removalof GHGs from the atmosphere by sinks,38 has recently gained more The issue of adaptation has recently received more attention. Allowances for existing sinks in Annex I countries attention in the negotiations. At COP-7, Parties agreed were critical in finalizing the Marrakech Accords, with there was a need for new and additional funding beyond significant concessions to Russia, Japan, and others under contributions that are allocated to the climate change focal Article 3.3. and 3.4 of the Protocol (FCCC/CP/2001/13/ area of the GEF and to multilateral and bilateral funding for Add.1). Methodological questions on calculations and the implementation of the Convention. COP-7 established reporting were addressed by the COP-9 in 2003, which anAdaptationFundundertheProtocolandtwofundsunder agreed on modalities and procedures for land use, land use the Convention, the Least Developed Country (LDC) Fund change, and forestry (LULUCF) projects. It also agreed to and the Special Climate Change Fund. All three funds are to rules for sequestration/sink projects under the CDM. These be operated by the GEF on the basis that each fund remains rulesnowneedtobegivenoperationaleffect,aprocessmade distinct from the existing GEF Trust Fund used for climate more difficult by the greater complexity of the underlying change activities. issues, such as permanence and biodiversity. All Parties to the Convention have committed themselves to promote Many assessment and planning activities have already sustainable management of sinks and reservoirs of all GHG been funded by GEF, mostly in conjunction with national gasesnotcontrolledbytheKyotoProtocol(UNFCCCArticle communications, and the challenge is to define concrete 4.1). The GEF OP12 on IntegratedEcosystem Management implementation activities. Significant progress has been includes natural resource management interventions that made, notably in prioritizing adaptation activities through a could, in part, respond to these challenges. GEF has also participatoryprocessof theNationalAdaptationProgramme funded STRMs in the area of sequestration. of Action by LDCs. Under the LDC Trust Fund, GEF has provided US$200,000 per LDC. Theabovediscussionhasfocusedonbiologicalsequestration orsinks.Carboncaptureandstoragebynonbiologicalmeans In response to guidance from COP-7, the GEF Council is also receiving increasing scientific attention. The IPCC is approved in November 2003 a seventh strategic priority compiling a special report on carbon capture and storage, on adaptation (SPA) within the climate change focal area, considering options such as storage in geological formations, "Piloting an Operational Approach to Adaptation," within re-injecting CO2 into oil and gas fields, and even storage in the GEF Trust Fund. The scheme is limited to pilot projects the deep ocean. The GEF portfolio has not, as yet, addressed worth US$50 million during 2005­07. Pilots should show these kinds of projects, with the possible exception of the how adaptation planning and assessment can be practically China Yantai integrated gasification combined cycle (World translated into projects that will provide real benefits. Full Bank), approved as an OP7 PDF-B under the condition of costs are to be paid only for small grants, while large and zero CO2 emissions. medium-sized projects will require cofinancing. The pilot began in July 2004 and will end when the LDC and Special 2.5.3 ADAPTATION Climate Change Funds start. The Convention and Protocol include a number of A paper on "assistance to address adaptation" for the GEF references to adaptation. All Parties to the Convention have CouncilinMay2004indicatesthatadaptationactivitiesmust agreed that "the specific needs and special circumstances be country driven and integrated into national sustainable of developing country Parties, especially those that are development planning and poverty-reduction strategies. particularly vulnerable to the adverse effects of climate It links local adaptation to GEF's mandate in that the change...should be given full consideration" (UNFCCC, "need to adapt to adverse impacts of climate change is an Chapter 2 - Climate Change Overview 11 incremental burden to developing countries, generated by the Community Development Carbon Fund (Austria, a global environmental impact." Capacity building can be Canada, Italy, and the Netherlands plus seven companies) incremental and targeted and also have "a global dimension is aimed at small-scale mitigation projects that also improve astheyhelpvulnerablecountriesandcommunitiestoaddress the livelihoods of local communities. The BioCarbon Fund theglobalenvironmentalimpactof climatechange."39These for LULUCF includes mitigation projects combined with principles are to be operationalized in the SPA pilot. environmental benefits, adaptation, and poverty reduction.42 Countries such as Austria, Denmark, Finland, Germany, A key challenge will be the development of secure, Italy, Japan, and the Netherlands have also set up separate adequate, and predictable funding streams for priority CDM funds. Investment by early movers in the CDM is adaptation needs, as well as equitable frameworks for at least in part intended to influence the future market by access to this funding. Apart from funds, tiered national setting de facto technical standards and occupying market and regional insurance schemes have been proposed. They position. form part of an approach that emphasizes managing and spreading the risk to developing countries of climate impacts The CDM generates credits that are tradable ("fungible" such as extreme weather events, aiding recovery efforts and in climate jargon) in the international emissions trading contributing to sustainable development. system under Article 17 of the Kyoto Protocol. The CDM Executive Board is accrediting operational entities, 2.5.4 FLEXIBLE MECHANISMS AND THE formulating methodologies, and considering the first round DEVELOPMENT CARBON MARKETS of project submissions under provision for a prompt start. OF A wide range of actors--Kyoto Protocol Parties, state and local governments, individual companies, brokers and Investment and funding for climate change activities international financial institutions, GEF IAs--are becoming comprise a larger set of sources of which GEF funding is one involved in carbon trading projects.43 part.Thesemechanisms providedforby theConventionand the Protocol might complement the GEF efforts and include More than 75 projects have already been developed, JI, the CDM, and carbon trading to facilitate efficient representing allocations worth US$800 million for CDM investment to meet GHG emission reduction targets. investments or purchases of Certified Emission Reductions (CERs).44 Most of these allocations have been from public PriortotheMarrakechAccords,PartiestotheConvention funds, but have not yet all been disbursed. There is a piloted mitigation programs under the notion of "Activities leveraging effect in that total project investment is higher Implemented Jointly." Initiated at COP-1 in 1995, this pilot than the fund contributions, so investment in actual projects phase explicitly did not award carbon credits, and included should be about US$800 million times six to eight.45 Total both developing countries and economies in transition. The project investment can be expected to increase over time, main aim was to gain experience with mitigation projects, including more private sector investment. and more than 150 projects were registered in over 40 countries.40 The future of these pilot projects under the Within the GEF family, the possibilities of greater CDM and Article 6 JI remains unclear. coordination between GEF and carbon finance have been discussed. The World Bank Group has been particularly JIunderArticle6of theKyotoProtocol41allowsinvestment activeinitsstatedmission"tocatalyzeaglobalcarbonmarket in projects in countries with economies in transition. The through the purchase of high quality emission reductions fundamental difference with the CDM is that, in this case, in climate-friendly projects in developing countries and both countries have caps on their national emissions under economies in transition." For example, the world's first trade Kyoto. The overall limitations mean that any errors in fair and conference for emissions trading aimed at reducing estimating real emission reductions at the project level would CO2, Carbon Expo, was organized in 2004 by the World reflect in the national GHG registries. Bank and the International Emissions Trading Association. The Bank's Carbon Finance Business Unit has made The COP decided in 2001 to facilitate a prompt start for significant progress in a short time in developing a viable a CDM (Decision 17/CP.7) although the Protocol is still not end-game that may allow the GEF to focus more strongly on ratified. Early movers in the CDM have included the Dutch market barrier removal activities. government through ERUPT (JI) and CERUPT (CDM); and the World Bank, through the Prototype Carbon Fund. The GEF has so far not received guidance on carbon Some of these funds aim at particular niches. For example, finance from the COP or the GEF Council. Nevertheless, 12 GEF Climate Change Program Study 2004 developments in CDM investments and carbon trading TheThirdReplenishmentof theGEFTrustFund(in2002) could begin to have an impact on the GEF portfolio. For advancedpolicyrecommendationswithaviewto"increasing example, GEF funding for mitigation projects might focus the GEF's emphasis on quality and results, to improving on various market transformation activities that facilitate GEF's responsiveness to country needs and to the guidance initial financing of sustainable energy projects. The long- of the global environmental conventions, and to making term viability of some of these projects might be enhanced its processes more expeditious, streamlined and efficient through ongoing financial flows from CDM emission so as to maximize impacts achieved with consideration of reduction credits over the project's lifetime. country performance through the resources of the third replenishment of the GEF." The Third Replenishment 2.6 RECENT GEF INTERNAL suggesteddevelopingstrategictargetsforeachGEFprogram DEVELOPMENTS for the approval of Council.46 AND RENDS T The GEF Business Plan for 2004­06 captures these The above discussion has provided a context for recommendationsandconfirmsthatGEFaimsto"accelerate understanding the development of the GEF climate change the shift from technology-based towards market-based focal area. In addition, some aspects of a more internal approaches."47To do so, seven Strategic Priorities will guide nature, emanating from the GEF Council and discussions GEF programming within the OPs from 2003 onward (see within the GEF family, will guide future GEF climate change table 2.2). Priorities SP1­SP3 are perceived to have superior support. impact on the basis of past experience. The other priorities (SP4­SP6) are expected to yield enhanced impact within 2.6.1 STRATEGIC PRIORITIES GEF OPs 6, 7, and 11, respectively. Some represent aspects of market development that were underrepresented in the AND ESULTS R ORIENTATION GEF portfolio (power sector policies, productive uses); or promiseparticularlyefficientuseof GEFresources(increased Over the past eight years or so, the GEF climate change access to local sources of financing) or a particular niche portfoliowasgovernedbytheGEFOperationalStrategy(1995), of comparative GEF advantage (market transformation). which emphasizes mitigation measures for climate change The Strategic Priority on adaptation (SPA), was added within the four climate change OPs. A number of factors are by the GEF Council in November 2003,48 based on new now contributing to sharpen this programmatic focus. Convention guidance. The Strategic Priorities constitute the TABLE 2.2 CLIMATE CHANGE STRATEGIC PRIORITIES AND UTURE ARGETS F T FUNDING STRATEGIC PRIORITIES INDICATORS AND GEF-III TARGETS (FY03­06) (US$ MILLION ) SP1. Transformation of markets for high-volume, low- 12,000 gigawatt hours annual energy savings 78 GHG products or processes SP2. Increased access to local sources of financing Funding volume of public and/or private financier lending for applications 84 targeted by projects: US$700 million SP3. Power sector policy frameworks supportive of RE Expected 4,000 megawatt additional power sector investments 128 and EE 10 additional countries with explicit RE/EE power sector policies SP4. Productive uses of renewable energy 2 million additional people served with renewable energy 20,000 additional social service institutions using RE 95 10,000 additional income-generating businesses from RE SP5. Global market aggregation and national innovation Actual and planned/committed additional global investment in targeted for emerging technologies technologies, measured in number of business plans (targets depending on 65 STAP report on OP7) SP6. Modal shifts in urban transport and clean vehicle/ 20 cities with integrated sustainable transport plans in place fuel technologies 15 cities with bus rapid transit plans completed 79 3,000 kilometers of additional bikeways constructed SP7. Piloting an operational approach to adaptation Funding for FY05­07. Targets not determined. 50 Chapter 2 - Climate Change Overview 13 first time that allocations and aggregate targets have been set frameworks."57 The proposed piloting of programmatic for the GEF focal areas.49,50 approaches in 2001 has so far not been systematically applied.58 The system's inability to respond flexibly, timely, Furthermore, the Third Replenishment also asked the and coherently to national needs has consequences for GEF to explore the possibilities of a "system for allocating performance. scarce GEF resources within and among focal areas with a view towards maximizing the impact of these resources...."51 The Second Overall Performance Study and the Third Significant work still remains to finalize an operational Replenishment also encouraged the strengthening and resource allocation framework system that would allow GEF acceleration of cross-learning processes, particularly on to prioritize projects and facilitate changes in the mix of an interagency basis, and called for a formal "feedback project proposals. The implications for resource allocations loop" to improve planning and subsequent activities. This among recipient countries are not yet clear.52 increased demand by GEF stakeholders for more systematic learning and replication is driving proposals on knowledge The GEF Council has confirmed that "...equal management in the GEF. The two largest IAs, the World opportunity for all recipient countries [to obtain funding Bank and UNDP, both have such knowledge management under the Convention] should be an underlying principle systems, and the UNDP-GEF has been particularly active in designing the performance based framework."53 The in bringing new learning approaches to its climate change nature of funding differs. The new strategic approach to portfolio. The climate change focal area is likely to be one of enhancing capacity building, approved by the GEF Council thepilotsforaGEFknowledge-sharingstrategy;thepotential in November 2003, allows GEF for the first time to support gains are considerable for the climate change portfolio with free-standing, capacity building activities in or across focal its diverse approaches in varied project clusters. areas, as well as specific support to LDCs and small island development states. 2.6.2 EVOLUTION ROLES, IN In the future, the implementation of the Strategic RESPONSIBILITIES, AND OLICIES P Priorities will be facilitated by the process to review the OPs, OF GEF PARTNERS by May 2005, with a view to rationalizing their number and objectives.54 One aspect of such reform is the increasing The GEF has always relied on a collaborative partnership attention to synergies between focal areas, in response to inwhicheachentityplaysitsroleeffectivelyandinaccordance the work within the environmental conventions on joint with its comparative advantage.59 Whereas the latter has programs between the different conventions (biological remained stable and the IAs undertake projects within their diversity, desertification, climate change). Of particular sphere of interest, the environmental priorities of the IAs relevance to the Climate Change Program are the linkages have evolved over time, as have the priorities of the GEF. with biodiversity, land degradation, ozone depletion, and water systems.55 Since the Millennium Summit in 2000, development agencies, including the IAs, have focused on the Millennium Combined with a greater focus on results, initiatives Development Goals as the way to poverty eradication are under way to make the internal GEF processes and and sustainable development. UNDP sees energy as "an systems more responsive and efficient. Simplification of the important entry point for achieving the goals of all three project cycle is envisaged in a number of GEF planning of the pillars of sustainable development: social equity, documents.56 The adverse effects of the complexity and economic growth, and environmental protection."60 The length of the GEF project cycle, which includes both the World Bank Group sees its main task "to help bring about time in approval by the GEF Secretariat and Council as well a sustainable and rapid growth in incomes and to alleviate as by the IAs, have been pointed out in several evaluations. poverty. Within this process, {their} role is to ensure that Because climate change projects are mainly market based, energy is supplied at least economic cost and that it is used they are particularly susceptible to delays in formulation, in the most efficient and sustainable way possible."61 implementation, and procurement because markets evolve rapidly and often change the project rationale. The GEF The GEF has not, as yet, explicitly reflected this paradigm project orientation does not seem to lend itself well to the shift in its climate change policies and programs. The notion programmatic planning approaches of the IAs and their of "concentrating on global issues that involve local and efforts to "mainstream GEF activities into national planning national benefits" (World Bank policy), may be implicit, 14 GEF Climate Change Program Study 2004 but it has not been underpinned by practical guidance. Not and overcoming the first high-cost barrier. UNDP also relating GEF work to the Millennium Development Goals sees the promotion of rural energy services as a vehicle to may inhibit mainstreaming environment into country and support growth and equity and prioritizes the strengthening IA programming. However, the availability of the GEF of national policy frameworks and increasing access to Trust Fund and the GEF mandate in supporting global financing, among other things.66 The dimension of global environmental benefits provide opportunities for the IAs to benefitsisincorporatedthroughensuringthatenergyservices pay more attention to global environmental issues. are environmentally sustainable. UNDP has been active in stimulating learning around photovoltaic (PV) energy, UNDPfoundthat"Thepredominanceof GEFprogramme especially in the Africa region. funding[inenergyandclimatechange]hasinsomeregions-- particularly in Africa--limited programme development to These efforts on renewable energy within the IAs go addressing local poverty linkages. Further efforts are needed beyond the GEF. The World Bank Group, for example, tolinkregularresourcestoGEFprogrammedevelopment."62 has long been active in energy and financial sector reform The recent Operations Evaluation Department (OED) measures in which the GEF traditionally has not provided evaluation of the World Bank environment portfolio stated support. Significant challenges remain for both on-grid and that "These [GEF] projects have sometimes been isolated off-grid RE for the rural poor, in large part due to problems operations responding to the global mandate of GEF and with affordability. The IA efforts may provide an opportunity not integrated into coherent national strategies."63 for seeking a clear comparative advantage for GEF support within the context of the GEF Strategic Priorities. A possible entry point that unites the interests and mandates of the GEF and its IAs is the linkage between the Expanding the availability of modern energy is dependent environment and governance. With its new Strategic Priority on vibrant and commercially viable energy markets, with (SP3) on favorable policy frameworks, the GEF potentially effective market regulation and private participation. Among joins its IAs in integrating environmental and energy the GEF focal areas, the climate change portfolio depends dimensions into poverty reduction strategies and creating the most on effective private sector participation. Yet, frameworks for environmentally sound energy sector related reports from the various agencies consistently point development.64 Win-win opportunities for local and global to weaknesses in the cooperation with and engagement of benefits include energy sector reform and restructuring and the private sector partners.67 Following the request by the integrating local environmental and social externality costs Third Replenishment, a paper reviewing private sector into either their energy pricing or investment decisions.65 participation was developed for the May 2004 Council Similarly, SP2 and SP4 are formulated such as to support meeting.68 Unfortunately, the dynamic role that the private local income-generating opportunities, and SP1 offers sector could play in partnership with the GEF was not fully capacity building for energy cost reduction measures in explored or analyzed. businesses and households. The GEF and its IAs operate in a complex and shifting About 2 billion poor people in the world lack access to policy environment. This chapter has sought to provide a modern energy. The partners unite in the challenge of broad overview of the context within which GEF operates, developing energy services that are affordable and are includingtherolesandactivitiesof complementaryinstitutions working to address concerns on renewable energy. At the and organizations. This chapter has shown how the mandate BonnRenewableEnergyconferenceinJune2004,theWorld and strategic focus of GEF's Climate Change Program has Bank announced that one of its primary strategies in this been progressively shaped over the past decade to tackle the area is to ensure that RE and EE are seen as "economically transformation of markets for sustainable energy in order viable and essential ingredients in the energy choices of our to achieve reduction or avoidance of GHG emissions. In member nations, not marginal considerations." It has also overcoming market barriers and market failures, GEF has given more attention to energy services in its Infrastructure to work effectively with governments, other agencies, and Action Plan (2003). The provision of access to energy for the private sector. Clearly, GEF's effectiveness is enhanced rural people is based on principles of consumer choice, cost- throughastrategicunderstandingof thenatureanddirection reflective pricing, local participation, good sector policies, of shifts in the policy environment and in markets. Chapter 2 - Climate Change Overview 15 3. GEF Portfolio Overview The GEF has allocated US$1.63 billion to climate change the expected US$1 billion, active development of the project projects69 and activities since its official establishment in pipeline will be needed. October 1991. The GEF-III replenishment provided an additional US$1 billion for climate change allocations for The peaks in financial allocations (1996 and 1999) were the period 2003­07. The climate change portfolio represents mainly caused by incorporation of relatively costly OP7 close to a third of overall GEF program funding of US$8.59 projects; four OP7 projects accounted for half of the 1999 billion,buttheamountsallottedhavefluctuatedconsiderably allocation. between the different GEF phases, ranging from US$207 million in the GEF pilot phase (1991­94), to almost US$600 Over the past five years, 20 to 30 climate change projects million for the GEF-II replenishment (1998­2002). Table have been approved annually. The average elapsed time 3.1 shows the number of climate change projects and levels between GEF Council approval and the commencement of funding (excluding EAs and project development facilities of full-size project ranges from 12 months to more than [PDFs]) for the different GEF replenishment phases. two years.70 Thus, a significant proportion of the portfolio comprises projects that are just starting or for which results TABLE 3.1 CLIMATE CHANGE PROJECT ALLOCATIONS IN are still emerging. GEF PHASES GEF NUMBER OF GEF FUNDING 3.2 CURRENT STATUS PHASES PROJECTS (US$ MILLION ) Pilot phase 30 207.24 The climate change portfolio includes projects in 143 countries. The bulk of the GEF climate change grants have Phase 1 40 425.71 gone to mitigation projects. As of April 2004, 144 full-size Phase 2 103 592.27 projects (FP) have been approved, accounting for 79 percent Phase 3 (by April 2004) 34 205.11 of the total financial allocation for climate change. Since TOTAL 207 1,430.33 the introduction of medium-size projects (MSPs) in 1998, 40 such projects have entered the GEF Work Program, Note: This excludes allocation for enabling activities and project devel- opment facilities of US$202.55 million. accounting for only 2 percent of total financial allocations. The current status of the approved portfolio is presented in Figures 3.3 and 3.4. 3.1 EVOLUTION OF THE ORTFOLIO P Short-term response measures. STRMs are projects Figures 3.1 and 3.2 show the growth of the GEF climate that are likely to successfully and cost-effectively reduce change portfolio. There is a pattern of high project approval GHGs in the short term. Although their rate of entry into levels during the first two years of a funding phase and then the GEF Work Program has declined somewhat (one or two a steady decline as funding is exhausted. The situation is per year), they account for 7 percent of total resources and somewhat different for GEF-III (2003­07). Unlike previous 4 percent of projects. Ten STRMs have closed, and 13 are phases,only28percentof thetotalfundshadbeencommitted ongoing. up to the second year of the replenishment phase. To reach 16 GEF Climate Change Program Study 2004 FIGURE 3.1 NUMBER GEF CLIMATE CHANGE PROJECTS WORK PROGRAM OF IN 250 35 30 200 25 projects) of 150 projects) 20 of (Number ve 100 15 (Number Cumulati 10 Annual 50 5 0 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Annual Cumulative FIGURE 3.2 FINANCING CLIMATE CHANGE APPROVED PROJECTS WORK PROGRAM OF IN $1,600 $250 $1,400 $200 $1,200 $1,000 $150 US$) US$) $800 (Millions ve $100 (Millions $600 Annual Cumulati $400 $50 $200 $0 $0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Annual Cumulative Chapter 3 - GEF Portfolio Overview 17 FIGURE 3.3 GEF CLIMATE CHANGE APPROVED 3.3 OPERATIONAL PROGRAMS AND PROJECT FUNDING PROJECTTYPE (MILLIONS US$) BY CLUSTERS PDFs (1%) STRM (7%) 13.68M EA (11%) Renewable energy projects (OP6) account for 54 percent 111.82M MSP (2%) 183.44 M of closed project allocations and 44 percent of active project 31.09M allocations (53 projects). See Figure 3.6. (Note: Figure includes 119 projects, which in addition to 5 multi OP projects amounts to 124 projects under implementation.) About a third of projects fall within OP5 (Energy efficiency). The OP11, on environment-friendly transport, was formally established by the GEF Council only in 2001, Full-size projects (79%) 1,287.42M and is limited to eight approved projects. OP7, which aims to reduce the long-term costs of low-GHG-emitting energy FIGURE 3.4 APPROVED technologies, has only two projects under implementation CLIMATE CHANGE and six approved projects pending. PROJECTS BY TYPE There is considerable variation in types of projects within 64 PDFs each OP. A coherent, consistent clustering of projects still 23 STRMs 12% needs to be developed and agreed to within the GEF. Table 40 MSPs 4% 269 EAs 3.2 below depicts a range of project clusters within OP5 and 7% 50% OP6, with a brief description of clusters in Annex A. Besides the large group of electrification projects utilizing RE, the current portfolio reflects a focus on market development both for RE and for EE. 144 FPs FIGURE 3.5 OP FUNDING ALLOCATION FOR GEF 27% CLIMATE CHANGE PROJECTS $350 Enabling activities. EAs facilitate implementation of effective climate change response measures and preparation $282 $293 of national communications to the UNFCCC. A total of $300 269 EAs account for 11 percent of the resources.71 The 1995 Operational Strategy anticipated that "because enabling $250 activities are the foundation for much of the GEF portfolio, they will be emphasized initially. As the GEF builds on this $195 $200 foundation, the emphasis will gradually shift to the other $169 types of activities." This has not happened; many countries US$ $150 have now launched their second or third EA and second $124 national communication to the UNFCCC. In GEF Phase Million $100 2, 106 EAs were launched, and since 2002 a further 64 enabling activities have been approved. $69 $40 $50 $62 $50 $42 $22 Fortyapprovedprojects,representingafinancialallocation $10 $8 of US$455 million, have not yet started (Figure 3.5). While $0 OP5 OP6 OP7 OP11 STRMs manyof thesearerecentapprovalsawaitingprojectclearance by the IAs or for official project launch, 43 percent are OP7 Funding allocation of closed projects projects that have been pending for some time. This study Funding allocation of approved projects (not started) focuses on the results of the 43 closed projects and the 124 Funding allocation of active projects projects under implementation. Note: Funding allocations for projects amount to US$1,367.56 million. The Figure does not include approved multi OP projects. 18 GEF Climate Change Program Study 2004 FIGURE 3.6 NUMBER ACTIVE PROJECTS OF Some trends are evident. There is a sharp drop in STRMs fromthePilotPhase;from33percentto2percentof resources 13 STRMs in the present GEF-III. Most of the STRMs were carbon 8 OP11 11% sequestration projects; many projects on land degradation 2 OP7 43 OP5 7% 2% 36% andcarbonsequestrationarecurrentlybeingaddressedunder OP12 on Integrated Ecosystem Management. The portfolio on geothermal development used 14 percent of resources in the Pilot Phase, virtually disappeared in GEF Phases 1 and 2, to rebound again in the current Phase with 13 percent of resources by the end of April 2004. Since its launch in 2001, 53 OP6 OP11 on transport has accounted for 8 percent of resources 44% in both Phase 2 and 3. OP7 has dropped since Phase 1 (22 percent of resources) to 17 percent and 5 percent in Phase 2 The composition of the present GEF climate change and 3, respectively. portfolio has been influenced by lessons from earlier projects and strategic shifts in funding allocations during different Within RE and EE, however, it is difficult to discern phases. To illustrate the historical development of the clear trends. Projects promoting renewable energy for rural Climate Change Program, Figure 3.7 shows the varying electrification form the largest cluster, with solar, hydro, proportions of funding that have been allocated to different wind and biomass technologies. The cluster has decreased in project clusters (in accordance with definitions in Table 3.2) relativeimportancesincePhase1whenitaccountedforafifth in subsequent GEF phases.72 TABLE 3.2 DISTRIBUTION CLOSED OF AND CTIVE ROJECTS PER LUSTER A P C (ENABLING ACTIVITIES PROJECT DEVELOPMENT FACILITIES SHORT TERM RESPONSE MEASURES AND MULTI , , - , OPS EXCLUDED ) CLOSEDPROJECTS ACTIVE PROJECTS NUMBER OF GEF FUNDS NUMBER OF GEF FUNDS CLUSTER DESCRIPTION PROJECTS ALLOCATION PROJECTS ALLOCATION US$ MILLION US$ MILLION OP5 - ENERGY EFFICIENCY Energy-efficient products and market development 6 30.50 15 66.46 (EE prod/mkt) Financial intermediaries and mechanisms for energy efficiency (FI/ESCOs) 3 9.40 9 94.80 Energy efficiency in industrial production (EE/IndProd) 1 1.00 8 65.39 Energy efficiency in the public sector: municipal heating, lighting and hot water 1 0.74 11 55.64 (EE/PS) TOTAL 11 41.64 43 282.29 OP6 - RENEWABLE ENERGY Renewable energy in electrification, through PV, wind, biomass, small hydro, etc. 8 52.54 24 149.42 (RE/Rural and RE/Urban) Renewable energy for productive uses, in industries or institutions (RE/Prod uses) 3 32.60 15 66.33 Renewable energy products and market development (RE prod/mkt) 2 2.28 13 76.12 Geothermal development 2 36.90 1 0.98 TOTAL 15 124.32 53 292.85 OTHER OPS OP7 - Reducing the long-term costs of low-GHG-emitting technologies 3 10.35 2 7.78 OP11 - Promoting environmentally sustainable transport 0 0.00 8 39.69 TOTAL 30 178.31 106 622.61 Note: Table does not include STRMs and multi OP projects (10 STRMs and 3 multi OP projects are closed, and 13 STRMs and 5 multi OP projects are under implementation). Chapter 3 - GEF Portfolio Overview 19 FIGURE 3.7 CLUSTER EVOLUTION GEF PHASE BY 3.4 REGIONAL DISTRIBUTION $700 GEF - III targets: Productive uses 95M The GEF has a mandate to OP11 79M respond to all eligible countries with $600 OP7 65M projects that are country driven GEF - III target and based on national priorities73 $500 Developing countries are eligible for GEF climate change grants under $400 the financial mechanism if they $US have ratified the UNFCCC, or for $300 other grants if they are eligible to Millions receive World Bank loans or UNDP to date $200 technical assistance funds.74 The GEF is also asked to $100 "...ensure the cost-effectiveness of its activities to maximize global $0 environmental benefits."75 In the Pilot phase Phase 1 Phase 2 Phase 3 Beijing Declaration, the Second RE/Rural RE/Prod uses RE prod/mkt Geothermal GEF Assembly asked the GEF to "enhance its strategic business EE/PS EE/Ind Prod EE prod/mkt FI/Escos planning for allocating scarce Transport/OP11 STRMs OP7 GEF resources to high priority areas within and among focal areas, taking into account national priorities." The GEF is mandated to address the need for innovation, experimentation, demonstration, of the resources. In GEF-III, it still accounts for 10 percent and replicability, which obliges it to support projects where of total allocations. The RE for productive uses cluster has the circumstances and needs are appropriate for this.76 increased slightly in recent years. Different technologies have beenpromotedwithintheclustersindifferentphases.InGEF The programming of GEF resources is a complex process, Phase 2, a significant proportion of OP6 projects involved influenced by political, economic, and institutional factors. PV systems. There was also an increase in biomass projects. GEF allocations have so far been made project by project, In Phase 3, there are clear trends toward multi-technology based on submissions of proposals from the Implementing projects, increased wind promotion, and fewer PV projects. andExecutingAgenciesinaccordancewitheligibilitycriteria. Within EE, a majority of projects incorporate activities that "Among eligible countries, this system does not privilege any focus on financing mechanisms. specific ones for the allocation of GEF resources; rather it puts the emphasis on a project's potential positive impact Some of the movements described above stem from GEF on the global environment."77The portfolio tends to evolve decisions or initiatives, but other changes are more difficult where long-term interventions might be appropriate and toexplain.Whateverthecause,aportfoliothatsuffers froma politically feasible no-regret options, while at the same fluctuating effect over time will have difficulties in reaching a time minimizing overlap and conflict with other sources of critical mass to generate clear results and maximize learning. financing and maximizing efficiency. For example, the fluctuations do not always seem to mirror a quest for potential "success areas." Clusters that experience Countrycapacity,internalagencyresources,andabsorptive problems at a given time are observed to shrink, but that capacity to undertake climate change efforts also play a role change is not necessarily accompanied by growth of the in the need for GEF incremental support. The extent of clusters that are perceived to be relatively successful. willingness for sector reform also influences opportunities 20 GEF Climate Change Program Study 2004 for progress in countries. Strategic partnership efforts within of GEF support. Uganda, for example, a country the GEF family has, at times, also shaped involvement in a with relatively high official development assistance, specific country and sector. has received allocations of US$32.53 million, yet has annual emissions of only 1.5 megatons. In other Within this context, there are some clear patterns in the cases, such as for Sri Lanka, the portfolio has been regional and country distribution of GEF climate change driven by partnership approaches that were supposed projects, as shown in Table 3.3.78 to be models for testing practices so that they could be replicated in other countries with a more efficient · In general, the regions and countries with the use of resources. There may be good reasons for GEF highest aggregate levels of GHG emissions not having a significant portfolio in some countries. receive more GEF projects and higher Equally, it may be attractive for GEF to concentrate allocations. The Asian region has received the resources in particular countries where innovative most; Sub-Saharan Africa the least. The exception and comprehensive approaches might be piloted for is Eastern Europe and Central Asia, which is the replication elsewhere. Nevertheless, it is apparent that second-highest region in terms of regional CO2 GEF allocations in medium-and low-emitting GHG emissions, but has received proportionately less GEF countries do not, in general, reveal any evidence of funds. However, the portfolio there is relatively young, strategic choice. and several of the European countries are UNFCCC Annex I parties. · There are notable variations in programmatic focus within countries. For the GEF to capture · In Asia, China and India together are responsible the opportunities for climate change mitigation and for 78 percent of the region's emissions (excluding maximize the likelihood for replication, its projects Japan) and they receive 70 percent of GEF's funds for the region. The countries within each region with the highest total CO2 emissions are among the TABLE 3.4 COUNTRIES WITH ARGEST LLOCATIONS OF L A top 10 recipients of GEF grants, although there is GEF CLIMATE CHANGE FUNDS, 1991­2004 not always a direct correlation between a country's TOTAL GEF rank in emissions and its funding. For example, in the FUNDS APPROVED (US$ TOTAL CO2 Eastern Europe and Central Asia region, Russia is RANK COUNTRY ALLOCATIONS MILLION ) MEGATON the largest GHG emitter, but Poland has received the (US$ TOTAL EMISSIONS most funds (28 percent of regional total) and projects. MILLION ) INCLUDING (2000) Another example is in Africa, where South Africa PIPELINE 1. China 312.16 438.21 2,790.5 contributes 78 percent of regional emissions, but has 2. India 129.61 134.84 1,070.9 receivedonly 7 percentof theregion's GEF resources. 3. Mexico 117.08 173.48 424.0 It should be borne in mind that the need for GEF 4. Brazil 82.31 93.81 307.5 funds is also affected by the country's own capacity 5. Philippines 63.75 66.88 77.5 for implementing mitigation projects. GEF is also not 6. Poland 54.39 68.19 301.3 particularly active in the high-emission countries in 7. Morocco 47.76 47.76 36.5 the Middle East. In countries such as Saudi Arabia 8. Uganda 32.53 32.53 1.5 and Nigeria, emissions are largely oil and gas related, 9. Tunisia 28.66 29.66 18.4 sectors that have not been supported by the GEF 10. Indonesia 27.74 29.74 269.6 since the end of the Pilot Phase. 11. Thailand 19.71 19.71 198.6 · There are wide discrepancies around 12. Cuba 19.08 19.08 30.9 allocations to medium- and low-emitting 13. Croatia 18.47 18.47 19.6 countries. Aside from the high-priority emission 14. Vietnam 17.41 39.66 57.5 countries, GEF allocations are not correlated in any 15. Sri Lanka 15.64 16.39 10.2 obvious way withcountry emission levelsrepresenting 16. Chile 15.55 15.55 59.5 potentialglobalenvironmentalbenefits.This is shown 17. Peru 15.24 15.24 29.5 in Table 3.4. Countries' GHG emission levels might 18. Lithuania 13.95 13.95 11.9 differbyafactorof 1,000,buttheymayreceivesimilar 19. Romania 12.31 12.64 86.3 levels of GEF funding or projects. At the same time, 20. Russian 12.18 37.18 1,435.1 a few low-emission countries have received high levels Federation Chapter 3 - GEF Portfolio Overview 21 - - ) US$ NOT AP OTALT GEF ALLOCA MILLION FUNDS $172.08 $0.26 $12.02 $159.80 $823.54 $438.21 $134.84 $29.74 $19.71 $0.92 $18.93 $11.22 $169.96 $242.48 $37.18 $5.33 $68.19 $0.00 $9.02 $6.25 $116.50 TIONS (INCLUDES BUT YET PROVED EARMARKED - . OTALT GEF AP US$ PROVED ALLOC MILLION $126.01 $0.26 $2.67 $123.08 $631.77 $312.16 $129.61 $27.74 $19.71 $0.92 $11.93 $7.72 $121.97 $168.07 $12.18 $2.08 $54.39 $0.00 $3.42 $6.25 $89.75 OF , OTAL 0 3 2 3 0 1 1 6 1 8 0 1 2 T ACTIVE AND 32 29 60 21 12 20 41 23 NUBER CLOSED FUTURE GEF APPROVED PROJECTS ROJECTS , P FOR AND OTALT GEF US$ FUNDS CLOSED FUTURE $106.44 $0.00 $2.05 $104.39 $613.16 $308.21 $126.11 $27.41 $19.43 $0.00 $11.33 $7.00 $113.67 $160.19 $11.61 $2.06 $54.39 $0.00 $3.16 $6.25 $82.73 ACTIVE APPROVED PROJECTS MILLION HANGEC RE EE 3 0 0 3 20 10 2 0 2 0 1 0 5 21 2 1 4 0 0 2 12 TE ACTIVE NUMBER AND , FUTURE EE LIMA OTAL APPROVED PROJECTS 22 0 3 19 29 6 6 1 1 0 1 0 14 15 1 0 2 0 1 0 11 C T AND RE OF CLOSED GEF RE AND FUNDS US$ EE $6.42 $0.00 $0.00 $6.4 $208.82 $152.05 $12.03 $0.00 $12.60 $0.00 $7.30 $0.00 $24.8 $82.12 $4.38 $2.03 $21.68 $0.00 $0.00 $6.25 $47.78 AND GEF ACTIVE APPROVED WITH EE , MILLION OTALT FOR RE CLOSED FUTURE PROJECTS $85.68 $0.00 $1.76 $83.9 $330.34 $109.86 $98.61 $24.30 $6.83 $0.77 $4.03 $0.00 $85.9 $45.27 $0.73 $0.00 $6.38 $0.00 $2.90 $0.00 $35.26 TRIES OUN # 90 1 1 88 45 1 2 2 2 1 1 2 34 26 0 0 0 0 0 0 26 C GEF CLIMATE IN ENABLING OTALT ACTIVITIES US$ $7.5 APPROVED CHANGE M $17.42 $0.26 $0.32 $16.8 $16.25 $3.60 $3.50 $0.33 $0.29 $0.15 $0.47 $0.37 $6.47 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $6.47 MISSIONSE or 2 GNI CAPTIA US$ 2000 less $470.0 $260.0 $755 $441.7 $699.0 CO PER $3,018.7 $348.2 $826.8 $841.9 $451.6 $569.9 $2,003.3 $3,382.0 $1,966.6 $2.059.7 $1,655.2 $4,180.9 $3,100.0 $1,261.7 $5,203.9 $1,749.1 AND, GNI US$ 2000 $32.7 na $78.8 $61.0 $34.6 $18.8 $53.6 BILLIONS $310.0 $129.2 $148.1 $2,557.0 $1,062.9 $458.8 $119.9 $121.6 $654.0 $959.4 $241.0 $161.8 $202.1 $247.5 INCOME - OPULA TION P 2000 658.2 126.9 42.8 488.5 210.4 60.7 22.3 23.3 138.1 429.6 465.8 145.6 49.5 38.7 65.3 14.9 10.3 141.5 BILLIONS 3,162.8 1,262.5 1,015.9 TIONALA N 2 - CO MISE SION PER CAPITA 11.5 4.1 METRIC TONS 2000 0.7 0.3 7.6 0.2 1.6 2.2 1.1 1.3 3.3 8.5 6.2 0.8 0.5 6.8 9.9 6.9 7.8 3.3 8.1 ROSS G, 2 O OTALT C MISSION 36.1 E MILLION METRIC TONS 2000 475.3 327.3 111.9 4,968.6 2,790.5 1,070.9 269.6 198.6 188.9 144.4 104.8 200.9 3,166.4 1,435.1 342.8 301.3 221.6 121.3 118.8 625.5 TION lic OPULAP OUNTRY Africa C Africa Sub Africa* ed.F 3.3 otalT DPR of y ECA*** Saharan Nigeria South estR Saharan otalT China India Indonesia hailandT eaorK ysia Asia** Mala akistanP of otalT ke ussianR Ukraine olandP urT azakhstanK pubeRhec Cz of EGION ABLE R Sub T Asia estR ECA estR 22 GEF Climate Change Program Study 2004 - - ) US$ NOT AP OTALT GEF ALLOCA MILLION FUNDS $406.48 $173.48 $93.81 $1.60 $11.99 $125.59 $169.8 $0.35 $8.39 $67.65 $93.41 TIONS (INCLUDES BUT YET PROVED EARMARKED - . OTALT GEF AP US$ PROVED ALLOC MILLION $307.78 $117.08 $82.31 $0.35 $11.99 $96.04 $105.01 $0.35 $3.59 $9.45 $91.62 OF , OTAL 8 5 0 2 0 2 2 T ACTIVE AND 36 21 16 12 NUBER CLOSED FUTURE GEF APPROVED PROJECTS , FOR AND OTALT GEF US$ FUNDS CLOSED FUTURE $289.95 $116.77 $79.96 $0.00 $10.85 $82.36 $97.21 $0.00 $2.75 $7.26 $87.21 ACTIVE APPROVED PROJECTS MILLION RE EE 8 1 1 0 1 5 6 0 0 0 6 ACTIVE NUMBER AND , FUTURE EE OTALT AND APPROVED PROJECTS RE 23 5 3 0 1 14 5 0 0 0 5 OF CLOSED RE AND FUNDS US$ EE $40.24 $10.00 $15.00 $0.00 $0.74 $14.50 $22.01 $0.00 $0.00 $0.00 $22.01 AND GEF ACTIVE EE , APPROVED MILLION OTALT FOR RE CLOSED FUTURE PROJECTS $209.61 $95.26 $52.34 $0.00 $10.12 $51.89 $64.14 $0.00 $0.00 $0.00 $64.14 available. not # 59 1 1 1 1 55 24 1 2 2 19 2000 GEF CLIMATE ENABLING for OTALT ACTIVITIES US$ APPROVED CHANGE M $14.60 $0.31 $1.50 $0.35 $1.14 $11.30 $5.34 $0.35 $0.45 $0.45 $4.09 Principe 2000. and for GNI CAPTIA US$ 2000 oméT PER $3,670.0 $5,071.4 $3,580.4 $4,301.7 $7,464.9 $2,327.5 $2,090.0 $7,230.0 $1,675.0 $1,490.6 $1,925.2 São available and not 2000. GNI US$ 2000 $95.4 for BILLIONS $1,895.0 $497.0 $610.1 $104.1 $276.2 $407.6 $618.0 $149.9 $106.7 $266.0 Liberia, Myanmar - DR, 2000. and available for OPULA TION P 2000 516.0 98.0 170.4 24.2 37.0 186.4 295.3 20.7 63.7 64.0 146.9 2004. DPR not 2000. BILLIONS Congo for WDI for 2 - Korea available not CO MIS GNI E SION PER CAPITA 18.1 4.9 2.2 2.7 data: METRIC TONS 2000 2.7 4.3 1.8 6.5 3.7 1.8 4.1 and Palau, Montenegro available for and UAE not 2 O emissions and OTALT C MISSION GNI E MILLION METRIC TONS 2000 1,357.4 424.0 307.5 157.7 138.2 330.0 1,227.2 374.3 310.3 142.2 400.4 Somalia, and Serbia and Oman GNI uvalu,T for Dominica GNI and ^ and Libya, OUNTRYC A Lesotho and C**** Cuba Niue otalT xico gentina LA otalT Arabia for MEN population, for Bahrain, Me Brazil Ar of A ypt Saudi Iran Eg of of for GNI for EGION C enezuelaV R LA estR MEN estR Emissions* Data Population Source ** *** **** ^ GNI Chapter 3 - GEF Portfolio Overview 23 need to address potential for impact as well as major for implementation by Executing Agencies or by more than climate change mitigation needs and priorities that one IA, representing allocations of US$61.21 million. The reflect local circumstances. As countries become full list of climate change projects is included in Annex B of more industrialized and their gross national income this report. (GNI) increases, energy consumption also grows and projects focusing on energy efficiency increase Enabling activities (EAs) include both assistance to in priority. In general, the portfolio reflects this. The countries to prepare national communications and any African region, with its lower levels of development additional financing for capacity building in priority areas. and energy consumption, mainly includes renewable This category also includes some full-sized and medium- energy projects such as PV (which has low mitigation sized EAs that mostly address adaptation. In addition, two potential), while Eastern Europe has a large energy global EAs have been approved for implementation by more efficiency portfolio (84 percent of regional resource than one IA, representing an allocation of US$60.64 million allocations).However,withincountriestherearesome for climate change national communications and support.80 anomalies, partly as a result of the evolutionary and project-by-project nature of GEF programming. For For all three agencies, the average GEF grant is higher example, although South Africa is a highly energy- for ongoing than for closed projects (closed average grants intensive economy, it does not have an EE portfolio. ranged from US$0.72 million for UNEP, US$3.1 million for UNDP, and US$7.97 million for the World Bank). Projects The Third GEF Replenishment made policy have tended to increase in size and complexity; this trend recommendations for effective and transparent allocation of would be further accentuated when counting increasing GEFresourcestocountriesthatwouldusethembesttodeliver cofinancingdemands.However,smallerprojectscloseearlier, global environment benefits, and the Beijing Declaration while some large projects approved in the GEF Pilot Phase asked for "strategic business planning for allocating scarce are still ongoing. GEF resources..., with a view to maximizing the impact of these resources on global environmental improvements." The distribution of different kinds of projects undertaken The patterns above point to possible areas of improvement by the GEF IAs is illustrated in Figure 3.8. The World Bank in the pursuit of such impacts, which are discussed in the undertakes the majority of projects involving financial next chapter. intermediaries for energy efficiency, often through the International Finance Corporation (IFC). UNDP is active in energy efficiency in the public sector, with a large portfolio 3.5 GEF ALLOCATIONS AND in Eastern Europe of projects focusing on municipal heating, IMPLEMENTING AGENCIES lighting, and hot water (EE buildings). It is also most active in OP11withitsfuel-cellbus(FCB)program.Forthemainpart, however, IAs work in similar areas and clusters, although From the outset, the three IAs were designated to play their strategies and approaches often differ based on their different roles in project development and management: organizational strengths (see chapter 4 on performance and the World Bank's primary role would be in investment results). projects and in mobilizing the private sector, whereas UNDP would focus on capacity building and technical assistance. UNEP would contribute with its expertise in scientific and TABLE 3.5 APPROVED PROJECTS IMPLEMENTING BY technical analysis.79 Although the mandate and roles of AGENCY these organizations have evolved considerably since 1991, PROJECT UNDP UNEP WORLD BANK their climate change involvement still reflects these perceived TYPES # M US$ # M US$ # M US$ comparative advantages. Full-sized 67 $325.37 4 $16.85 66 $896.40 TheUNDPisimplementingthemostGEFclimatechange Medium 23 $18.01 5 $4.37 11 $7.72 sized projects,buttheWorldBankhasreceivedthelargestfinancial allocation (see Table 3.5). UNEP accounts for 3 percent of STRMs 11 $44.04 0 $0.00 11 $56.38 approved resources, most of which are for global projects Enabling 209 $81.44 51 $27.41 7 $13.95 Activity involving research support for GEF issues or promoting networking and learning. In addition to projects featured in PDFs 37 $6.34 12 $2.58 13 $4.18 the table, nine projects and two PDFs have been approved Total 347 $475.20 72 $51.21 108 $978.63 24 GEF Climate Change Program Study 2004 FIGURE 3.8 CLUSTER DISTRIBUTION PER IA the Work Program. A more systematic management of the relatively large group of future projects would increase 100% efficiency and liberate resources for priority activities. The intent of the GEF is that as projects progress further down 80% the preparation path, the chances of their being rejected drastically declines. 60% The portfolio of possible future activities presented in 40% Table 3.6 includes those that have been approved by the GEF Council but have not yet started, PDFs, and amounts 20% earmarked for the subsequent projects, as well as pipeline, pre-pipeline, deferred, and pending projects.83 0% RE/ruraleneE/productivREproduct/market rgy euse EE/buildingsEE/industryoduct/marketEEfinanceTransport TABLE 3.6 GEF FUTURE CLIMATE CHANGE PROJECTS BY TATUS84 S TOTAL GEF R EEpr ALLOCATIONS PROJECTSTATUS NUMBER AND UNDP UNEP World Bank OF EARMARKINGS PROJECTS (US$ MILLION) Sincethe1999introductionof theExpandedOpportunities CEO endorsed/approved scheme, seven Executing Agencies81 have received Council (not started yet) 40 465.34 approval to participate directly in GEF activities, of which PDF A, B, and C 64 280.80 the Asian Development Bank (ADB) and the Inter-American Other (pipeline/pre-pipeline/deferred) 31 110.40 Development Bank (IADB) have direct access to GEF Pending 27 189.33 funds for full- and medium-sized projects.82 However, the TOTAL 162 1,045.87 opportunity of tapping additional agency expertise has not yet become significant in the climate change focal area. A reviewof theGEFprojectdatabaseshowsthatof 106projects Among the projects that are endorsed, some are about put forward by these new agencies, only 19 (18 percent) are to start and others are awaiting fulfilment of necessary within climate change. Of these, 11 have been withdrawn, conditions (several OP7 solar thermal and OP11 fuel cell not recommended, or are pending. Only three projects have bus projects). The majority (21 of 40) are renewable energy been approved or endorsed by the GEF Chief Executive projects. Of these, three projects aim to develop wind energy Officer (CEO endorsed): Wind Power with UNDP/ADB markets, though the majority promote mixed technologies and Efficient Utilization of Agricultural Wastes with World (microhydro, demonstration of stand-alone renewable Bank/ADB, both in China, and Poland Energy Efficiency energy technologies (RETs) or diesel/hybrid RETs in mini- in Public Buildings with World Bank/European Bank for grid situations, with components to support PV systems in Reconstruction and Development. general). Often, these projects also include components for addressing legal and regulatory barriers. 3.6 LOOKING TOWARD THE UTURE F Project Development Facilities (PDFs) allow for concept Proactive future planning for the climate change portfolio and proposal development, project appraisal, or technical is difficult. While the IAs generally have some sense of design and feasibility work for large projects. They receive coming projects, the GEF Secretariat does not have a relatively limited resources (US$13.68 million).85 However, thorough knowledge of what may emerge from the country the potential investment they represent is not insignificant: level. Future projects are only registered by the GEF US$267.12 million, amounting to a total allocation of Secretariat once they officially enter the GEF pipeline. The US$280.8million.Themajorityof PDFsfocusonrenewable GEF Secretariat is currently undertaking a much needed energy(seeFigure3.9).Thecategoryof PDF-Aisdominated review of available pipeline data, eliminating pre-pipeline by OP11 projects, several of which concern the SP6 of projects and clarifying the status of pending projects. It is modal shift to climate-friendly transport. If the PDF-Bs thus likely that a number of such projects in the pre-pipeline lead to full projects, the OP6 portfolio would contain more will be dropped or withdrawn before they officially enter projects promoting a range of technologies, including PV, Chapter 3 - GEF Portfolio Overview 25 mini-grids and off-grid, with a focus on electricity access and the program countries. On the other hand, a more dynamic energy reform. The PDFs within OP5 are focused mainly andbrief projectdevelopmentprocesswouldallowprogram on industry and public sector energy efficiency, and less on countries to incorporate emerging lessons and priorities in financial intermediaries or municipal heating. a timely manner. FIGURE 3.9 FUTURE ALLOCATIONS FROM PDFS Giventhetimenecessaryforprojectpreparation,projects Total:US$280.8 million (including earmarkings and PDF amounts) are expected to fully reflect the new Strategic Priorities of 2003 only from 2004 onward. Will these priorities bring $4M OP11 $4M STRMs about a tighter portfolio than what has been the case so 1% 1% $66M OP7 $40M OP5 far? It remains unclear how to treat the obvious overlap 24% 14% of Strategic Priorities in overall market transformation and barrier removal. This has operational implications. For example, potential projects that address both market transformation and increasing access to finance may have a harder time in receiving allocations of GEF funds $167M OP6 60% depending on what category they are put into. Only 17 percent of the approved projects since November 2002 show mixed Strategic Priorities, and only 7 percent aim for The PDFs are intended as tools for project design and markettransformation(SP1).NordotheStrategicPriorities preparation. Of the 206 projects approved so far, about 25 serve to actually prioritize the portfolio, as virtually all percent can directly be traced back to a PDF. Not all PDFs "old" types of projects still fit under one or more priority, culminate in projects; historically, climate change PDFs especially under SP2 and SP3. The category of productive resulting in projects indicate rates of 34 percent for PDF-A uses (SP4) is of an exploratory nature, with 17 percent and 49 percent for PDF-B and Cs. A more in-depth field of the 53 projects approved since November 2002. So analysis would be necessary to ascertain the determining far, it includes projects promoting microhydro, wind, and factors.86 biomass, as well as solar energy projects that are prevalent in the past portfolio. The question of the affordability of The GEF portfolio is shaped, in many respects, from renewable energy remains. the bottom up. Guidance and overall strategic direction from the GEF Council, GEF Secretariat, or the IAs have The above overview of the GEF climate change ripple effects for the GEF programming partners. On the portfolio provides insights into its evolution, scale, scope, one hand, the challenges in turning and redirecting GEF and focus. We turn now to an evaluation of its impact and programming reflect stability in pipeline commitments to performance. 26 GEF Climate Change Program Study 2004 4. Overall Results And Performance This chapter evaluates overall GEF Climate Change removal of barriers for market transformation, not simply Program results and performance. First, it calculates the in direct GHG reduction. The GEF Operational Strategy impactof GEFprojectsintermsof reducedoravoidedGHG (1995) states that "removing a barrier must promote emissions. Second, the chapter presents overall outcomes sustainability; it does not mean merely subsidizing a few in terms of barrier removal and market transformation projects so that they can surmount a barrier while leaving for sustainable energy technologies and programs that it in place," implying that GEF should not seek immediate lead to GHG reduction and avoidance. Third, the overall project impact to the detriment of long-term mitigation performance of the portfolio is evaluated by analyzing the effects. Working Group I of the IPCC has emphasized that range of strategies employed by GEF projects. Last, the it is the cumulative effect of emissions over time, rather than chapter assesses the overall strategic response, positioning, when emissions take place, that determines the impact of and effectiveness of the GEF Climate Change Program. GHGs on climate. 4.1 KEY RESULTS: GREENHOUSE GAS This study is sensitive to the above arguments that GEF's IMPACT impact is primarily catalytic and long term. Nevertheless, manyGEFprojectsteststrategiesthathavebothdirectGHG emissions reduction effects and more indirect long-term 4.1.1 BACKGROUND AND PPROACH A effects. Although these achievements do not form part of UNFCCCcommitments,theyrepresentglobalenvironmental benefits. The primary purpose of the analysis in this section Theobjectiveof theUNFCCCisthestabilizationof GHG is to provide a sense of what program strategies and target concentrations in the atmosphere at a level that will prevent areas have the potential to yield greater impact within the dangerous anthropogenic interference with the climate portfolio. The cumulative and absolute values of emissions system. As the financial mechanism of the Convention, the are less relevant, given the mixed expectations of different GEF provides new concessional funding to eligible countries project types and the concerns above. The key question is to meet incremental costs of projects to achieve agreed how the GEF can maximize its comparative advantage of global environmental benefits in climate change. After more catalytic, innovative, and incremental support in ways that than a decade in operation, it is thus reasonable to assess the change markets to more climate-friendly behaviors. GEF portfolio in terms of its GHG impact. The study analyzed actual GHG reductions for 43 closed The GEF supports some STRMs whose main goal is to climate change projects and targeted GHG emissions for reduce GHGs in the short term; however, this kind of GEF 124 active projects. It applied an evolving GHG impact support remains limited. The GEF is mandated to support measurement methodology, initiated within the GEF capacitybuilding,demonstration,andmarkettransformation Secretariat in 2003, and currently under refinement by the projects, and these activities are not necessarily expected to GEF Climate Change Task Force, in consultation with the generate immediate effects on GHG emissions. The GEF's IAs. The methodology also reflects guidance given by the main potential impact is its contribution to catalyzing the GEF Council in May 2003. The project impact aggregates sustainable transformation of markets and programs such are measured in metric tons of CO2 equivalents, and consist that GHG emissions are reduced or avoided in the long of both direct and indirect reduced or avoided emissions. term. The rationale for GEF support lies in innovation and "Direct reduction" is defined as tangible CO2 reductions Chapter 4 - Overall Results and Performance 27 directly attributable to specific project activities and the GHGimpacthasbeenanalyzedfor27of theclosedprojects, lifetime of technology promoted by the project, while for which CO2 estimations were available in the project "indirect reduction" is the estimated replication effect document and final evaluation. These projects fall within catalyzed by the GEF intervention. The assessment has four areas: STRMs on carbon reduction, sequestration, applied a conservative approach to estimates; replication and fugitive emissions; energy efficiency (OP5); geothermal had to show a credible link to GEF support. The assessment exploration; and other renewable energy projects (OP6).88 is also based on standard assumptions on project duration, replication ratios for different project clusters, and lifetime CertainprojectsdidnotcontainGHGtargets(16projects). (that is, tangible, cumulative effects from project activities Many of these did not aim for direct GHG reductions; they during project implementation and past the project closing, were concerned with other types of results such as capacity for a planning horizon of 10­20 years). Data sources include building, research or studies, establishing information consultations with stakeholders, project documents, mid- networks,ortheyidentifiedandpromotednewsubprojectsor termreviews,projectimplementationreports,datafromfield modalitiesthatwouldlaterreduceemissionsif implemented. visits, and final evaluations where available. Ideally, detailed Six were global projects. Nevertheless, although not a design post-projectevaluationswouldbeneededtoaccuratelyverify requirement at that time, GHG estimates could have been concrete achievements.87 possible for an additional seven projects with mitigation-type activities. At the early stage in the GEF portfolio, data estimates and planning for GHG avoidance could be considered Althoughseveralof theclosedprojects(14)appearunlikely experimental in nature. The analysis shows that (a) many to meet their intended lifetime reductions, this is mostly projects lacked GHG targets altogether; (b) GHG emission due to inflated targeting rather than poor project design calculation methodologies lacked consistency; (c) initial or execution. In fact, several projects that fell short of their reduction or avoidance targets were generally too optimistic; intended targets have achieved notable GHG reductions at a and (d) a systematic connection was lacking between lowcost.Furthermore,fourprojectsachievedCO2reductions project design and impact evaluation (several projects did in the absence of any explicit GHG targeting. At least two not estimate GHG targets, but obtained impacts anyway; of these are considered quite successful: Energy Services some projects had targets, but evaluations failed to report Delivery (ESD) in Sri Lanka (World Bank) and the Hungary on attainment). Fortunately, the situation improves for Energy Efficiency Co-Financing Program (HEECP; IFC, projects under implementation. Because of the variation phase 1). It is thus more relevant to focus on the actual and in data availability and inconsistent assumptions in existing projected achievements than on target compliance of these project documentation, a number of data gaps were filled early GEF projects. with conservative assumptions, or were excluded from the calculation if a best guess could not be exercised with In terms of impact, a total GEF allocation of US$194 reasonable accuracy. While recognizing the limitations in million (for 27 projects with CO2 estimates, US$236 million measuring all GHGs, all methane and carbon figures were for all 43 closed projects) is projected to result in a total converted to CO2 equivalents using IPCC guidance, as the direct and indirect lifetime CO2 reduction of 224 million most feasible metric term currently available. Indirect and/ tons (see Figure 4.1). Installed capacity, technology life, and or direct contribution was at times extracted from a given other tangible project outputs average roughly 14 years, well total CO2 reduction estimate if found appropriate. Details beyond a typical project duration, although some lifetime on the CO2 assessment approach used and discussion on impacts occur over a 25-year horizon. data gaps are available in Annex A. The direct lifetime reduction alone will amount to 97 4.1.2 GREENHOUSE GAS IMPACT OF CLOSED million tons of CO2, assuming continuation of post-project PROJECTS activities that are directly attributable to GEF interventions. Last, if all 43 projects had reported on CO2 performance, the total contribution to CO2 reduction made by GEF As of April 2004, only 43 full- and medium-size projects allocations would likely be significantly higher. and STRMs had been completed. The majority of these (53 percent, 23 projects) were launched in the GEF Pilot Because of the different nature of various project clusters Phase from 1991­94, and as such the closed portfolio is withintheGEFclimatechangeportfolio,projectperformance more oriented toward technology demonstration and does is best assessed for similar projects, not across the entire not mirror the nature of the current and mature portfolio. portfolio. As seen in Figure 4.2 on CO2 reduction by project 28 GEF Climate Change Program Study 2004 FIGURE 4.1 CO2 REDUCTIONS FOR LOSED C cluster, carbon sequestration initiatives are responsible for PROJECTS* almost a third of the total, which is to be expected because these were STRMs intended to provide immediate and positive GHG effects.89 The two geothermal projects in the 300 portfolio also performed well in GHG emissions avoidance, and together were responsible for more than a quarter of 250 Including replication: total CO2 reductions (the Philippines and Lithuania, both 224 million tons World Bank). 2200 Energy efficiency (EE) interventions were not abundant CO in the early GEF period. The closed EE projects show tons 150 limited GHG effects, but this trend is reversed for active Direct impact: EE projects. Encouragingly, a recent World Bank Post 97 million tons Millions 100 Implementation Impact Assessment of the Poland Efficient Lighting Project (PELP) found that the estimated direct CO2 50 reduction attributed to the project is 3.62 million tons of CO2, a substantially higher figure than the 2.79 million tons 0 estimated by the final evaluation in 1999. The difference is essentially due to a larger than originally estimated market GEF Allocation: US$194 million (US$236 million saturation level for compact fluorescent lamps (CFLs) in for all 43 closed projects in the portfolio) Poland.90 Three varied and ambitious projects, atypical of the * For 27 closed projects having CO2 avoidance estimates (one of these overall GEF portfolio and located in three strikingly eliminated due to uncertainity of large estimate). different investment environments, account for almost two-thirds of all CO2 reductions from closed projects. A carbon reduction effort in China that aimed to rehabilitate a natural gas network (World Bank/UNDP) and a community woodlands sequestration initiative in Benin (UNDP) have secured notable GHG achievements as presented in their FIGURE 4.2 PROJECTEDTOTAL LIFETIME CO2 final evaluations. The closed project with the highest REDUCTION FROM CLOSED PROJECTS CLUSTER* BY GHG impact is a high-profile World Bank initiative in the (LARGE PROJECTS EXTRACTED ) Philippines that has established a large geothermal plant. As far as GHG impact is concerned, large infrastructure improvements funded by the GEF may seem to have Energy efficiency China: Sichuan (46m tons, 12 natural gas excellent results, but the achievement is less impressive projects) rehabilitation (32m tons) when counting the large total financial investment needed or the lack of market transformation and barrier removal Renewables with broader replication effects. Adding cofinancing to the (34m tons, assessment changes the picture dramatically; for example, 9 projects) 224 million tons Benin: CO2 Woodlands GEF provided US$31 million of the US$1.3 billion cost of sequestration the Philippines Leyte-Luzon geothermal plant. For all 27 (49m tons) closed projects, the US$194 million in GEF allocations was matched by US$1.96 billion in cofinancing from IAs, for a Carbon reduction/ combined total of US$2.15 billion. Lithuania: Klaipeda sequestration and geothermal Philippines: Leyte- fugitive emissions (3m tons) Luzon geothermal (3m tons, 2 projects) Not counting the STRMs and geothermal projects, (58m tons) renewableenergyprojectsutilized43percentof theresources of the closed projects in the set and produced roughly 15 * For 27 closed projects having CO2avoidance data estimates, plus percent of the GHG emissions avoidance, that is, 34 million replication. tons. Twelve energy efficiency projects produced 21 percent Chapter 4 - Overall Results and Performance 29 of the GHG reduction or avoidance, with 25 percent of the Cluster-level intended results. From Figure 4.4 resources (US$49 million). below, it is apparent that GEF anticipates greater GHG performance from EE projects than from any other cluster. 4.1.3 GREENHOUSE GAS IMPACT TARGETS Roughly 40 percent of the financial allocation for active projects has been distributed among 40 EE initiatives that FOR CTIVE ROJECTS A P are projected to account for two-thirds of the total lifetime reductionsof 1.7billiontonsof CO2.Aswithclosedprojects, Over the past years, the GEF climate change portfolio has a large infrastructure or industrial project can account for grown dramatically with 124 full- and medium-size projects much of the total anticipated savings. Here, half of the currently being implemented, backed by US$730 million in emission reductions of the EE cluster are contributed by the GEF funding. This outlay is collectively intended to enable World Bank China Efficient Industrial Boilers project. The more than 1.7 billion tons of carbon dioxide avoidance over OP on EE also includes interventions focusing on market 10­30years,dependingonindividualprojectandreplication transformation for energy-efficient consumer products assumptions. and appliances and financial intermediaries, which have historically been cost-effective routes to GHG reductions. When compared with the set of closed projects, the active projects have improved GHG estimates and underlying The renewable energy project cluster contains the assumptions in project design. Not counting projects without largest number of projects (48), with a slightly larger share intendedGHGeffects,theanalysisencompasses104ongoing of the financial allocation pie than EE, yet with a third projects with CO2 estimates in project documentation. of the aggregated anticipated GHG impact. RE (OP6) The aggregate estimated direct impact amounts to around projects account for 44 percent of GEF funding but will 430 million tons CO2 avoided and 1.7 billion tons with likely generate only a quarter of future intended CO2 replication--a replication factor of almost four. See Figure reduction. Although RE projects may be relatively low in 4.3 below. GHG performance at this stage, they play an important role in helping countries deliver local and global benefits by diversifying national energy mixes, raising public awareness of clean energy, laying the groundwork for future possible FIGURE 4.3 PROJECTED CO2 REDUCTIONS FOR CTIVE A economies of scale, growing competitive niche markets, and PROJECTS* helping commit governments to cleaner energy paths. These variables cannot be adequately captured in any CO2 impact study. 2000 Including replication: 1800 1.7 billion tons FIGURE 4.4 PROJECTEDTOTAL LIFETIME CO2 REDUCTION FOR CTIVE ROJECTS A P 1600 (104 PROJECTS WITH ESTIMATES BY CLUSTER ) 1400 2 CO 1200 Energy efficiency: tons 1000 Carbon reduction/ products Energy efficiency: industrial sequestration & & markets products (China boilers: 637 million tons) Millions 800 fugitive emissions 600 Direct impact: 430 million tons Alternative 1.7 billion tons 400 transport Renewables: 200 urban Energy Renewables: rural efficiency: 0 products & Renewables: services Total GEF investment: US$605 million Energy Renewables: products & (US$730 million for all 124 active projects efficiency: products & markets in the portfolio) financial markets Geothermal intermediaries * For 104 projects having CO2 estimates. 30 GEF Climate Change Program Study 2004 FIGURE 4.5 INTENDED CO2 REDUCTIONS PER OLLAR OF D GEF ALLOCATION (104 ACTIVE PROJECTS ) $1,000.00 $100.00 $10.00 ton 2 CO per $1.00 GEF$ $0.10 $0.01 0.00 0.01 0.10 1.0 10.00 100.00 1000.00 Megatons of CO2 Transport Carbon red/seq Energy efficiency Renewables Trends are also emerging for other groups of projects. Energy efficiency projects are anticipated to produce STRMs under implementation--carbon reduction/ relativelyhigherresultsintermsof bothtonsof CO2andGEF sequestration--are projected to continue to perform well, cost, although the GEF portfolio also includes a handful of albeit with smaller-scale initiatives than closed carbon potentially high-impact, cost-effective RE projects. Even so, reduction projects. Geothermal exploration makes a small few active projects (roughly a quarter) cost more than US$10 showing with only two modest interventions in the active per ton of carbon (or US$2.73/ton CO2). While this cutoff set of projects, despite the successful GHG performance of point only applies to STRMs, the GEF long-term barrier the completed Leyte-Luzon plant in the Philippines. The climate-friendly transport cluster is heavily weighted by four FCB projects, in particular by the replication potential of the FCB project in China. BOX 4.1 NEARLY 75 PERCENT OF REDUCTIONS ARE FROM 12 PROJECTS, Project-level intended results. The intended GHG MOSTLY CHINAIN impacts vary widely across clusters, investment levels, country typology, and individual projects. For example, more than 1. China: Boilers (World Bank) half of the total lifetime CO2 reductions may be attributable 2. China: Methane from waste (UNDP) to just four projects in China; a third of the total comes 3. China: Commercialization of RE (UNDP) from a single project that is modernizing industrial boilers 4. China: Fridges (UNDP) throughoutChina.TheprojectswithhighestGHGavoidance 5. Brazil: EE (World Bank) expectations at project inception are listed in Box 4.1. 6. Cuba: Bagasse (UNDP) 7. Russia: Coal mine methane (UNDP) Aswiththeclosedprojects,thecorrelationbetweenthesize 8. China: Energy conservation (World Bank) of GEF project allocations and the intended GHG impact is 9. China: RE development (World Bank) uncertain. There is a wide range of costs and GHG benefits 10. India: EE in steel mills (UNDP) (see Figure 4.5). On the high-cost end (top left of Figure), 11. China: Beijing environment (World Bank) the projects are all renewable energy (PV projects in Peru, 12. China: Fuel-Cell buses (UNDP) Bolivia, Sudan ­ all UNDP; Lao PDR ­ World Bank). Chapter 4 - Overall Results and Performance 31 TABLE 4.1 GREENHOUSE GAS AND GEF INCREMENTAL assistance, the impact of GEF is manifest. It is also COST CLUSTER BY evident that STRMs deliver on their aim to provide CLUSTERS TOTAL CO2 GEF US$ GEF US$ GEF US$ significant GHG effects in the short term, and that MILLION MILLION PER TON PER TON EE is more effective overall in terms of GHG impact TONS CO2 CARBON than are GEF RE projects. Large-scale infrastructure Alternative or industrial projects, such as geothermal exploration, transport 45.08 40.59 0.90 3.30 mayhavelargeGHGeffects,buttheroleof GEFmay Carbon only be nominal and the sheer size of required funds reduction 80.25 46.45 0.58 2.12 deters replication. Energy efficiency 1,180.47 247.84 0.21 0.77 · The portfolio has suffered from mixed and Geothermal 9.24 6.38 0.69 2.53 unclear expectations on how to address Renewable energy 422.37 264.03 0.63 2.29 GHGs. In designing projects, promoters are faced Total 1,737.41 605.28 0.35 1.28 with meeting the barrier removal goals of the OPs, the Strategic Priorities, a plethora of performance indicators,plusexpectationsof directGHGreduction removal projects generally fall within this ceiling. Table 4.1 or avoidance. There is an obvious tradeoff between illustrates the GEF incremental cost per cluster or area: the immediate GHG impacts and long-term catalytic average for all active projects is US$0.35 per ton CO2, or market transformation, for which an overall GEF US$1.28 per ton of carbon in projected total avoidance. strategic direction would have been useful. These (If the potential replication effect is ignored, the costs are mixed expectations appear to have led to a tendency US$1.39 and US$5.10, respectively). EE projects are most to overestimate GHG at project design, linked to the cost-effective, with industrial EE and products yielding the complex incremental cost analysis of global benefits. best estimates. The most cost-effective active project, as per The GHG target setting for future projects has raised intended targets and costs, is the Tunisia Barrier Removal to expectations, but has not provided a clear message EncourageandSecureMarketTransformationandLabeling on the relative importance of different types of GEF of Refrigerators, a UNDP project with a GEF budget of projects such as capacity building. For projects that do about US$710,000. not aim at avoidance of GHG within the measurable time horizon, it is inappropriate to include GHG 4.1.4 KEY ISSUES goals in project design. The assessment of GHGs is a complex, and at times, · Given the great variety of types of projects, controversial field. This is especially the case--as with local situations, project goals, and GEF GEF--where projects cover a vast range of approaches investment,itisdifficulttoassesscostbenefits and situations that call for nuanced review methodologies. acrosstheGEFClimateChangeProgram.GEF The GEF, with its relatively young portfolio, and limited provides incremental costs for global environmental experience in GHG calculations for closed projects, is also benefits, and levels of IA or parallel financing vary still learning in this area. Yet, key findings emerge from the considerably. GEF funding constitutes only a part of impact analysis. the resources that underlie a result and should thus not be confused with full abatement costs. An analysis · The performance of the GEF portfolio overall of GEF financial contributions and CO2 reductions in avoiding GHG emissions is satisfactory. It may only indicate broad potential for carbon avoided has brought about considerable CO2 reductions, at emissions "per incremental GEF dollar," provided the relatively low overall cost. For closed projects, the introductory caveats and qualifications are heeded. figures for avoided emissions range from US$2/ton The marginal costs of abatement of CO2 vary greatly (directreductions)toUS$0.87/ton(directandindirect), betweencountriesandcircumstancesandcannotserve only factoring in GEF allocations. For active projects, as an easy measure for GEF portfolio performance. costs range from US$1.39/ton (direct) to US$0.35/ ton (direct and indirect), again only factoring in GEF · GHG data availability and quality in the GEF allocations.91 Because GEF support has covered the portfolio are far from adequate. Beyond the full incremental costs for the global benefits, which general weaknesses in GEF documentation and would likely not have been addressed without GEF data management systems, GHG measurement 32 GEF Climate Change Program Study 2004 is hampered by specific problems. Although the results, periodic reporting on GHG avoidance, data quality has improved in later years, there is quality standards of mid-term and final evaluations, considerableroomforfurtherimprovementtoaddress and conduct of select ex-post evaluations. Ultimately, lack of targets or estimates; unrealistic estimates, reduction or avoidance of GHGs depends on the especially for replication; and vague or unavailable achievement of substantive project results. data. The GEF has missed an opportunity to provide timely guidance on GHG potential that could save GEF cannot report accurately on the GHG impact of its time and effort for all parties involved in project portfolio unless the above matters are dealt with urgently. design and implementation. 4.2 KEY RESULTS OF · A coherent, pragmatic, and GEF-wide methodology on GHG estimates is urgently MARKET TRANSFORMATION needed. It has been discussed in the Climate Change Task Force for some time. This analysis points to the 4.2.1 BACKGROUND need for such guidance to be comprehensive (that is, to cover the range of technologies and clusters The notion of "market transformation" is central to the and the GHG reduction or avoidance calculation GEF climate change portfolio. The key to catalyzing impact methodsandfactorstobeused).Adviceisalsoneeded liesinbarrierremovalandreplicationthatpromotesustained on how to handle multistrategy projects, projects market transformation for energy efficiency and renewable with several technology components, and projects energy. without immediate GHG goals. Problems are also noted in the consistency of supporting assumptions, The 1995 GEF Operational Strategy designed OP5 and unclear time frames, and project duration. The OP6 "...to expand, facilitate, and aggregate the markets for provisional methodology has attempted to assign a the needed technologies and improve their management GEF causality factor to replication; more guidance and utilization, resulting in accelerated adoption and of credible replication would be more constructive diffusion." The first step in market aggregation for the than an inherently subjective causality attribution. long-term mitigation measures was removing barriers to Furthermore, the GEF project design process is not implementation of climate-friendly, commercially viable favorable to a consistent approach across different renewable or energy-efficient technologies. agencies, countries, project designers, clusters, and technologies. Any guidance should thus be When the GEF Council established new Strategic accompanied with appropriate dissemination and Priorities from 2003 onward, the primary priority was training tools. "Market transformation approaches that permanently shift the market equilibrium to a higher level of product · The systems and approaches to monitoring, or technology application, leading to sustained GHG reporting, and measurement of impact also reductions at relatively low program costs (SP1)... Market need improvements, for barrier removal, transformation projects typically do not require substantial market transformation, replication, and the capital spending but consist of capacity building, marketing effect on GHGs. Linked to overestimation of initial and awareness raising, standards and labeling programs, project targets, the analysis revealed that project mid- dealer incentives, and manufacturer technology transfer and term reviews tend to revise targets downward, and productdesign"(GEF/C.21/Inf.11).Thereport"Measuring final evaluations tend to report shortfalls in meeting Results from Climate Change Programs" (2002) sees those targets. However, not all evaluation reports market transformation as the "level of market penetration provided a satisfactory analysis of GHG avoidance, of sustainable technologies and practices in given country raising questions both on the underlying GHG markets." assessment framework and the ability of evaluators to assess these aspects. Yearly monitoring of progress This study finds that while the notion of market in GHG is not practicable, but more effort is needed transformation is intuitively applicable to the EE products on appropriate proxy indicators, especially to assess (in SP1), it is equally useful for the entire climate change removal of barriers, their catalytic effect, and market portfolio. Ultimately, the removal of a market barrier is transformation. An adequate review system could demonstrated by its effect on the market. However, the be based on yearly monitoring of progress toward level of market transformation that can be expected must Chapter 4 - Overall Results and Performance 33 be commensurate with the complexity of the market and market. Participating banks have reduced their collateral, the GEF resources involved. In general, a higher degree of downpayments, and equity requirements for certain types of markettransformationislikelywithinOP5;withinrenewable EE projects. Banks have improved their risk management, energy, the GEF is often trying to develop markets from a and some lend for demonstrated transaction models without much lower baseline. purchasing the GEF/IFC loan guarantee. Some climate change projects attempt to address market Other EE finance projects in the region, with slightly barriers directly through policy interventions or through different country circumstances (for example, Bulgaria and institutional capacity building or awareness raising. The Romania), are not so far along the transformation curve. In majority of projects also contain components with direct Hungary, it was possible to pursue market transformation investments in renewable energy or energy savings. These with a guarantee scheme; in Bulgaria the GEF/World projects aim, in the first instance, to have a direct effect Bank project includes both a partial credit guarantee and on GHG avoidance and thereby demonstrate successful direct loans for municipal EE investments; and in Romania strategies. Second, energy savings and GHG avoidance are the GEF/World Bank project is designed to provide loans also expected to be achieved through replication of similar directly. The different needs and project designs are in part initiatives. Finally, with sufficient replication, a sustainable explained by the different levels of liquidity and competition environmental impact is intended to be achieved through in the banking systems of the different countries, and the removing one or more barriers for market transformation. relative status of their respective ESCO markets. However, projectoutcomesarealsoinfluencedbystructural,economic, 4.2.2 EMERGING RESULTS and cultural characteristics of national economies. As seen in Figure 4.6, using a knowledge management index of the GEF'sOperationalStrategydefinesmarkettransformation three countries, Hungary has the most favorable economic as a long-term challenge and a continuous and dynamic incentive regime (tariffs, regulations), education and human process. Clearly, many EE and RE markets remain resources; innovation system (patents, scientific activity), and undeveloped and experience significant barriers. As the information infrastructure, which is useful for replication. If previous section has demonstrated, overall GHG impacts wellmanaged,theotherregionalprojectsmayalsocontribute from these sectors are still small. However, after a little more to promoting more EE through addressing lack of finance, than a decade of GEF activity, there are situations where a but with a longer time horizon.92 combinationof favorableexternalcircumstances,appropriate choice of project strategies, effective implementation, and Access to finance has also played a role in the changes in adequate GEF resources have contributed to the removal the Eastern European market for municipal heating and hot of barriers and have facilitated significant investments water. The oldest project within this group, in Bulgaria-- in sustainable energy technologies and programs. The section below provides a number of examples where GEF FIGURE 4.6 KNOWLEDGE MANAGEMENT ECONOMIES is achieving results. These examples are not exhaustive or comprehensive; rather, they are meant to be illustrative of the kinds of areas where GEF is making progress. Hungary The greatest progress has been made within energy efficiency (EE), where achievements in market transformation can be observed in specific countries and sectors, including energy-efficient products (lighting and Bulgaria refrigerators), industrial EE (boilers), public sector EE (street lighting and district heating), and also in difficult areas such as transforming financing markets for EE investments. Romania An example of the latter is the IFC HEECP project, the first loan guarantee program financed by the GEF, which is contributing to the commercialization of EE finance and the 0.0 2.0 4.0 5.0 8.0 10.0 growth of a local energy service company (ESCO) industry Econ. incentive regime Education in Hungary. The project established active partnerships with a number of the largest Hungarian banks in the municipal Innovation Information infrastructure 34 GEF Climate Change Program Study 2004 Energy Efficiency Strategy to Mitigate Greenhouse Gas the absence of policies, consumer awareness, and financing Emissions: Demonstration Zone in the City of Gabrovo forcontinuedproduction(UNDP).Less-efficientrefrigerators (UNDP)--directly supported one municipal investment, continue to be imported into the Cuban market. trainedothers,andhelpedestablishamunicipalEEnetwork. Now, 156 municipalities (60 percent of all municipalities in A frequent strategy within GEF projects has been the the country) are involved in the activities of the network, EE development of business infrastructure in the EE sector as a plans have been prepared by 37 municipalities, and 18 (7 means to promote EE investments, engage the private sector, percent of total municipalities) are under implementation, and overcome several market barriers simultaneously (lack mainly from governmental or donor funding sources. of finance, perceived high risks, lack of technical knowledge, Although country results vary considerably depending on etc.). GEF support has certainly helped strengthen ESCO local conditions, project strategy, and external factors, the industries where they are emerging, but is rarely sufficient to group of projects as a whole has provided the elements for launch such an industry "from scratch." One exception may transforming regional markets for municipal heating. be the World Bank Energy Conservation project in China. With its development of three pilot energy management From the first Climate Change Program Study, it was companies, the potential of an energy performance already evident that there are market achievements for contracting market in China has been demonstrated, albeit energy-efficient products in areas such as lighting and with generous GEF grants and a line of credit from the refrigeration, and boilers in industry.93 The markets for World Bank. The energy management companies have efficient lighting World Bank projects in Thailand, Mexico, concluded more than 285 energy performance contracts and Poland were dramatically changed toward greater with an aggregate investment of US$70 million. penetration of EE products such as CFLs, prices fell, and codes and standards were introduced.94 The GEF/UNDP GEF projects have made a demonstrable difference in the lighting project in China addresses the largest global lighting development of standards, testing, certification, and labeling market in the world and a large export industry. Sales of both for EE and RE. The consequence has been a significant CFLshavepenetratedasignificantproportionof thelighting improvement in the quality and reliability of energy-efficient market in China, and the number of local manufacturers of appliances (in China, Cuba, Tunisia, Lithuania, by UNDP), energy-efficient lamp units has increased from fewer than energy-efficient buildings (in Tunisia, Lebanon, Mongolia, 100 to more than 180 since the project start. Czech Republic, all by UNDP), and PV systems (Indonesia ­ World Bank, Uganda ­ UNDP, China Renewable Energy InPoland,fiveyearsafterthecompletionof PELP,aWorld Development Project [REDP] ­ World Bank). Bank Post Implementation study found that the CFL market encompasses a wide range of types, wattages, and prices GEF projects have provided effective incentives to adopt of energy-efficient light bulbs. However, the sustainability standards and to certify products at approved testing of the market is in question, as consumer confidence is laboratories. Innovative mechanisms have facilitated eroding due to lower-quality products imported from Asia. concrete improvements in products, such as providing Consumers are aware of the benefits of CFLs, but there is a project support, subsidies, or tax breaks only to companies need to continue efforts to raise awareness and knowledge of with certified products. These measures show impacts the difference between high- and low-quality CFLs, and the within a short time span in an environment that is serious links to the global environment. about changes in market behavior. However, this approach works best in countries with sufficient product volume, Dramatic results have been achieved in EE in specific regulatory frameworks, national standards authorities, and industrialsectors.Inthecaseof theChinaBoilerConversion existing business and finance capacities. They also depend project, an estimated 40 percent (about 440) of all coal-fired on capacity development. There is a potential to replicate boilers in the Beijing urban districts have been converted to these successes in a wider range of large and medium-sized gas, and the cost of the gas boilers dropped by 50 percent developing countries, although it is more difficult in smaller due to rapid market development. The impact on GHG countries where the economies of scale for testing facilities reduction has been huge. In Thailand, boiler conversion are less evident. has continued after the GEF/World Bank project. Another GEF project there helped increase the share of energy- The results of the renewable energy (RE) cluster are efficient air conditioners to 38 percent and single-door patchy. Full transformation of renewable energy markets efficient refrigerators to 96 percent (1998). In Cuba, 18,000 is difficult considering that despite many efforts of market efficient refrigerators produced were sold by project end, but aggregation by GEF and others, many RE technologies sustainable market transformation outcomes are unlikely in remain, in general, more expensive and less accessible than Chapter 4 - Overall Results and Performance 35 traditional high-GHG-emitting energy sources. Even in GEF has implemented programs. The next step is moving developed countries--where financial and policy barriers from a pioneer market to an emerging market, with an are generally lower--renewable energy markets are not yet expanding dealer network in rural areas, increased use of mature or fully competitive. appliances, and awareness of the advantages of PVs. While there is some evidence of emerging PV markets, most still However, there is evidence of emerging market depend on high subsidy levels or high-value markets where transformation toward increased use of RE in specific affordability is not a problem.95 After a decade of significant sectors in specific countries, such as for mini-hydro systems investment and market aggregation, PV costs have still not in Sri Lanka, the wind market in India, and sugar biomass in fallen to levels that are affordable by the majority of those Mauritius(WorldBank).AlthoughPVsarenotyetaffordable who remain without electricity in developing countries. bymostof theruralpoor,somePV-orientedprojectshavebeen successful in niche market areas. The experience of the rural India has an emerging RE market, with the fifth-largest electrification cluster also shows that mini-grids are moving windpowerinstalledcapacityintheworld.About96percent from pilot demonstration projects to being policy options for of thetotalwindcapacityof 1,700megawattshascomeabout rural villages. The use of RE for productive uses is a new through commercial projects utilizing private investment, Strategic Priority with the rationale that new income flows stimulated by large depreciation benefits and preferential can facilitate repayments on the RE investments. Experience feed-in tariffs. The Indian Renewable Energy Development with these projects is still new, and obvious successes have yet Agency (IREDA) has been dominant in stimulating finance to emerge. Market penetration of RE technologies has been for RE. GEF contributed to the strengthening of IREDA's more successful in projects that combine elements of policy, capacity to promote private investment in the sector, through finance, and business development. Some examples follow. the completed Alternative Energy GEF/World Bank project. The completed Sri Lanka ESD World Bank project contributed to the commercialization of PV, village mini- The World Bank REDP and the UNDP Rapid hydro, and wind energy. The project stimulated private Commercialization of Renewable Energy project in China sector participation in PV development by providing are achieving good results, and some areas, such as industrial consumer credit through microfinance institutions. An biogas, have demonstrated financial viability. However, wind enabling environment for private sector participation in and PV systems still depend on subsidies. In terms of SHS grid-connected RE projects was created by facilitating systems supplied, the REDP is the largest program in the development of small power purchase agreements and by world (although a Government of China program will soon channeling long-term credit through licensed commercial installevenmoresystems).Nearly100,000systemshavebeen and licensed specialized banks. During the course of the installed, and four times that number will have been installed project the number of solar companies increased from 2 by the end of the project. One of the niche consumer groups fledging dealers to 4 established companies, and 15 village are livestock herders in western China, whose periodic sales hydro and 11 mini-hydro developers. The momentum of of herd provide enough liquidity to purchase PV systems. A interest from the private sector and financial institutions is significant outcome of the project has been the development continuing. and institutionalization of standards for PV systems and components and testing centers. In addition, a significant In several GEF-supported countries, a considerable number of commercially viable PV system and component domestic manufacturing base for RE components or companies have been established that offer warranties and products has developed, partly linked to GEF support. after-salesservice.Approximately30millionChineseremain Examples are found in India, Indonesia (World Bank), and without access to electricity and will not be reached through Malaysia (UNDP). India has a considerable and increasing grid connections. There remains a significant market, but domestic manufacturing base for wind equipment and PV sustained market penetration is likely only with ongoing components. This does not mean that there is necessarily a subsidization. direct link to the country's rural electrification; 40 percent of its PV output is exported. GEF's first experience in promoting PV systems was the UNDP project in Zimbabwe, which not only reached GEF support in selected countries has helped propel PV its installation target, but also stimulated demand for PV market development from precommercial levels to a pioneer systems. The project had a relatively solid foundation to market, generally with a few PV shops in cities and emerging build on, established by several pioneer companies that interest in solar home systems (SHS) in specific areas where were assembling or selling and installing PV systems. The 36 GEF Climate Change Program Study 2004 project affected positively all steps of the supply chain, is primarily the expected reduction in GHGs rather than from increased number of local manufactures and dealer its programmatic impact.97 Several carbon sequestration networks; consumer loans through the national agriculture projects (Benin and Sudan - UNDP; Senegal - World Bank) bank at subsidized interest rates; standards for certifying reached or surpassed their objectives in abatement and systems; reduced market prices (partly through elimination generated considerable local benefits in terms of increased of import duties on imported components through the incomeforruralpoorandimprovednaturalresourcecapital. project); and greater end-user awareness. While a 199896 Yet the projects failed to reach their goals of transforming survey established that 4.6 percent of rural households own the firewood/charcoal market, which would have had a PV systems, the market has since been influenced by adverse moresignificantandlastingimpact.Inotherwords,excellent political and economic trends that have reduced purchasing immediate results do not imply that market transformation power, depleted loan funds, and decimated companies. will take place, and lack of observable immediate impact does not mean that market transformation will not happen. Demonstration of the commercial feasibility of new Ultimately,anumberof factorscontributetotheachievement technology is key for projects that focus on productive uses of this objective. of RE (for example, in Mexico by the World Bank, in the Philippines by UNDP). The project in Mexico has installed 4.2.3 FACTORS INFLUENCING RESULTS nearly 1,000 RE systems such as solar- and wind-powered pumps and solar-powered refrigerated milk storage tanks on Projects that are successful in transforming markets were selected farms as demonstration units. found to have certain characteristics: The project portfolios of both OP7 and OP11 are not yet · Projects are more successful when they have sufficientlydevelopedtoyieldobviousmarkettransformation a clear concept of which market they wish to results. While some of the projects in these two programs are transform, and which market barriers have addressing national or local markets, the strategy for many to be overcome and have a well-defined and of the technologies is global market penetration. OP7 was narrowtargetgroup.Examplesof focusedprojects refocused in 2003 into SP5: Global Market Aggregation are the HEECP, which targets the financial market and National Innovation for Emerging Technologies. The through banks as the primary target group; China's portfolio comprises mainly large-scale biomass gasification Energy Conservation project focusing on industrial and high-temperature solar-thermal power projects. The boilers;andprojectstargetingEEproductsforspecific projects are mainly at the demonstration stage. A small marketsegmentsoraimingtodevelopasubmarketthe number of projects have consumed large amounts of GEF ESCO industry or the municipal market--or projects resources, and it could be debated whether GEF can, or thattargetkeymanufacturerswithadominantmarket should, attempt serious market transformation in these share. Projects that target different and varied groups areas. (for example, any promoter wanting EE measures, or all stakeholders for different RE technologies in a STAP reviews and the 2003 Council paper on strategic country) tend not to be as effective. business planning (GEF/C.21/Inf.11) state that progress would depend on (a) the local political-institutional · Projectsaremoresuccessfulwhentheybuildon environment;(b)creatingcountrycommitmentforinnovation a basic level of existing market development. and win-win situations for country and global benefits; (c) Thisisobserved,forexample,instrengtheningexisting building market development alliances more vigorously; ESCOs versus creating a new ESCO industry or the and (d) parallel technology development in industrialized success of EE products in countries with a middle- countries. A specific strategy for operationalizing these income and relatively informed consumer group recommendations has not been developed, because the focus (Thailand, Mexico, Poland). RE projects generally is still on financing and project implementation issues. The start from a lower level of market development and exception may be the fuel cell bus initiative in OP11, which show low rates of market penetration. faces technical implementation challenges, but benefits from an emerging market and a strong partnership at the local GEFclimatechangeprojects,moreoftenthannot,are and international level. supply oriented. The assumption that demonstrating deliveryof newtechnologywillgeneratedemandonly Inothercases,theremaybeatradeoff betweenimmediate holds true if a number of complementary market- resultsandmarkettransformation.ForSTRMs,therationale supporting elements are in place, such as enabling Chapter 4 - Overall Results and Performance 37 policies, available finance, and adequate business 4.3 EVALUATING PERFORMANCE: infrastructure and capacity. The HEECP has been successful because Hungary has a competitive and THE EFFECTIVENESS GEF OF liquid banking sector; the ESCO market was well CLIMATE CHANGE STRATEGIES developed; and energy policies were conducive for energy efficiency. The project was then able to target Asemphasizedanumberof timesabove,GEFprojectsaim a specific market barrier (perceptions of risk in the notsimplytomakeanimmediateimpactonGHGemissions. banking sector) while building on these other positive They aim to achieve sustainable market transformation market features. that leads to a reduction or avoidance of GHG emissions over the long term. This emphasis is captured in GEF's · Market transformation does not happen Strategic Priorities for the climate change focal area. without sustained programmatic support, The first Strategic Priority aims at the "transformation eitherfromtheGEForotherpartners.Examples of markets for high volume products and processes--to of an isolated project producing market changes catalyze both demand and supply sides with relatively small are rare. Influencing markets requires a long-term resource input, resulting in a significant and lasting market commitment, with support that is extensive enough to penetration or transformation."98 GEF's two main climate make a difference in the market. GEF support is more changeoperationalprogramsreinforcethisprimarystrategy: likely to make a difference where (a) a group of GEF OP5 focuses on the removal of barriers to EE and energy projects together pool resources and attack barriers conservation; and OP6 focuses on promoting the adoption in a complementary manner (or several phased GEF of RE by removing barriers and reducing implementation projects); (b) the project acted in synergy with parallel costs. projects (bilateral, governmental, or private sector); or (c) the GEF project is large in scope and financial GEF's performance in the climate change focal area thus contribution. needs to be analyzed and evaluated in relation to the range of strategies that aim at removing particular market barriers The GEF achievements in EE in China are associated or overcoming particular market failures. GEF barrier with extensive government efforts such as the Green removal and market transformation strategies can grouped Lightsprogram.Eveninarelativeadvancedeconomy intofiveorsixbroadcategories:developingenablingpolicies; such as Hungary, with structural transformation, financing instruments and mechanisms; business models and market liberalization, and private sector growth, providing enterprise support; disseminating knowledge/ the achievements in energy efficiency required information and creating awareness; demonstrating creative considerable GEF and IA investment. In countries project approaches and technologies; and building capacity. with higher barriers, the needs will be yet higher. We shall focus primarily on the first three performance Within renewable energy, the progress in market areas or strategies, that is, enabling policies, availability of development is greater in countries where GEF has finance, and adequate business infrastructure. These match financed several World Bank and UNDP projects GEF's Strategic Priorities of "transformation of markets..., (Uganda, Sri Lanka); or where GEF has financed increased access to local sources of finance for renewable one project, but the country has benefited from a energy and energy efficiency, [and]...power sector policy great deal of past assistance (Kenya, Tanzania). frameworks supportive of renewable energy and energy Pilot or demonstration projects, by themselves, are efficiency."99 insufficient to produce replication, remove barriers, and transform markets. Given the size of the GEF climate change portfolio, we cannot possibly go into detailed performance or operational Durable changes in markets require a combination of issues, let alone individual project evaluations. This study enablingpoliciesandregulations,availablefinance,adequate is primarily a comparative review that looks across the business capacities, and end-use knowledge. Where one portfolio to determine which strategies work best, under project cannot address all of these aspects, the combination which circumstances, and with what results. The GEF of complementary GEF resources in different projects seems portfolio offers a wonderful, even unique, opportunity to do a logical approach. this--tostudyandevaluateclustersof projectsinaparticular technology area, market segment, or region. The GEF climate change portfolio offers a rich source of information and a potential set of lessons that can inform more effective 38 GEF Climate Change Program Study 2004 project design and implementation, not only for future GEF fridges); EE in industry; EE in the public sector (including funding, but also for sustainable energy projects globally. district heating and hot water); and projects that focus primarily on the development of financial instruments and This study has focused on two clusters of projects: those ESCOs to transform EE markets. Although we draw brief employing multiple strategies to remove barriers for energy findings and lessons from the first three clusters, we focus efficiency--especially those incorporating financing and primarily on the last cluster. A growing number of GEF business infrastructure development strategies--and projects projects focus on the development of financing mechanisms that promote the use of renewable energy for electricity for EE investments. Many of these projects also incorporate production. We have supplemented these cluster studies multiple strategies, including enabling policies, business with briefer reviews of projects that focus on EE products; infrastructure, information and awareness, and capacity industrial EE; and public sector EE projects, mainly in the building. area of district heating and hot water. We have also reflected on recent experiences with methane, landfill, and biomass ENABLING POLICIES AND MARKET SUPPORT ACTIVITIES energy projects. Finally, the chapter briefly assesses the status of OP7--reducingthelong-termcostsof low-GHG-emitting Thesuccessof energyefficiencyprojectsisgreatlyenhanced energytechnologiesandOP11--promotingenvironmentally if the policy and regulatory environment is favorable. Issues sustainable transport. that affect EE projects include overall energy policy; power sector reform; utility demand-side management programs; 4.3.1 ENERGY EFFICIENCY (OP5)100 EE policies, laws, and targets; the establishment of EE agencies; support and promotion of energy audits; and The purposes of this OP are to remove barriers to the standards, codes, testing, certification, and labeling. large-scale application and dissemination of least-economic- cost, commercially established, or newly developed, energy- Energy prices can be a major deterrent or incentive efficient technologies; to promote more efficient energy use for EE investments. Energy policy and choices around where a reduction in GHG emissions would result; and the degree of state intervention in energy prices versus to help ensure the sustainability and to facilitate learning. competitive energy markets form a critical backdrop to EE (Operational Strategy, 1995) programs. Yet few GEF EE projects have interacted directly with broader energy policymaking processes. For example, The huge improvements in energy efficiency that have when Brazil faced emergency power shortages in 2001, the been achieved in a number of emerging economies and GEF/World Bank EE project in Brazil did not appear to rapidly industrializing developing countries over the past have seized the possibility for development of national or decade have been induced by structural change in their sector strategies for emergency energy savings measures. A manufacturing and industrial sectors. Foreign direct case could be made for GEF projects providing more flexible investment in new competitive industries, often oriented space and resources for "policy entrepreneurship"--a to export markets, has brought leading-ed ge technology, point repeated in the section on renewable energy below. If which is more efficient in the use of number of factors of projects--orprojectstaff--aresensitiveandconnectedtothe production, including energy inputs. In 10 years, Hungary policymaking process, they have the potential to influence has more than halved the energy intensity of its industrial national energy and energy efficiency policies in incremental output. China is achieving equally remarkable results. but significant ways through sharing project expertise and EE projects are also particularly vulnerable to changes experience, including international access to relevant policy in macroeconomic conditions and international energy examples. prices. These phenomena serve as a reminder that broader economic and industrial policies can be the most important There have also not been many attempts by GEF projects determinant in improved energy efficiency. Nevertheless, to insert specific energy efficiency concerns in power sector there remains huge potential for targeted EE policies, reform and restructuring. New power sector reform policies financing mechanisms, and business development efforts to and legislation create opportunities to embed regulatory, achieve significant gains in EE in industry, the public sector financing, and institutional mechanisms to promote EE. and a range of consumer products. For example, a non-bypassable systems benefit charge on the national transmission system could create funding for GEFenergyefficiencyprojectsfallintofourbroadclusters: utilities to invest in public-interest EE or to implement promoting EE products and markets (such as lights and demand-side management (DSM) programs. A number Chapter 4 - Overall Results and Performance 39 of projects have had DSM components in their design and certification of auditors; (b) improving the development (for example, in Thailand, Mexico, Jamaica, Sri Lanka, of EE policy for the public sector through energy audits; Brazil, Lithuania, Vietnam, all World Bank), but it has been (c) training energy auditors; and (d) supporting the actual difficult to demonstrate significant impact. Projects have conduct of such audits. In some cases, such audits have had to deal with mixed incentives for utilities to implement led to actual EE investments. The UNDP, with its focus DSM, poor or inconsistent management support for on capacity building, has been particularly involved in the these programs, inadequate or inappropriate skills in the above activities. DSM units, changing energy consumption and peak load patterns, pricing and tariffs that do not reflect costs, and Moving down to more detailed levels within the EE confusing relationships with ESCOs. However, potential policy framework, a number of GEF-supported projects EE gains through utility DSM remain huge. In addition to have contributed significantly to the development of EE a supportive policy environment and appropriate pricing standards, codes, testing, certification, and labeling. reforms, utilities need to be incentivized through regulation This is an area where sharing of international experience or cost-recovery measures. DSM investments need to be can be effective, and GEF projects can point to number of supported by a range of financing programs. Sustainability concrete achievements where client countries have adopted would also be enhanced if these programs are backed with national standards, set up accredited testing laboratories, adequate management and skills and well-designed public and instituted certification and labeling schemes. The awareness campaigns. Early and visible successes can also introduction of voluntary mechanisms first (labels, voluntary cement government and utility management support. standards) before moving to mandatory standards and labeling is generally accepted good practice. For example, Although GEF projects may not have had much impact at new refrigerator standards adopted during the China the broader energy policy and power restructuring level, a efficient refrigerators project development phase contributed number have contributed to the development of specific EE to future market development where even manufacturers not policies, laws, targets, and plans, sometimes indirectly participating directly in the project have started to produce through raising awareness, training, and strengthening more efficient refrigerators to compete in the market. The institutions. For example, the UNDP Bulgaria project lighting and boiler projects in China also contributed to supported the development of the Energy and Energy developingstandards.Lightingprojectshavealsoplayedactive Efficiency Act (1999) and the National Energy Efficiency roles in supporting testing of compliance with minimum EE Program (2002) by providing information about municipal standards, certification and quality control. Quality testing priorities. In India, the IREDA II GEF/World Bank project is particularly important in the case of CFLs because their has coincided with increased power sector decentralization, quality has varied and affected consumer's confidence in the and the establishment of a national bureau for EE. The products. In response to this issue, some countries, such as World Bank has decided to support those Indian States that Thailand,establishedtestingproceduresandprovidedtesting demonstrate positive conditions for and commitment to capabilities and certification for CFLs and refrigerators. reform; this may give impetus to EE initiatives as well. The PELP project also conducted random testing of CFLs in Poland to verify that they met the quality commitments A widespread strategy for many GEF projects has been made by the manufacturers. Similarly, the Efficient Lighting the establishment or support of national EE institutions, Initiative projects have developed quality specifications for for example, in Eastern Europe and the Arab region in lighting products and will randomly test these products in all particular. A clearer vision is needed of the optimal role of seven participating countries and promote those that meet "energy centers." Is the primary role regulatory oversight or the requirements. In Mexico, quality standards for CFLs enforcement?Isitamoregeneralpromotionalorinformation were created and enforced during the project. As a result, and awareness role? Should they be involved in market an increased number of CFLs are being sold and labeled transformation activities, including preparation of codes according to the standards. and standards, labeling, manufacture negotiations, or bulk procurement? Or should these centers be service providers Finally, programs that support development of an energy in EE training or in actually performing energy audits and, efficiency industry also require a favorable policy framework if so, do they not then become "private sector substitutes?" beyond energy, such as fiscal policies and general regulations and practices for business development and the banking Manyprojectsaddressenergyaudits(Bulgaria,Hungary, sector. It is not generally within the GEF mandate to work Lebanon, Romania, Syrian Arab Republic). Activities on such issues, yet project developers must take full account include (a) developing national standards for energy audits of fiscal and business limitations because they have notable 40 GEF Climate Change Program Study 2004 effects on likelihood of success. For EE markets to develop, The GEF EE projects that are the most successful are policy is necessary but not sufficient. It needs the necessary those that have project staff or have identified appropriate infrastructure of finance and of business. people in the sector who are passionately committed to this "deal-making role." They actively seek to bring the various AVAILABILITY FINANCE OF stakeholders together and they forge a common language and understanding of the barriers that have to be removed A great deal of innovation in the development of new and the kinds of financial instruments and products that will financing mechanisms and products is evident in GEF's EE best distribute and manage risks. portfolio.Theassumptionsunderlyingmanyof theseprojects are as follows. The availability of finance is identified as Initial project development costs can also act as a key barrier. A finance mechanism and product is designed. barrier to EE market development. Energy audits, project A finance barrier is removed. Finance is disbursed. EE design, and feasibility studies can be costly with uncertain investments are made. Energy savings are demonstrated. outcomes. A number of interesting strategies have been Capacity is built, and perceptions of risk are reduced. More tested by GEF projects, including the use of audit grants, finance is provided, and market transformation is initiated. contingent loans, ESCOs assuming the risk of paying for development costs for projects that do not make their way Many projects have underestimated the technical through to final investment, and the development of product assistance needed to develop bankable projects and to lines where transaction costs are minimized by specializing develop appropriate financial products. Few countries have in specific technologies or market segments. Audit grants a track record of experience in financing EE investments. and contingent loans are appropriate strategies in the This sector raises particular challenges for project finance. early stages of developing EE markets, while ESCOs and EE projects--although potentially numerous--tend to be the development of product lines are appropriate in more small. Transaction costs can be high. There are significant mature markets. up-front investment costs, but with no new revenue streams. Often, there is no corresponding or distinguishable asset that Projects with the most chance of successful outcomes can be used for collateral. Benefits can be small compared are those that seek to explicitly address the most critical with overall operating expenses. And with little experience, and difficult barriers to deal flow. Projects must choose the these new technologies and practices are perceived as risky. most appropriate financial instruments and apply them Few banks understand financing possibilities in this sector. dynamically to the circumstances prevalent in that country and the status of the banking market. Projects are also In some countries with relatively undeveloped financial more successful if they clearly target the market sector they sectors, the availability of finance is the main constraint. want to develop. This allows for the development of more However, in a surprising number of developing countries-- specialized capacity and financial instruments. The GEF especially emerging economies and the larger developing financial support mechanisms most often employed are countries--itisnotsomuchthelackof availabilityof finance partial loan guarantees, special purpose funds, investment that is the primary finance barrier, or even the lack of good grants and subsidies, as well as loan loss reserve funds and projects. In many countries, the banking sector is fairly liquid equity funds. These are elaborated in Box 4.2. and the potential for EE improvements is high. The barriers relate more to perceptions of risk, the lack of project The GEF EE portfolio has many examples of these developers, and the difficulties in linking technically feasible different financing strategies. One of the most often quoted and apparently economic projects with bankers willing examples is the GEF/IFC HEECP, which provides partial to make investments in this sector. Engineering, financial, credit guarantees to share in the credit risk of EE accounting, and business enterprise skills, knowledge, and undertakings by domestic financial institutions in Hungary. experience have to be melded into a common, coherent, The project has enabled smaller ESCOs to borrow at and analytical decision making framework. And, as we shall levels normally not feasible because of their relatively weak argue below, it is that rare quality of "entrepreneurial balance sheets. Six Hungarian financial institutions have deal making" that acts as the catalyst of success. utilized the project's "partial guarantees" (provided on a "first loss" basis). The promoters are mainly in the municipal These "deal-making" skills may reside in ESCOs, but, sector, as well as in the industrial, institutional, and small equally, they may not. The presence of a competitive residential sectors. A key feature is the emphasis of portfolio ESCO industry is often critical for the transformation of management and multiproject facilities, creating economies EE markets, but additional interventions are often necessary. of scale and avoiding high preparation costs for individual Chapter 4 - Overall Results and Performance 41 deals. When the financial institution partner is ready to BOX 4.2 FINANCING INSTRUMENTS: bankroll EE initiatives without the GEF project's support in CONDITIONS AND SE U one particular segment, the project has a role to find new market segments to support. The project is now being more · Partial Loan Guarantees: Most appropriate in well- widely replicated in the regional GEF/IFC CEEF project. developed banking sectors, where banks are liquid and willing to accept some risks, and when there is sufficient In countries, such as Romania and Bulgaria, GEF and the baseline market activity to justify and support the World Bank have created revolving funds to support EE program. GEF funds are placed into a reserve account investments. The ESCO market is relatively undeveloped that is used to provide partial credit guarantees for EE in these countries, and the banking sector is not as liquid loans, with a local financial institution. (China, Bulgaria, or competitive as in Hungary. The two loan funds rely Hungary, IFC Commercializing Energy Efficiency on proactive fund managers to pursue new projects, Finance [CEEF] project). recruit cofinanciers, and facilitate transactions. Projects should therefore seek to maximize competition for such · Loan Loss Reserve Funds: Well suited for developed assignments, including both quality and price aspects in the and liquid banking sectors and a willingness by banks to selection process, and properly incentivize fund managers to take some risks, but better suited for a portfolio of small, be proactive in identifying and developing new business. In standard loans. It should be accompanied by technical most respects, the Bulgarian Energy Efficiency Fund is an assistance to develop standardized loan applications and application of the same concept as in Romania. However, appraisalmethods.GEFfundsareplacedintoanaccount the financial instruments include both a partial credit with local bank(s) to provide full or partial coverage for a guarantee--sufficient to attract a commercial loan for a portfolio of--not individual--EE loans (Hungary). profitable EE investment by a well-collateralized industrial · Special Purpose and Revolving Funds: Can be firm--and direct loans for municipal or residential EE used where there is insufficient liquidity in the banking investments. sector or where there is major risk aversion among lenders, combined with a proactive fund manager. It In India, there are now numerous banking institutions removes the need for EE projects to compete with more operating; no regulatory restrictions on private businesses; conventionalprojectsforcommercialfinancing,although and rates and term offerings are comparable to international fund managers may be encouraged to leverage the GEF norms. However, there are numerous barriers present in the funds (Romania). Indian market inhibiting the financing of EE. To stimulate credit, a GEF project will strengthen the energy efficiency · Equity Funds: GEF funds as equity to ESCOs but such capacity of IREDA, to catalyze and fund private ESCOs, investments are uncommon and can raise concerns over and directly finance end-user EE investments. As a financial equality, divestment protocol, and legal issues. (China, intermediary, IREDA on-lends the proceeds from a World Romania Energy Efficiency Fund [REEF]). Bankloantoprivatedevelopersand,onanexceptionbasis,to · Investment Grants: Where the credit barrier is too publiccorporationsmeetingIREDA's loaneligibilitycriteria. high to support commercial financing, to target new However, IREDA faces higher technological and financial and underdeveloped markets. Subsidies or investment risk when compared with more diversified institutions, and grants can help facilitate investments on the end-user itscostof fundsishigh.Althoughindustrialtariffsareamong side by improving cash flow and reducing risks. (UNDP the highest in the world, providing increased incentive for Romania, Bulgaria) EE,theprojecthassofarnotsucceededindirectlyleveraging capital from the private sector. By partially funding an ESCO, it has substituted, in at least one case, for funding that the company would have otherwise received fully from a commercial bank. Stronger involvement of financial institutions other than IREDA would help broaden the choice of investors in the long run and mainstream climate- friendly energy financing into the financial sector. Source: "Adapted from World Bank GEF Energy Efficiency Portfolio Finance might also be needed for manufacturers and Review and Practitioners' Handbook" 2004. suppliers of EE equipment and products, and for buyers. GEF support has often come in the form of targeted 42 GEF Climate Change Program Study 2004 subsidies. For example, in Poland, manufacturers Despite this potential, there has been debate within the competed for the project subsidies by providing the largest energy community whether development of the ESCO guaranteed sales at the lowest project subsidy cost. Subsidies business is the best way to reach energy efficiency goals. have also been available for market aggregation pilot bulk- Creating viable and strong ESCO markets has proved buying schemes to be incorporated into utility DSM efforts challenging. Legal and taxation issues, poorly developed in China--although it is difficult to conceive how these financial infrastructure, and limited equity markets can serve subsidies could be sustainable. There are also a number of to inhibit the growth of ESCOs, which also often suffer from examples of projects that employ various end-user finance weak business, marketing, and management skills. The poor schemes. Under the GEF/World Bank lighting project in creditworthiness of many potential clients and unfamiliarity Mexico,thenationalelectricutilitypurchasedCFLsandsold with energy performance contracting are further barriers. them directly to consumers through its offices. The utility Project financing is a huge barrier (as discussed above), and purchased the CFLs in bulk under competitive procurement emerging ESCOs are often unwilling or unable to take on from manufacturers, receiving a significant discount over and manage risks. retail market prices and passed those savings along to consumers. Customers could pay for the lamps in full, or in Where ESCOs exist or are emerging, the GEF may find installments through their power bills. a useful role in supporting market development. However, situations with a virtually nonexistent ESCO market present The"WorldBankGEFEnergyEfficiencyPortfolioReview enormous challenges. A full-service ESCO market-- and Practitioners' Handbook" identifies the following involving full performance guarantees and off-balance emerging good practices for financing programs: (1) conduct sheet financing--may not be achievable in the short term a full assessment of the EE market, from banks and project in many countries. But other kinds of ESCO-like business developers to equipment suppliers and end-users in the models may be possible, including: ESCO's with third-party project preparation phase; (2) identify critical barriers to the financing or variable term contracts, end-use outsourcing, implementation of EE projects with the target markets and equipment supplier credit, equipment leasing, and technical prioritize them; (3) select appropriate program interventions consultants with fixed or performance-based payments. to address key barriers on a sustainable basis; (4) incorporate good practice principles in detailed project design that Some GEF projects have been criticized for spending includes commercial orientation, program flexibility, sharing an inordinate amount of time and resources on trying to of risksandincentives,andtransparency;(5)buildtheproject develop ESCOs, but with little real deal flow. However, pipeline early and intensively; (6) encourage competition once established, ESCOs can specialize in specific market for selection of program guarantor fund manager; and (7) or technology areas and--in conjunction with financial continually monitor and market the program. institutions--can offer standardized products that lower transaction costs (as opposed to individual project deals) and BUILDING BUSINESS INFRASTRUCTURE that stimulate a stream of investments. GEF projects have employed a range of EE business The World Bank GEF "Energy Efficiency Portfolio supportmeasures,includingcapacitybuilding;strengthening Review and Practitioners' Handbook" concludes that (1) the links between marketing, information dissemination, projects appear to have best success when a variety of ESCO and business growth; alternative distribution channels to business models are introduced and those most promising, develop the market for EE products (for example, through and of interest to local stakeholders, are supported; (2) utilities); and bulk procurement schemes to reduce costs for equity issues of new ESCOs need to be explicitly addressed consumers. if off-balance sheet financing is to be promoted; (3) utility- based ESCOs represent an attractive option when the Many GEF EE projects have also included components private sector is unwilling to accept prevailing market risks; to develop ESCO markets in client countries (for example, (4) parallel financing programs are critical to address the China, Brazil, India, Vietnam, all by World Bank). ESCOs project finance barrier of ESCOs, but such facilities should areanattractivebusinessmodelforbridgingthegapbetween support multiple transaction and financing models; and end-users and financing. ESCOs allow technical risks to be (5) complementary efforts to promote an enabling policy transferredawayfromend-usersandfinanciers.Costscanbe and business environment, such as fostering of business reduced by bundling and packaging, and the ESCO model associations, can improve impacts and allow for constituency includes inherent business incentives to proactively develop building. projects. Chapter 4 - Overall Results and Performance 43 FIGURE 4.7 SAMPLE DECISIONTREE FOR EE FINANCING PROGRAMS No ACTIONS: Promote ESCOs business models, develop pilot Are there existing project developers/ESCOs that could support/ case studies and model transaction documents, disseminate benefit from a financing program? technical and financial information about EE projects, consider small sub grants to stimulate market, develop public sector EE Yes program. No Do local commercial banks have sufficient liquidity? Will banks accept some risks on lending GEF or other funds? Yes Yes No ACTION: Create revolving fund; ACTION: Create GEF EE Why aren't banks lending for EE now? promote increased co-financing co-financing fund. (i.e., use GEF as subordinate debt). Don't understand how to appraise and assess technical aspects of EE projects. ACTION: ProvideTA to banks. Insufficient experience with appraising EE project risks, ACTIONS: Support pilot transactions for dissemination, stan- ESCOs, EE saving estimates. dardize appraisal methods, develop partial guarantee program. ACTIONS: ProvideTA to create standard applications and pro- Projects are too small. cessing, develop pooled financing structures, offer guarantee on a portfolio basis. ACTIONS:TA to end-users on preparing bankable proposals, No or low quality loan applications. develop ESCO market, support pilots and disseminate model applications, fund marketing, support audit grants. Few creditworthy customers. ACTIONS: Focus on public sector, offer subgrants. INTEGRATED STRATEGIES FOR NERGY FFICIENCY E E guarantees--and try to emulate the success of projects such as the IFC's HEECP and CEEF. The Energy Efficiency There is some evidence that appropriate combinations of Portfolio Review and Practitioners' Handbook mentioned financeandbusinessdevelopmentstrategieshavecontributed the risk of copying previous operational design that need to totransformationof marketsforEEinvestments,particularly beadaptedandrefinedwithdueregardtocountryconditions in some countries in Eastern Europe. Banks there now or the specific barriers that have to be overcome. A decision require less collateral and equity. In the initial investment tree, developed by the World Bank GEF EE Handbook, decision, energy savings are counted as part of the debt provides a coherent guide to the choice of appropriate servicing stream, and the transaction costs of banks have strategies to support EE projects (Figure 4.7). been lowered through the development of financial product lines applicable to generic EE investments. A number of GEF industrial energy projects have been highly effective in market penetration and GHG reduction. More and more GEF EE projects incorporate a focus on The Climate Change Task Force has discussed the possibility financial instruments--particularly the use of partial risk thattheremaybelittlejustificationforGEFEEinterventions 44 GEF Climate Change Program Study 2004 BOX 4.3 ENERGY EFFICIENCY HEATING IN AND HOT WATER A portfolio of 19 UNDP/GEF projects in Eastern Europe European Union accession countries, have a policy environment provides a unique learning opportunity in the field of GHG that facilitates further development of policies and regulatory reduction through providing heat and hot water efficiently. frameworksconducivetoefficiencyimprovementsintheheatand Thirteen of these projects are under implementation; only one is hot water sectors. completed.Heatingisof paramountimportanceincountries with long, cold winters, and reports to the UNFCCC from member Direct project financing interventions have included countries in the region consistently identify this sector as a source capitalization of loan funds or loan guarantee funds and of low-cost GHG reduction. The financial flows into poorly capitalization of ESCOs. As financing has moved away from functioning, inefficient heating systems are enormous. The sector grants, the varieties of debt have expanded to reflect investment has become not only a burden to end-users and to governments, conditions in the host country. In the Slovak Republic, where butalsoachallengetopoliciespromotingprivatizationandmarket there is some competition among commercial banks for reforms. There is vast potential for replication, particularly in the municipal clients, the municipalities joined together to apply large district heating systems. Much of the attention has been for a commercial loan from a Slovak bank. In Slovenia, the on EE measures. Fuel switching from coal to biomass has also municipalities are taking loans from a designated line of credit for featured, related to the region's forest resources. In all the Eastern biomass projects created by the UNDP/GEF project within the European countries visited for this study, other EE projects also Ecofund(astateenvironmentfund).Optionsforequityinvestment experienced a demand for support on biomass. havealsoexpanded.Forexample,theUkraineprojectiscurrently establishing an ESCO that will finance and carry out municipal In the early 1990s, GEF project designs revolved around heatingupgrades.TheGEFprojectinBulgariausedoutreachand technical demonstrations, capacity building in municipalities, training activities to change the markets for financing in the areas and dissemination of project results. Technical problems, while of efficient buildings and municipal efficiency projects. Projects omnipresent,werenot,however,theprimarycauseof inefficiency undertaken by the World Bank and the IFC in the region have and underperformance in the sector, and increasingly the focus gone further in targeting market barriers to local financing of EE has shifted to political, regulatory, social, and economic barriers projects.TheHEECPprojectinHungaryandtheregionalCEEF that have held back potential market transformation. GEF projecthaveusedpartialriskguaranteestoshiftcommercialbanks has now shifted to project development that highlights market into this market. Creative financial products have been developed transformation. for block-house heating projects. These projects have been more successful in countries with more competitive and liquid banking Policy-related interventions in the portfolio originally pursued sectors. three aims: (1) local regulations that would make the operation of districtheatingsystemseconomicallyviable,suchastariff policy;(2) GEFprojectshavealsobuiltbusinesssystemsandinfrastructure localregulationsthatwouldovercomelegislativebarrierstocertain in this area through strengthening financial management in types of equipment; and (3) national policy recommendations municipal energy departments and district heating companies that would remove barriers for other municipalities in the same and facilitating the creation of ESCOs. Most projects have also country. For example the project in Russia developed and lobbied included awareness-raising activities, training and outreach, and for a series of regulations that would allow the implementation M&E. Projects that have targeted municipalities rather than of a new billing system for heat and hot water. The project also individuals have been more successful. Municipalities that often developed legislation that allowed the installation of rooftop subsidize heat and hot water consumption, or face unsustainable boilers in the city of Vladimir, dramatically improving the heat losses,havemuchstrongerincentivestoreduceexcessconsumption supplytobuildingsandreducinginefficienciesinthenetwork.The than do individual residents who cannot easily be cut off from a national project director also provided input to national policies district heating system for nonpayment. on heat by participating in an interagency working group. At the local level, the project in Bulgaria has enhanced institutional One of the overall lessons in this portfolio is that market and human capacity in municipalities to plan, develop, and transformation strategies are most successful when they are manage EE programs and projects. This project has also been tailored to specific country market conditions. Although there highly effective in establishing networks of municipalities that are many similarities in these projects, and they are all in the have advocated changes in policy or programs to support energy same region, the types of policy, financing, or business-related efficiency. However, progress in these areas is often hampered by interventions differ markedly between the accession countries unfavorable laws on municipal financing, laws on privatization, with open and competitive markets and those countries with less ownership of property, pricing, taxation, and so forth. In practice, developed banking and ESCO markets and less enabling policy this means that countries on a faster reform track, especially the environments. Chapter 4 - Overall Results and Performance 45 inindustrybecausemanyof theseinvestmentsarefinancially grid systems, using RE, have the potential to provide a viable viableandhaveshortpaybacks.Thereareatleasttwofactors and effective alternative. Despite substantial off-grid and that can justify GEF interventions in this area. One is that mini-grid programs in Africa and East and South Asia,101 industry accounts for 40 percent of global energy use; in renewable energy technologies--especially PVs--still play China it accounts for nearly 70 percent of national energy a tiny role in supplying much needed energy services for use. The potential for major GHG reduction in this sector households, institutions, and productive uses in rural areas. cannotbeignored.Thesecondreasonisthatmanyindustries Costs are high, and significant market barriers have to be in developing countries are simply not aware of the potential overcome. to reduce costs through EE improvements. These countries also face significant barriers in terms of the favorable policy GEF has become a primary funder of RE technologies in frameworks, the availability of finance, undeveloped ESCO developing countries and emerging markets. Its role, which markets, and lack of capacity. A number of GEF projects was initially technical in nature, has become more complex have attempted to tackle a range of these barriers through and less clear in terms of GEF comparative advantage. The multiple strategies (for example, Malaysia and Kenya, GEF seeks to innovate and test new strategies to promote both by UNDP). However, these projects often progress no renewable energy in difficult market conditions and national further than undertaking a number of energy audits, raising contexts where poverty alleviation and development are awareness, building capacity, and piloting a few projects. paramount. Market transformation for increased renewable Sustainable market transformation seems much more likely energy use is pursued through the development of enabling if specific market segments are tackled in a systematic and policies, standards, and certification; mechanisms to sustained manner. The China Boiler project is an excellent increase the availability of local finance; improved business example of what can be achieved. infrastructure;informationandawareness;capacitybuilding; and through demonstration of innovation. One interesting group of GEF EE projects are those that seek to improve the efficiency of heat and hot water systems ENABLING POLICIES in Eastern Europe. The projects are similar in nature and provide a unique learning opportunity in developing Most GEF renewable energy projects tackle financing- programmatic and regional responses to specific markets related barriers, or seek to explore effective business models, with large GHG reduction potential (see Box 4.3 on the or build awareness and capacity. However, there is also a previous page). The cluster also contains projects on biomass recognition in GEF that national policy issues are critical in for heating, which is a good example of combining RE and creating the conditions for market transformation. Strategies EE approaches. include influencing overall energy policy, the development of specific RE policies or strategies, power sector reform and regulation, rural electrification policy, and RE technology 4.3.2 RENEWABLE ENERGY (OP6) standards, codes, testing, and certification. This OP aims to remove barriers to the use of commercial Anumberof GEFprojectshavecontributeddirectlytothe or near-commercial renewable energy technologies and to developmentof renewableenergypolicies by draftingor reduce high implementation costs of RE technologies due to revisingnationalREstrategiesandactionplans,forexample, lowvolumeordispersedapplication.GEFprojectsinthisOP in the Philippines, Indonesia, China, India, Sri Lanka, include RE for productive uses and for rural electrification, Sudan, Uganda, and Argentina. However, some projects grid-connected systems, and RE products. The focus of this ignore this area altogether, with negative consequences study has been RE for rural electrification, although we have for project outcomes. Much depends on whether project also provided evaluative comments on the other RE clusters, staff are sensitive and responsive to the policy process. If where information has been available. project staff are well connected to policymakers they can be influential in shaping new policies through sharing relevant The dramatic advances in electrification over the past project experience and expertise. Many GEF projects take decade--for example in China, Vietnam, and South years to develop from concept to design to implementation, Africa--have been achieved through grid connections, and the policy environment might change considerably. powered mostly by conventional energy sources. However, It is thus important to create project space for "policy the costs of extending the power grid into remote areas with entrepreneurship" that responds flexibly and quickly to new distributed populations are expensive. Off-grid and mini- policy challenges and opportunities. 46 GEF Climate Change Program Study 2004 Two RE projects in China illustrate the contrasting small power purchase agreement. The Uganda Energy for policy approaches of GEF projects. The GEF/World Bank Rural Transformation (ERT, by World Bank) project plans REDP offered a partial subsidy to PV suppliers, provided to develop detailed regulations under the Electricity Act. they offered certified products and audited levels of service. Regulations for RE rural electrification and small power The partial subsidy provided an incentive for improvement producers are being developed by the project in Vietnam. in standards and quality, and there was the potential to One of the new GEF projects in this area is the World Bank transform a market for rural PV sales. However, bilateral China Renewable Energy Scale-up Program (CRESP), donor programs provided much larger subsidies and a which includes the development of a mandated market massive government village PV program offers systems for share for RE. This topic is being given increasing attention free! The lack of engagement at the policy level meant that in the international literature, and there is great potential for the market transformation objectives of the project were GEF projects to explore innovative interventions. unintentionally being undermined. The UNDP Rapid Commercialisation of Renewable Energy project in China, Power sector reform creates opportunities not only for by contrast, has contributed directly to the development of a grid-connected renewable energy, but can also create space national biogas strategy and is responding strategically to the for the development of mini-grid and off-grid systems using urgent need to develop a service model for the operation and RE technologies through clear government support and maintenance of government-installed, PV-powered, mini- legal frameworks for investments, ownership, operations grid systems for villages. The latter task was not strictly in and maintenance, tariffs, collection mechanisms, and service the design of the project, but there was enough flexibility to standards. A key issue is creating stable and long-term respond strategically and to make a difference in the policy frameworks that provide a degree of certainty for the private environment. sector in their financial planning. There are cases where private sector concessionaires have pulled out because the So far, few GEF projects explicitly focus on power "rules of the game" have been unilaterally altered such sector reform. To promote the use of this strategy in the that they are no longer able to get an adequate return on portfolio, one of the GEF Strategic Priorities, as of 2003, investment. is the development of power sector policy frameworks that are supportive of RE and EE. Power sector reform Rural electrification policy is critical for the success in developing countries is mostly driven by factors other of RE projects in rural areas and is another important than environmental concerns and seldom by pressures to policy area that GEF projects could influence. Rural expand RE; rather, the main drivers are the need to attract electrification will not expand significantly without a level new investments in generation capacity or the need to deal of public investment or support. Public-private partnerships with inefficiencies and insolvency by electricity distributors. are increasingly being explored where the state--or an However, power sector reform generally opens up space electrification fund supported by levies and grants--provides for independent power producers, including RE suppliers. output-based subsidies, preferably on a competitive basis, to The monopoly power of the incumbent is curtailed, and private firms or concessionaires with obligations to supply. nondiscriminatory access to the grid is made possible. Retail Rural electrification policy can define the respective role choice also allows the introduction of "green power" sales. of the state and private partners, concession areas, levels Newpowersectorpoliciesandlegislationcreateopportunities of subsidy support, the preferred business model (fee-for- for the development and implementation of explicit policies service or equipment sales) and also technology choices and and regulatory instruments to promote renewable energy, demarcation of grid versus off-grid or mini-grid areas. for example through non-bypassable system benefit charges, competitively bid RE obligations, RE portfolio standards, Renewable energy projects have to find policy and market feed-in tariffs, and green certificates. niches where they are viable. There are situations where GEF projects have engaged these policy issues. For example, A limited number of projects appear to have made an a GEF project in Indonesia provided support to assist the impact in this area. For example, the India Alternative government's Rural Electrification Steering Committee to Energy project carried out a study on independent power develop a strategy and corresponding action plan. Similar producers and helped influence a critical shift in the activities were undertaken by the Uganda PV UNDP project government's approach to RE development. The Sri Lanka in preparing a sustainable national program to provide ESD project enhanced the enabling environment for private sector-based PV electrification to areas that will not be investments in renewable energy, including mini-hydro and served by the grid in the foreseeable future. In Sri Lanka, the wind projects, through the application of a standardized completed ESD project indirectly influenced government Chapter 4 - Overall Results and Performance 47 planning and policy related to rural electrification. The BUILDING APPROPRIATE BUSINESS MODELS project encouraged the national electric utility and the AND NFRASTRUCTURE102 I government to more explicitly recognize and incorporate SHS into rural electrification planning and to recognize Thepromotionandadoptionof renewableenergyinrural that unrealistic political promises and uncoordinated grid areas has accelerated with the involvement of the private extension harm the market for SHS. However, there are also sector, often with a degree of support from government in manyprojectsthathavenotadequatelyengagedthisarea.As the form of enabling policies, regulatory frameworks, and wenotebelow,ruralelectrificationpoliciescandeterminethe public­private partnerships. As illustrated in Figure 4.8, institutional and business framework for RE delivery--and GEF projects have promoted private sector participation the models that are chosen will have a profound impact on through two types of support: small-business development the delivery of energy services for the poor. and the design of business delivery models (sales or fee- for-service). Examples of sales models are private firms One successful, policy-related area of GEF project operating in an open market and selling renewable energy intervention is standards, codes, testing, and products and systems (such as PVs) directly to consumers. certification. Many projects have recognized that a key In fee-for-service models the renewable energy equipment barriertosustainablepenetrationof PVandotherREsystems is typically owned by the service provider who installs and is poor-quality products, installation, and service. Important maintains the systems and then offers an energy service progress has been made in developing and adopting PV for which consumers are billed. Service providers could system and component standards, systems design, and include incumbent utilities or competitively selected rural installation codes of practice, as well as approved testing energy service companies (RESCOs) within regulated facilitating and certification systems. It has been important concessions that guarantee exclusivity on a geographic to work closely with the national standards authority. China basis (or alternatively in terms of eligibility for subsidies). has adopted a national standard and testing procedures for SHS developed by the GEF/World Bank project. The standardhasundoubtedlyplayedanimportantroleinraising FIGURE 4.8 RURAL ELECTRIFICATION / RENEWABLE the quality and reliability of PV systems to the benefit of the ENERGY BUSINESS MODELS market and ultimately consumers. Project standards for PV system components have also been approved by authorities inUgandaandIndonesia.Otherprojectsthataimtodevelop Off-Grid Mini-Grid Mostly PV PV,Wind, Hydro, standards include Argentina (World Bank), Bolivia, Peru, Diesel Hybrids Chile, Fiji, and Sudan--all by UNDP. In Indonesia, the GEF/World Bank project helped develop a domestic testing SALES MODELS FEE FOR SERVICE and certification laboratory that has obtained international MODELS accreditation for PV component testing. The technical Programs Managed and standards formulated for this project are being used, with Private Firms Implemented Directly by adaptations, in a number of other countries including Sri Government or Special Lanka, China, and Uganda. Development Projects Operating with Government The work on standards and certification has mainly Support Regulated Concesssions focused on PV components and systems, but attention is now being given to hybrid systems involving PV, wind, hydro and/ordieselgenerators.Forexample,GEF/UNDPprojects Open-Market Incumbent Utility in Bolivia, Fiji, and Chile aim to establish standards and certification procedures for mini-grid systems. One of the Competitively challenges is how to incentivize suppliers to adopt standards Selected Private RESCOs and certification. One possibility is to link targeted, partial subsidies to approved products and systems. A remaining Unregulated, Open- weak area is adequate codes and practices for service and Market Providers maintenance, particularly where a sales-based, as opposed to fee-for-service, models are being used. Community Based Service Providers 48 GEF Climate Change Program Study 2004 Concessionaires typically face obligations regarding supply, given the widespread levels of poverty in unelectrified areas installation targets, and minimum service standards. A in developing countries, the cash sales business model will fee-for-service business model might also be offered by inevitablyonlyservicenichemarkets.Widermarketpenetration community-based organizations, local government, rural requires various forms of consumer credit (discussed in the development projects, or unregulated, private firms. section below) to lower the barrier of high initial investment. GEF projects have offered business and enterprise support Second, a smaller number of GEF projects have explored to RE manufacturers, suppliers, dealers, RESCOs, SMEs, concession, fee-for-service rural electrification models. and financial institutions. For example, the Uganda PV Special fee-for-service development projects were established project provided support to the Uganda Renewable Energy in Guatemala, Ghana (both UNDP), and Lao PDR (World Association, resulting in a significant increase in membership. Bank). Regulated concessions, using fee-for-service, were In Zimbabwe the local solar industry was assisted through part of GEF projects in Peru, Argentina, Chile, Fiji, and provision of procurement and storage facilities (UNDP). A Cape Verde. Many of these projects have been problematic, series of market and technology assessments were conducted and the numbers of RE systems installed have been small. toencouragetheentryof privatesectorequipmentandservice In the China REDP, a fee-for-service model was considered providers in Mexico by the World Bank project. The China unworkable and was rejected early in project design, partly REDP incorporates direct support for business development, because no appropriate authority existed, in either the electric marketing, accounting, financial, and contract management power or agricultural/rural sectors, to regulate concessions. in small PV suppliers. The difficulties and challenges The Sri Lanka ESD project demonstrated the initial failure of supporting and growing small businesses are often of a fee-for-service model in that country. One dealer offered underestimated. Few GEF projects make adequate linkages to SHS on a service basis, but stopped on the grounds of the government-supported SME development programs. high expense of monthly collections in the fee-for-service scheme.TheprojectinthePhilippineswasoriginallyintended First, many GEF projects have involved commercially-led to demonstrate the viability of the RESCO approach as PV sales models employing either cash sales or various a delivery mechanism for RE systems. Considering the forms of credit (dealer credit, end-user credit, or lease or unfavorableresultsinusingtheRESCOapproachinasimilar hire-purchase schemes). Examples are the GEF projects projectinanearbyprovince,itwasdecidedtoshiftthebusiness in Indonesia, Philippines, China, India, Sri Lanka, Sudan, model to direct sales. Argentina is often quoted as an example Uganda, Zimbabwe, and Bolivia. of fee-for-service concessions, but few RE systems have been installed under the GEF/World Bank scheme there. In general, the advantages of sales-based models are that suppliers and dealers have strong incentives to market their There appears to be a move away from fee-for-service products and develop their businesses. Smaller and modular by GEF-sponsored projects, although in theory this model systemsaremorecommon.Localinfrastructureforinstallation, has many potential advantages, such as the potential for maintenance, and after-sales services can be built up as sales bundling services, economies of scale, lower transaction costs, increase, thus implementation can be fast. The big potential competitive bidding to minimize subsidies, obligations to disadvantage of sales-based models is that there is often no supply, affordable service for the poor, incentives for customer control on the quality of components and how systems are educationtomanageandcareforthesystems,andmorereliable installed by end-users themselves or by local technicians. after-sales service and maintenance. But establishment costs Good maintenance and after-sales service are critical to the can be high, and a minimum scale must be achieved for cost- success of these models, as well as clear advice to end-users effectiveserviceandcollections.Longpay-backperiodsexpose onthelimitationsof thesystems.Explicitgovernmentsupport the RESCOs to financial risk. There might also be high-levels may not be essential, but it is advisable for the promotion of of uncertainty in terms of the concession framework and the standards, codes of practice, testing, and certification, as well sustainability of subsidies. Consumers do not own the systems as consumer education. and may not look after them well. PV systems thus need to be tamper- and theftproof. Ultimately, the challenge is to create Cash sales models are applicable where end-users have a fair allocation of rights, obligations, and risks among the disposable income, possibly on a seasonal basis, for instance in concessionaire, consumer, and government. postharvest or livestock-sale periods, or may be made possible by returning migrant workers. These models involve the Fee-for-service models tend to be more complex than minimumnumberof stakeholders,havethelowesttransaction sales-based models. They require careful design and costs, and minimum financing requirements. However, implementation of a concession and regulatory framework, Chapter 4 - Overall Results and Performance 49 capablebiddershavetobefound,andadequatemanagement, electricity cooperative societies that were set up specifically for billing,collection,service,andmaintenancesystemsneedtobe that purpose. In general, mini-grid systems are moving from developed and sustained. The move away from this model by pilot demonstration projects to being policy options for rural RE suppliers may be understandable, but it is not necessarily villages. desirable because the model may be most suitable for the poor and those in remote areas. We still do not have enough The most suitable business and implementation model for experience in fee-for-service models to point to unqualified PVsystemsisdeterminedbycountryconditionsandthenature successes, but it would seem important to allow sufficient time of its energy markets. In designing appropriate strategies, to identify approaches and for testing multiple models in a GEF has sought to understand the policy framework for range of different contexts. An additional important element electrificationandnonelectrifiedareas,theenergyserviceneeds of fee-for-service approaches is their ability to support a of end-users, their economic circumstances, the potential for broader range of services than just PV, including liquefied productive energy uses to strengthen repayments, competing petroleum gas distribution for cooking, and in time other energy sources, the presence of microfinance institutions related services. interested in RE and rural electrification, familiarity and experience with credit schemes, the existence of PV dealer In the past, a majority of GEF interventions in this area networks, and access to capital by PV companies or ESCOs. focused primarily on PV, instead of being more open to The advantages, disadvantages, and risks of the various broader energy service needs. This criticism was made at the business models, described above, then need to be assessed UNDP/GEF Solar PV in Africa workshop in Johannesburg and weighed against country conditions. in 2003. GEF was urged to look for the most successful overall business model for a given context that meets customer and AVAILABILITY FINANCE OF institutional needs. This may mean that PVs will be a smaller element of a larger package that includes nonrenewable The availability of affordable finance for the high up-front energy, but in this case GEF should still consider support, costs of RE systems remains the key barrier to their more because success of the model could see replication, with the widespread use, especially for poor people. GEF and its IAs PV (or other climate change­related technology) growing have tested a range of financial mechanisms and instruments. alongside the other elements of the project. These differ according to the status of the local finance sector, the finance barrier that has to be overcome, and the type of Third, a number of GEF projects explore the use of business model employed. Sales-based models may require a mini-grids powered by PVs, wind, mini-hydro, or hybrids degree of financing for suppliers and dealers, but the main of these technologies with diesel generators. It is interesting need is microfinance for consumers. Fee-for-service models to note that, in projects that have included both off-grid and are likely to require substantial financing, because it may take mini-grid components, there has been a clear trend during 5 to 10 years before the initial investment of the ESCOs is implementationforthemini-gridcomponenttobeabandoned recovered. Both models may require a level of subsidy. GEF or delayed. Mini-grid systems are clearly challenging. projects seek to understand the nature of financial barriers However, there would seem to be great potential for further and, hence, where GEF efforts should be targeted: financial exploration of mini-grids and hybrids combined with a fee- intermediaries (banks, development finance institutions, for-service approach. Increased funds for technology transfer microlenders), suppliers, dealers, service companies or end- may be available. Economies of scale combined with greater users. user densities allow for more competitive and larger power systems with greater potential for providing energy services GEFprojectshaveexploredarangeof financialinstruments, for institutional and productive uses, as well as home use including (a) loan facilities for consumer credit (contingent (examples are found in the Sri Lanka RE for Rural Economic loans, national RE funds, revolving funds, concessional debt, Development, Uganda ERT, and India Alternate Energy andsoforth),(b)partialriskguarantees;(c)equityfinance;and projects). However, all the challenges of establishing a utility (d) targeted subsidies and grants. service remain, including the necessity of developing an appropriateregulatoryframework.Technologies,suchassmall Contingent loans have been used by GEF to cater for hydro, also pose specific challenges. Hydroelectric resources uncertainties in specific RE projects. Under these schemes, often require joint community management, participation, if the risk materializes, then the loan could be forgiven. A leadership, team work, and coordination. Under the Sri contingent loan was introduced in a China project to share Lanka ESD project the mini-grid hydro installations were specific risks associated with wind resource availability and built, owned, and operated by the communities through turbine performance. Contingent loans have also been 50 GEF Climate Change Program Study 2004 provided for up-front project development costs. This was a credit can be effectively provided through microfinance feature of the GEF/UNDP Caribbean Renewable Energy institutions. One advantage is that PV companies do not Technical Assistance Facility, which provides contingent have to allocate working capital or budgets for credit schemes loans for project preparation to create deal flow for the GEF- and can concentrate on sales and after-sales services. Good sponsored loan facility for the Caribbean Renewable Energy microfinance institutions are often much better equipped to Fund. Repayment on the loans is linked to financial closure manage credit schemes--they have a rural presence, know of funded projects. Specialized risk mitigation facilities have their clients, and know how to best collect debt. They can also also been developed in GEF projects for technologies such be used for market promotions and consumer education. as geothermal energy. Drilling risks incurred during the exploration of geothermal resources in Eastern Europe An example is the Sri Lanka ESD project. SHS vendors have been mitigated through funds that apply insurance and had been reluctant to serve as consumer financing institutions portfolio risk management principles. because of the organization requirements, high costs, and risks associated with administering microloans to low- One of the largest and boldest GEF projects in OP6 is the income isolated rural households. Consumers obtained Photovoltaic Market Transformation Initiative (PVMTI), loans from a national microfinance institution with many which is an IFC strategic intervention designed to accelerate local branches and strong ties to the communities in which the sustainable commercialization and financial viability of it operated. Customers would sign a credit agreement with PV technology in developing countries, especially for off-grid the microfinance institution, which would in turn pay the applications. It seeks to achieve this goal by exploring and dealer. The microfinance institution remained responsible for supporting a few, key PV business models by providing them repayment and collections. The project also offered output- with an appropriate combination of technical assistance and basedsubsidiesonanincentivebasistobedisbursedonlyafter financing,demonstratingtheirviability,andencouragingother confirmation of installation. The recently started Renewable players in the target markets to replicate them. Financing Energy for Rural Economic Development GEF/World Bank mechanisms being explored include equity finance, project in Sri Lanka builds on the success of the ESD project concessional debt, and partial risk guarantees with and continues to make funds available to credit institutions for leveraging from domestic financial institutions. The initiative refinancing to microfinance institutions. focuses on India, Kenya, and Morocco, but investments in these markets are expected to provide sustainable, replicable Another example of the microfinance model is the models that can ultimately be financed on a commercial basis completed UNDP PV project in Uganda. Village banks were in other countries. However, progress has been slow, and given a revolving fund that they used to lend to consumers only a fraction of the sales and installations will be achieved. at reduced rates with flexible repayment schedules. This Projectevaluationshaveconcludedthatequityfinanceoptions mechanism was developed after dealer and consumer credit have been used very sparingly, the loans may not have much offered by development banks reached only the wealthiest concessionality in the end, and the guarantee facilities may households. For the Grameen Shakti Bank in Bangladesh, its also have a very limited call. Yet the private sector is needed PV solar program represents by far the largest business line for expanded RE investments. Little attention was given to for the company. The GEF/World Bank investment loan as consumer finance in this project. Other attempts at private dealer credit allowed this microcredit company to continue equity finance (such as the GEF/IFC REEF for EE and RE) expanding its business and to lend to more PV consumers. confirm the difficulties in attracting good-quality private A number of financing schemes are offered to consumers sector participation. with different levels of downpayment and repayment periods. GrameenShaktiBankisalsoexploringamicroutilitymodelin The type of finance provided also depends on the available which PV systems are leased for income-generation activities. choice of financial intermediaries, including (a) microfinance institutions; (b) development finance institutions or banks; A number of projects, for example Zimbabwe and Sudan and (c) RE dealers. The financial mechanisms are generally (both UNDP), have facilitated consumer financing through revolving funds, national renewable energy loan funds, or development finance institutions, although the dealer credit, often coupled with subsidies. sustainability of these mechanisms is questionable once the project ends. National RE loan funds can be effective where Consumer credit is a key challenge for projects using domestic capital markets do not have sufficient liquidity and the sales delivery model. GEF projects provide consumer depth. Another example is the GEF/World Bank support to credit through microfinance institutions, development finance IREDA, which provides debt financing specifically for wind institutions, or dealers. GEF experience shows that consumer and PV projects. Although the IREDA credit line was never Chapter 4 - Overall Results and Performance 51 fullydisbursed,andthecostof capitalsank belowtheratesat homes, public health, educational, and rural enterprises by which IREDA was able to offer loans, the IREDA financing private PV companies. Per-watt grants are channeled through initiative, coupled with increased promotional activities the Private Sector Foundation to qualified companies for and financial incentives such as tax breaks, contributed to confirmed sales, leases, fee-for-service arrangements, hire demonstrable market development, and commercial lines purchase, and other commercial transactions. Systems that of credit have been created in the private banking sector to do not meet project standards are disqualified. The scheme finance renewable energy. gives companies a competitive incentive to develop the PV market and ensures that minimum standards on systems are AnotherfinancingoptionexploredbyGEFprojectsisdealer maintained. Under the fee-for-service model, the Argentina credit. This can be extended directly by dealers or through project will accord a subsidy once the regulatory authority hire-purchase or lease schemes. In most cases one institution certifies that the concessionaire has installed the SHS in handlesthecollectionof repaymentinstallmentsaswellasthe accordance with standards. maintenance, training, and other after-sales services. In some instances,informalcreditarrangementsareapplied.However, ManyREprojectshaveadoptedmorethanoneapproachto interest rates are often high, and the payment facility absorbs increasing access to finance, for example, the India Alternate workingcapitalof thePVsupplier.Paymentschedules,ideally, Energy, Sri Lanka ESD, Uganda PV, and Zimbabwe PV. should be designed to fit the income cycle of the end-user. Often the financial mechanism is not clearly defined at the These schemes might exclude the poorest households owing outset of the project, but is developed by the project following to high downpayments and installments. PV companies are analysis of the renewable energy market and the financial usually not experienced in or capable of administering a sector.Insomecasesseveralschemesaretriedbeforefindinga credit scheme; the risks of nonpayment are substantial, but successfulformula.Forexample,intheSriLankaESDproject, the PV equipment can be used as collateral. The boundaries dealer credit was tried but failed due to the high costs of of ownershiphavetobeclearlydefinedaswellasthepenalties monthly collections. A fee-for-service approach was also tried for nonpayment. by one dealer without success, and eventually a microfinance consumer credit mechanism was developed. In some projects, In the GEF/World Bank project in Indonesia, sale of SHS multifinancing strategies may be effective because more than was undertaken by private enterprises that extended credit one barrier may need to be addressed. However, a trial-end- to rural consumers through hire-purchase schemes. The errorapproachmustbecombinedwithactivelearning,within PV dealers accessed credit, on normal commercial terms, the project and from other energy development actors, to from participating local commercial banks that refinanced shorten the time to generate results. their loans from the loan from the International Bank for Reconstruction and Development. The macroeconomic Most of the above finance mechanisms have been financial crisis of 1997­98 severely impacted the project: high discussed in relation to electrification projects employing RE inflation, high interest rates, falling incomes, and uncertainty technologies. A number of additional financing mechanisms about the future meant that it was virtually impossible for the are relevant to grid-connected RE, including the use of private sector to expand the PV market. system benefit charges on the power grid. Carbon trading and emission reduction credits provide a growing source of Finally, subsidies linked to standards and certification additional finance. GEF projects have not as yet explored have also been applied by GEF projects. The Sri Lanka ESD these areas. project worked to make solar systems affordable by targeting the interlocking barriers of high unit costs and prices and low Over the past decade the GEF has demonstrated sales volumes with an output-based subsidy that reduced the considerable innovation in financing mechanisms to increase consumer's first cost and a refinance facility to ease credit the availability of affordable finance. The appropriate to buyers. The project channeled subsidies to participating choice of financial instrument depends on the RE business companies on the basis of their sales performance and not model being employed and the financial barrier that has to linked to costs or retail prices. The REDP in China offers be overcome. The GEF experience also demonstrates the output-based subsidies on an incentive basis to be disbursed importance of technical assistance and small amounts of only after confirmation of installation to participating seed finance to introduce local financial institutions to the PV vendors. The mechanism is broadly following ESD possibilities of financing RE projects. The perceptions of the implementation arrangements, but on a declining basis per risks of these new markets can be shifted through carefully system. Based on the experience in Asia, the Uganda ERT designed and targeted GEF interventions that demonstrate project is providing grants for the installation of systems in financial viability in niche market areas. 52 GEF Climate Change Program Study 2004 INTEGRATION RENEWABLE ENERGY STRATEGIES OF includingwindormicrohydroorhybridinstallationswiththese AND UTURE RENDS F T technologiesandPVordieselgenerators.Theinitialemphasis is on demonstration (as it was in the early days with SHS), but GEF experience with renewable energy projects for the potential is now for larger-scale applications that explore electricity production over the past decade has been rich different institutional and business delivery models. and varied. We now have a comprehensive and coherent framework of strategies that are relevant for sustainable RE Thus, new GEF OP6 projects tend to include a range of market transformation. An understanding has developed RE technologies and fall under the caption of developing RE that a set of interlinked strategies are necessary that tackle products or markets. This trend does not fully respond to the policy, finance, business infrastructure, information, and above concerns of seeking the most successful overall business capacity constraints and barriers. Project designers can work modelforagivencontextthatmeetscustomerandinstitutional systematicallythroughthisframeworkof possiblebarriersand needs. Another issue to consider is the fact that project success relevant strategies. is difficult when trying to address multiple market barriers for a range of technologies. In terms of enabling policies, projects need to consider the possibleimportanceof overallenergypolicy,specificrenewable Grid-connected RE systems have made the largest impact energy strategies, power sector reform, rural electrification in OP6 in terms of GHG emissions and have the potential to policies and standards, codes, testing, and certification. In do so in the future. Biomass (see Box 4.4) and wind projects terms of possible business models for electrification, there is a hold much promise. Financing remains a challenge, but a key great deal of experience with different types of sales models, issue will be the extent to which GEF projects engage power but more experience is still needed with effective fee-for- sectorreformtoensurethatspecificpolicy,regulatory,financial, service concessions. The full menu of financing options can and institutional mechanisms are introduced to increase the beassessed,includingnationalREfunds,supportforfinancial proportion of new power generation from renewable energy. intermediaries, partial risk guarantees, equity investments, concessional debt, contingent loans, revolving funds, support Another area that has significant potential in GHG formicrofinanceinstitutions,dealercredit,grants,orsubsidies. reduction or avoidance is the use of landfills and methane Thesestrategiesgenerallyneedtobesupportedbyinformation gas. Strategies in this area are reviewed in Box 4.5. and awareness and capacity building programs. The primary challenge, however, is accurate diagnosis of market barriers 4.3.3 REDUCING THE ONG ERM OSTS L -T C and specific country conditions, and then the correct choice and execution of strategies. The GEF portfolio is now large OF OWL -GHG-EMITTING ENERGY enough to demonstrate a number of successful approaches in TECHNOLOGIES (OP7) particular market areas. OP7 consists of a limited number of projects, albeit with A number of overall strategic trends are apparent in the large financial allocations. Its objective is to reduce the cost of GEF cluster of projects focusing on renewable energy for prospectivetechnologiesthathavenotyetbecomewidespread electricityproduction.Theenthusiasmforsolarhomesystems market alternatives, through learning and economies of scale appears to be waning, and few new large projects are being in the long term. A decade has passed, but the portfolio has approved in this area. There is a growing consensus that PV not matured as expected. The number of projects supported costs are not falling to a level that is affordable by the vast to date has been small (16) and the achievements limited. majority of the poor who remain without access to electricity. Thus, in 2003, the OP7 goals were adjusted to reflect the Significant subsidies will continue to be required if the solar strategic priority - Global Market Aggregation and National home market is to expand. It is also generally accepted that Innovation for Emerging Technologies (SP5).103 This shift SHS have relatively modest development, miniscule GHG was supported by findings of a STAP104 review of the OP7, impacts--and fairly large program costs. While a number of which stressed the need for win-win situations of both global interesting business models and financing schemes have been technologies and national priorities, and a stronger emphasis developedinthisarea,thecontributionof PVstoelectrification on private sector partnerships. is small. Attention is accordingly shifting to institutional uses (for example, in clinics and schools) and exploring possible Within OP7, the solar thermal power portfolio consists of productiveusesforPVsystemsthatwillassistwithaffordability four projects (India, Mexico, Morocco, Egypt), implemented and debt repayment for these systems. Attention is also bytheWorldBankatatotalinvestmentof US$192million.105 shifting to mini-grid systems using a range of RE technologies All projects had to adapt their strategy from independent Chapter 4 - Overall Results and Performance 53 BOX 4.4 GEF BIOMASS PROJECTS Biomass projects are attractive for GEF because they represent a very difficult task. (R)ESCO type models are also possible, but energy sources with zero net carbon emissions. Projects include have not been explored extensively in the GEF portfolio. power production (combustion, gasification, cogeneration) from forestryandagriculturalwastesincludingsugarcanebagasse,palm GEF is able to leverage commercial finance for many of its oilresidues,woodchips,andsawmillwaste.TheSTAPiscurrently biomass projects. The experience that develops through GEF studying the possible promotion of liquid biofuels. Many of these demonstration projects assists in reducing risks and hence the cost projects focus on technology demonstration, but also include of commercial finance. For example, the experience gained in the activities that seek to tackle market barriers including enabling completed Mauritius GEF/World Bank project was instrumental policies, availability of finance, business infrastructure, awareness, inassistingthenegotiationof afinancingpackageforasubsequent capacity development, and technology transfer. They are mostly bagasse/coal power plant at a sugar factory in the north of the OP6 projects with a couple of OP5 and also some OP7 projects. country. Four biomass projects have been completed, and few are currently active. Proven biomass technologies differ by country. A technology could be considered proven in one country, but risky to finance in Many projects strive to promote biomass energy by improving another. This is a challenge for accessing finance. For example, in the policies, legislation, and regulatory framework for RE. For India financial institutions treat sugar cogeneration and biomass example, the Malaysian GEF/UNDP project on Biomass-based sectors as high risk in view of precarious market and financial Power generation from Palm Oil Residues seeks to: finalize a conditions for sugar mills, nonconducive policy frameworks in biomass policy document; formulate and recommend policies on most of the states, and high fuel linkage risks. A GEF project in RE electricity policy; propose regulatory policies on the pricing Indiaaimstocreateaspecificmechanismforcontingentfinancing and sale of RE electricity; and develop a power generation for model investment projects to overcome this barrier. market strategy for inclusion of biomass-based electricity power producers. The Thailand GEF/UNDP project on Removal of InThailand,thefinancialschemetosubsidizetheriskguarantee Barriers to Biomass Power Generation and Co-generation has fee for the pilot plants has proved to be a useful tool to create contributed to the review of independent power producer power confidence for banks and financial institutions to financebiomass- purchase agreements for RE. based power generation and cogeneration projects. However, the seasonal fuel supply risk is still a key concern. Although the energy output (and avoided GHG) potential of biomass projects is generally higher than solar energy projects, Several GEF projects have now implemented pilots successfully they often tend to be more complex. Appropriate business models demonstratingimportedtechnology.Technologyitself isfrequently and contractual arrangements need to be developed, not just for no longer the barrier and can be obtained on a commercial basis. the application of the technology and the heat or power off-take, Rather, the challenge is demonstration of the commercial and but also for the fuel supply. Even though biomass is frequently an institutionalframeworkinwhichthetechnologiescanbeprofitably underutilizedresource,itsavailabilityisoftendependentonseasons, deployed and replicated. so that ensuring its all-year supply over the life of a project is often 54 GEF Climate Change Program Study 2004 BOX 4.5 LANDFILLS AND METHANE GAS Methane (CH4) is an GHG. Estimates of global methane environmentscanimpactnegativelyonprojects.Theprofitability emissions from solid waste disposal sites range from about 5 to of the Latvia operation was threatened by governmental 20 percent of total estimated anthropogenic sources globally. increases in disposal tariffs and refusal to purchase the electricity Landfill gas projects present a unique opportunity to obtain at average consumer prices. energy from improved waste management and processing, while at the same time providing global and local environmental Financing issues. The budgetary needs for plant benefits. Most of the GEF projects in this area were launched development were underestimated for all the projects, and it some time ago in China, India, and Jordan (by UNDP) and in has been difficult to obtain financing from communities, the Indonesia, Latvia, Mexico, and Uruguay by the World Bank. private sector, or municipalities. In Uruguay, the municipality Mosthavesimilarobjectives,thatis,toreduceGHGemissionsby was unable to come up with the agreed counterpart funding recovering methane from landfill waste and to use the gas as RE owing to the economic crisis affecting the region. For the India in an engine or a boiler. They are mostly demonstration projects biomethanation project, most of the beneficiary organizations dealing with technical viability, regulatory frameworks, finance, were unable to meet their 50 percent cost commitment. and consumer awareness and acceptance. Few aim to remove Replication potential of the technologies is technically large, but barriers directly or transform markets for cogenerated energy at financially unattractive, and would be more likely with strongly the national level. Rather, they aim to address a localized market enforced local environmental law. for gas with possibilities of replication in other sites. Business development. Collection and disposal of The most promising projects at this point are in China and urban solid wastes is typically regulated and managed by local Jordan. In Latvia, the gas production is operational but not yet authorities. Municipalities are often inexperienced in working financially viable. Most of the projects experienced significant with private companies in this sector. GEF projects have played delays stemming from the time needed to assess the landfill, an important role in facilitated public­private partnerships. obtaining financing, developing business arrangements, and In Jordan, through a Danish-German partnership, landfill gas procuring equipment. The Mexico project is the only one in production has exceeded original estimates, although its liquid which the physical implementation is ahead of schedule. The biogas production is not as successful. India Biomethanion and Uruguay projects have experienced major implementation hurdles. Demonstration-type projects must demonstrate success, without which there is no incentive for replication. Where such All of the methane projects have faced problems in producing achievements are late in coming, are complex or costly, and quality gas in sufficient quantities, which has consequences require considerable efforts, uptake by other actors is less likely. for the financial viability of the operations. The projects are As the projects advance, more lessons are needed on financial dependent on off-take agreements (which may include gas viability and actual replication within the portfolio. purchase agreements; steam-purchase agreements; power purchase agreements) and fuel-supply agreements (including Graduation of methane initiatives to carbon finance schemes specifications of quality and frequency and volume of delivery). is also possible, because methane is one of the approved CDM methodologies. This has been demonstrated in Latin America Policy and legal frameworks. In addition to their andpartlyinEurope,where--afterMexicoandUruguay--other direct demonstration effect for replication, GEF projects make landfill gas methane projects are being considered under carbon a difference to policy or regulatory frameworks for waste finance because of attractive returns and available financiers. management. For example, in China, the government's draft The view emerging within the GEF Climate Change Task Force National Action Plan was launched in 2002 and will serve as the is that the GEF should pass this technology to carbon finance foundation for developing further national-level policy measures and other sources, and move on to other areas of greater GEF to provide incentives for the widespread adoption of landfill gas comparative advantage. projects in China. The Jordan master plan, promoting biomass/ biogas for the production of energy and fertilizer, is expected to Nevertheless,themethanefieldmayremainaninterestingarea be completed this year. The Mexico project is also strengthening for the GEF, in specific cases where an enabling environment is the regulatory, policy, and social frameworks for the introduction necessary and the support could not be provided on a project- of landfill gas capture and use. Meanwhile, unfavorable policy by-project level by the CDM. Chapter 4 - Overall Results and Performance 55 power projects to public sector power plants with variations The STAP 2004 review recommends that the list of of engineer-procure-construct contracts. This presented OP7 technologies not be closed, and suggests smaller-scale new challenges in securing public cofinancing, and also has technology applications, MSPs, EE technologies, or projects consequences for the procurement process because there are with a pure policy focus. Avoiding OP7 project "lumpiness" alimitednumberof consultingfirmsandsuppliersinthesolar is attractive, but lessons from the Climate Change Program thermal technology industry. Key milestones have now been are clear--dispersed GEF projects (in terms of geographical set for launching the four projects. The Morocco plant may presence, technology, strategy, and focus) face considerable be the most advanced (preparing for prequalification bid), limitations in effectively learning, overcoming cost barriers, whereas the Egypt project was just approved in May 2004 by and building a critical mass for results. the GEF Council. The India Mathania project was the first GEF solar thermal proposal, but appears to pose the largest AkeyparadoxhastodowiththecountrydrivennessinOP7. challenges to costreduction. Mexico will depend on obtaining Theseriesof OP7projectsindifferentcountrieshavenotsofar turnkey finance through the plant contractor. brought local benefits or synergy with the development goals at the country level and, consequently, no global benefits. The More advances have been made in large-scale biomass technological nature of the OP7 portfolio has not allowed it gasification.106 The technology involves gasification of to effectively integrate local policy and institutional aspects or biomass--woodchips from plantations of rapidly growing withthepovertyreductionagendaof theIAs.Furthermore,the trees in one project, sugar cane bagasse and field wastes in parallel technology development in industrialized countries, the other--and combustion of the resulting gases in a high- which was assumed to happen as GEF supports emerging efficiencygasturbinetogenerateelectricpower.Threeprojects technologies and buffer the country projects, has been rare in Brazil, by the World Bank and UNDP, have resulted in and disconnected. The STAP OP7 review recommended resolving many technology and system integration issues and that the GEF should "be more active in stimulating local changing attitudes of key stakeholders. However, only with and international leadership and in promoting champions the 2001 Brazil power crisis did sufficient incentive appear to by establishing partnerships with private sector companies." considercommercialdemonstration.Thisexperienceconfirms However, evaluations have frequently pointed to the GEF's the interdependence between technology support activity and lack of comparative advantage in partnering directly with the political-institutional environment. Lessons are yet to be the private sector. Where such international partnerships drawn on how to make an eventual commercialization in one exist, GEF may be able to seek a role, but where GEF has to country apply worldwide for cost buy-down. motivate others to engage themselves it would still shoulder the main burden alone. In China, the first-ever coal-fired generation plant in a developing country using integrated gasification combined The recent efforts of the GEF to address the fundamental cycle technology is set to advance, with technical carbon challengesof OP7arecommendable.Theintendedmeasures sequestration. In a first phase, this GEF/UNDP project may remedy key weaknesses, but it is questionable whether will demonstrate improved efficiency, and subsequently the they would fully address the lassitude of the program. The technology's capacity to reduce carbon emissions, pollution, aspects that would justify a GEF OP to reduce the long- and solid waste emissions. The capital investment and energy term costs of low-GHG-emitting energy technologies are production are still expected to be more expensive than other becoming increasingly indistinguishable from other GEF coal-based alternatives. focal areas. OP7 projects face the same market barriers and can be undertaken through RE, transport, or EE measures, EMERGING ISSUES and compete with other, more cost-effective ways to reduce poverty. The STAP findings also suggested "that OP7 should The "right" strategy for ensuring sustained global cost be integrated with OP5 and OP6 which are also connected reduction remains elusive. The main difference between with the removal of barriers." "regular" renewable energy projects and OP7 lies in technological risk barriers. Yet, other technologies that are 4.3.4 PROMOTING ENVIRONMENTALLY more widely applied and for which there is demand (solar PV, grid-connected wind power) still struggle with cost SUSTAINABLE TRANSPORT (OP11) competitiveness. The neglect of other, typical barriers within OP7 resulted in a focus of many projects on the financing The last of the OPs, approved by the GEF Council only aspects, rather than a balanced removal of all transactional, in 1999, recognizes that reduced long-term emissions from informational, and capacity-related barriers.107 the transport sector will be essential for stabilizing GHG 56 GEF Climate Change Program Study 2004 concentrations.108 Transport consumes a quarter of the the bus supplier. Given the progress, it is doubtful that the world's energy and accounts for some 25 percent of total goal of 22 buses used in historic sites and protectorates CO2emissions, 80 percent of which can be attributed to road before the end of 2005 will be reached. transport.109 The two projects explicitly dealing with promoting Thespecificobjectiveof thisOPistoreduceGHGemissions nonmotorized transport--Poland/UNDP and Philippines/ from ground transport sources in recipient countries. From World Bank--are undertaking construction of bikeways, the outset, the Council recommended a selective and catalytic helping the local government to address the policy and approachthatwaslargelytechnologybased.FollowingaSTAP regulatory framework for cycling, and promoting strategies brainstorming session on transport in 2002, the OP11 goals for awareness raising. Lessons have shown that more were adjusted to reflect the Strategic Priority - Modal Shifts construction of bikeways does not ensure the increased use in Urban Transport and Clean Vehicle/Fuel Technologies of bicycles; a promotional strategy to raise bicycle use is (SP6).Thefocusof futureprojectswouldturntopublictransit, indispensable. Other types of projects also strive to address nonmotorized transport, and nontechnology measures such policy issues. In Peru, a document on a road-based public as traffic demand management and economic incentives. transport policy was requested as a precondition for some of GEF's disbursements. The first draft has been concentrated The transport projects are well targeted to include some of on diagnosis; policy recommendations are still vague due the world's largest urban agglomerations, in Brazil, China, to political concerns regarding electric trains and bus rapid India, the Philippines, Egypt, Peru, and Mexico. However, transit. they do not explicitly engage in market barrier removal at the countrylevel,asdotheotherOPs,althoughtheprojectsapply Reflecting the new Strategic Priority (SP6), four projects the range of GEF strategies discussed in this chapter. address modal shifts (Santiago, Lima, Hanoi, and Mexico City, all by the World Bank) that combine public transit, The largest group of transport projects is the GEF/UNDP nonmotorized transport, and especially urban traffic FCBprogram,whichsupportscommercialdemonstrations of management. GEF support is linked to larger urban FCBsandrefuelingsystemsinsomeof thelargestbusmarkets development loans from the World Bank. For example, in the developing world. The program relies on technology the Chile project intends to address most dimensions of "leapfrogging" in close partnership with international interest transport: to reduce car use through road pricing, encourage groups. Brazil and China, the most advanced projects, are replacement of old buses by cleaner buses with lower expecting the first delivery of buses in September 2005. emissions levels, increase the use of emission-free modes The Mexico project will evaluate the buses under the high such as bicycles, lay the groundwork for a more energy- altitude of Mexico City. The India and Egypt FCB projects efficient travel pattern through land-use changes, rationalize are working on obtaining national cofinancing and reflecting travel behavior, and enhance the analytical tools available. the recent changes in the FCB market.110 Success will depend Ultimately, this depends on strengthening business capacities on how the world FCB market evolves, led by the United of municipal transport agencies to manage transport States and Europe, to resolve the issues of cost, durability, and infrastructure by developing well-defined responsibilities, reliability. coordinatingmanagementandresourceutilization,providing visionary leadership with a willingness to take risks, and Theoverallobjectiveof theGEF/UNDPtransportprojectin offering long-term commitment. Egyptistointroduceviableelectricandhybridbustechnologies that would have significant benefits to bus system emissions, EMERGING ISSUES the enhancement of Egypt's technological competitiveness, job creation, and protection of World Heritage sites, because A critical assumption of the June 2001 strategy for OP11 thebusesaretobeusedintheGizaarcheologicalplateau.The was that its measures would have security of funding and project has demonstrated that the bus can be adapted to and long-term commitment from GEF and other financiers. So function properly in Egyptian environments. However, the far, this has not materialized. The growth in the portfolio project also illustrates the difficulty of using such high-level has been slower than expected, but may likely increase as technologieswithoutlocalcapacities; the twin electric motors countries respond to the Strategic Priority. have to be sent to the United States to be repaired. Building capacity in operation and maintenance of electric buses is Greater nuance is also required in the range of strategies essential for smooth operation, and Egyptian technicians and technologies employed, moving from technology have since fixed some electronic circuits with guidance from options to integration with urban/transport planning and a Chapter 4 - Overall Results and Performance 57 more balanced mix of sustainable transport options. How approaches for delivering results at the program, can the GEF integrate effectively with mainstream transport cluster, or project level? planning? Is the GEF selecting key GHG-polluting transport modes, such as freight ground transport? At the outset, it is recognized that GEF support was designed to provide incremental, new, and additional Ultimately, much of the challenge within transport is funding to long-term mitigation efforts, as well as to support to change human behavior. The traditional approach of countries in their obligations under the UNFCCC. As such, promoting low-emitting technologies will not suffice to GEF functions within the strategic framework of the four promote modal shifts to public transport or nonmotorized OPs, and not under any formal programmatic framework at transport.WithGEF'straditionalfocus,itmaynotberealistic the country level. for the GEF to ensure modal shifts in developing countries, where increased motorization is driven by growth and seen 4.4.1 STRATEGIC ALIGNMENT AND OCUS F as a sign of progress. Car users tend to be in the forefront of the growth wave. The key issue may be one of preventing The strategic alignment and focus of the GEF may be a modal shift to less environment-friendly transport in analyzedatthreelevels:(a)theextenttowhichithasfollowed developing economies. GEF's role will only be effective if it its UNFCCC mandate and COP guidance; (b) the degree to clearly defines its comparative advantage in public transport which it has focused its activities in countries where it is able within larger investments and management systems. to maximize impact; and (c) the degree of coherence and focus in the types of projects it undertakes within the defined 4.4 GEF STRATEGIC RESPONSE OPs. This section assesses how GEF has positioned itself The GEF has been fully responsive to its mandate as strategically to add value in response to global climate defined by the UNFCCC and guidance from successive change concerns, national needs, and changes in national COPs. The COP-8 review of the UNFCCC financial development contexts. It also assesses country drivenness mechanism found that GEF had performed its role and responsiveness, as well as synergies and alignment of effectively (2002). The COP has been closely involved in GEF support with other initiatives and partners. major strategic decisions regarding the GEF, including the choice of OPs and the recent call for adaptation pilots and GEF programming within climate change over the past 13 capacity building support. Annex C contains an overview of years has been undertaken within a dynamic context. While key COP decisions relevant to the GEF. the overall level of GHG emissions has worsened, awareness and acceptance of climate change has increased, and global The question of whether the guidance has been helpful efforts to meet the challenge are emerging. in defining a clear niche for the GEF is more open. A recent study commissioned by the UNFCCC on capacity building What can the GEF--in funding incremental costs for recommended that "Overall guidance, such as that provided mitigation in the developing world--realistically contribute? by the UNFCCC framework, should be complemented by The Climate Change Program Study aims to identify what a more precise, country-specific definition of needs and approaches or strategies have been the most effective in priorities."111 generating outcomes and how the GEF can become more strategic in addressing key national priorities, capacities, There have been many changes in the policy framework; and needs within climate change. This implies an analysis this does not favor stability in the portfolio to experiment, of the cost-effectiveness of its use of resources, as well as learn, and catalyze. In some cases, these changes have a discussion on missed opportunities. Program performance been evolutionary (adding SPs to the OPs); in other cases, can be illustrated by three questions discussed below: the changes are more profound. For example, in the recent past the GEF did not officially focus on policy frameworks, a. How strategic has GEF been in addressing global adaptation, or stand-alone capacity building, whereas now climate change issues, within its mandate to support these areas are emerging as specific priorities. Feedback from NAI countries? the program countries consistently indicates that it is difficult todiscernGEFprioritiesandrequirementsatanygiventime, b. How responsive has GEF been to country needs and which causes slow uptake on GEF strategic shifts. And given priorities? the lengthy formulation and approval process, this means c. How effective has GEF been in selecting the right that actively changing the course of the GEF portfolio as lessons emerge is difficult. 58 GEF Climate Change Program Study 2004 FIGURE 4.9 DISTRIBUTION GEF PROJECT FUNDS OF PER OUNTRY S C V GHG MITIGATION POTENTIAL 1,000 China Mexico Brazil Philippines India 100 Uganda Morocco Poland Egypt Russian Fed Indonesia Thailand US$ 10 Iran South Africa Million Ukraine Vanuatu Venezuela 1 Korea 25% quartile 50% quartile 100% quartile 75% quartile Djibouti Cameroon 0.10 0.01 0.1 1 10 100 1,000 10,000 CO2 emissions in 2000 (million tons) How strategic has GEF been in focusing projects in longer term (that is, influencing energy system development countries with large GHG emission challenges? The GEF now rather than switching technologies later). However, for distribution of mitigation projects can be presented in a log some cases in the portfolio it is debatable if this switch is scale112 (see Figure 4.9). likely, even in the long term. Higher levels of GEF funding have, in general, been Themoststrikingfeatureof GEFcountryallocationsisthe assigned to the developing countries with the highest cluster of countries receiving similar funding levels but with overall potential for GHG mitigation, for example, China, widely differing emission levels. More than three-quarters India, Mexico, Brazil, and Poland. Within each region, the of GEF projects are in countries with emissions less than countries receiving most funds (with the exception of Africa) 100 million tons per annum, and more than 50 percent of are those with the highest GHG emissions. GEF countries have emissions less than 10 million tons per annum--yet many receive levels of GEF funding similar to The GEF project-led allocation system has also generated countries with emissions in the hundreds of millions of tons. some "outliers," such as Morocco and the Philippines. For It is not obvious from the quantitative data how the GEF example, Uganda has received disproportional allocations in portfolio has been shaped. Apart from the concentration of terms of emissions reduction potential, mainly for RE rural funding in the largest and highest-emitting countries, the electrification projects. Other countries, such as Venezuela, balance of the GEF portfolio does not appear to have been Republic of Korea, Ukraine, Islamic Republic of Iran, and directed by any strategic country choice that is related to South Africa have received relatively small amounts of funds maximizing potential GHG impact. despite being responsible for high emissions levels. Some such cases are explained by the combination of political The degree of GEF strategic focus and alignment can also and institutional factors at the country and agency levels be assessed by looking at the composition of the GEF project that generate projects; other cases are more difficult to portfolio. GEF programming for full- and medium-sized discern. Of course, investment in countries where emissions projects has taken place within the framework of the OPs. are currently low may be cost-efficient over the medium to The climate change focal area is perhaps the most diverse in Chapter 4 - Overall Results and Performance 59 nature among GEF work; the range in clusters, objectives, In spite of the limitations in overall portfolio coherence, and needs is vast. The evolution of project types within each a project itself may have positive effects at the country level OP has been irregular. The lengthy period from project provided that the support responds to local priorities. GEF conception and design through to implementation implies responsiveness is also measured in what kind of projects it that a time lag in learning is inevitable. At any given time a undertakes in what situations. number of projects are still ongoing that GEF stakeholders have already realized are less promising. Project approvals 4.4.2 RESPONSIVENESS in "waves" of clusters may have the advantage of building a periodiccriticalmass,butonlyprovidedthatimplementation Both OPS2 and the Third Replenishment negotiations is managed in such a way that lessons learned can be stressed the need for improved responsiveness of the GEF integrated into the next project wave. to country clients; the importance of mainstreaming of global environmental issues into the regular programs of For example, the EE cluster fluctuations are apparent the IAs; country ownership and strengthened outreach; and in the Figure 4.10, which shows the ratio of yearly project the absorptive capacity of recipient countries as well as the approvals by cluster. It is difficult to observe clear growth increased capacity of the GEF partners to deliver quality or evolution patterns among clusters. A similar picture is projectassistance.Thedegreeof governmentownershipand discernible for programming within OP6 on renewable support for project results is also a central issue in ensuring energy. RE rural electrification (by PV, wind, hydro) saw a the sustainability of project benefits.113 The blend of country steady rise until 2000, then declined sharply. FIGURE 4.10 NUMBER ENERGY EFFICENCY PROJECTS APPROVED OF 14 12 10 8 projects ved 6 appro of 4 Number 2 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 EE/public sector EE/industry EE products FI/ESCOs 60 GEF Climate Change Program Study 2004 drivenness, GEF responsiveness, and local implementation EAs is generally responsive to national needs of capacity capacities is acknowledged as a key factor in portfolio building and adaptation, and is based, in part, on absorptive performance. capacities.116 GEF climate change allocations are distributed across According to the project climate change pipeline, the GEF nearly all eligible countries, and those countries with the intends to expand its support to regular full- and medium- highest GHG emissions receive the most funding. In this sized projects in 21 of these countries that have so far broad sense, the GEF climate change portfolio is responsive benefited only from EAs. The majority of these represent to country needs. However, the pattern does conceal countries with middle incomes and medium to high CO2 considerable disparities in allocations and focus--both in yearly emissions (2­7 and above 7 million tons per capita, terms of low potential for maximizing replication effects and respectively)suchasVenezuela,ColombiaandUzbekistan.A missed mitigation opportunities. move to mitigation projects in these countries would appear to be a logical step. For the rest, the pattern is not clear. The GEF is involved in climate change activities in 143 developing countries; the only 10 developing countries Among countries with mitigation projects, only six currently not supported face special circumstances of countries can be considered to have a substantial "country instability or war, such as Somalia, Afghanistan, and Iraq.114 portfolio," with seven or more approved projects: China, Within this near global coverage, the nature, scope, and scale India, Mexico, Brazil, the Philippines, Poland, and the of GEF assistance vary considerably. Figure 4.11 illustrates Russian Federation. These are, generally, the countries with the level of support for full- and medium-sized projects for the highest mitigation needs in their respective regions. See countries (excluding regional and global projects). Figure 4.12. A third of the 143 countries receive assistance only for While there is a clear trend of the very highest emitting EAs. The majority of these are in low-income countries countries receiving the most projects, there is no obvious with low levels of GHG emissions (less than 2 tons per evidenceof strategicchoiceintheremainderof theportfolio. capita yearly) or in tiny medium-income countries, many Countries with similar levels of GEF support--one or two in the Caribbean.115 The targeting of GEF assistance in projects--have GHG challenges and emission levels that FIGURE 4.11 PORTFOLIO CHARACTERISTICS vary by a factor as much as 1,000. There are some nuances; AT COUNTRY LEVEL countries with three to five approved projects, are mainly middle-income countries. Fifty percent of countries with only one project are low-income countries with low GHG 50 emissions. 46 45 The likely reasons for the apparent absence of strategic 40 38 choice in the bulk of the GEF portfolio are many. Primarily, 35 the project-by-project approval policy does not favor decisions on strategic response and coverage. Second, the 30 GEF portfolio is country driven. Third, project priorities 25 must also coincide with the priorities of the IAs at the 18 21 country level. Fourth, early and past experience with GEF 20 may have boosted the capacity to generate project proposals 14 in some countries. Individual motivations also play a role. A World Bank evaluation on private sector involvement in 10 power sector reform pointed out that "The relatively few 6 5 projects that materialized were mainly at the behest of the championing task managers, often buoyed by the availability 0 of Global Environment Facility (GEF) funds." Countries Countries Countries Countries Countries Countries with with one with two with 3-5 with 6 with enabling project projects projects projects EAs and Dynamic responsiveness on the part of the GEF activities only or more pipeline only projects implies the capacity to gauge what the country needs and priorities are and to assess suitability of project proposals within a national framework. National communications to Chapter 4 - Overall Results and Performance 61 FIGURE 4.12 NUMBER GEF MITIGATION PROJECTS OF PER OUNTRY C 30 China 25 projects 20 ved India 15 appro of Mexico Poland 10 Philippines Russian Fed Brazil Number Tunisia Peru Vietnam 5 South Africa Iran Ukraine Indonesia 0 Vanuatu 0.01 0.1 1 10 100 1000 10000 CO2 emissions in 2000 (million tons) the UNFCCC, undertaken within the obligations of the the largest GEF recipient countries do not yet have national Convention, contain climate change emissions inventories communications upon which to base programming.118 and describe national measures to address climate change issues. Apart from their use for reporting to the Convention, Another vehicle for determining country priorities are the the national communications do not seem to have been IA country programs,119 which have been agreed upon with valuable in guiding programming. To some extent national the recipient governments. Both the World Bank and now priorities are expressed in other plans and documents, which UNDP have requirements that projects must fit within these makes formulating a targeted response difficult. overarching frameworks. A sample review found that GEF activities are generally referred to in these programming A review of a sample of national communications117 frameworks, albeit often at such a generic level that actual revealed a mixed picture. In some countries, such as priorities do not emerge. The synergies with country IA Morocco and the Philippines, the GEF portfolio mirrors strategies vary; in some cases the GEF support constitutes the GHG challenges, and national mitigation measures as the only environment-related effort. It appears that it is not expressed in the national communications. In other cases, easytomanagecoherentandstrategiccountryprogramming the GEF emphasis has been on minor elements of the that spans agency priorities and mandates, GEF strategic national communication priorities. In Indonesia--where priorities and operational programs, country climate change manufacturing is growing at a rate of 24 percent a year and challenges, and national and local benefits. Yet, integrated the national communications focus is on energy reform, programmingis essential.As arecentWorldBankevaluation transport, and forestry--the GEF has mainly promoted on environment performance expressed, the "benefits of SHS. In Uganda, the national communications stress on RE stand-alone environmental projects can be more than offset lies in Nile basin hydro development, and PV--the focus of by the negative environmental impacts of lending in other three GEF projects--does not figure prominently. Some of sectors that ignores environmental benefits."120 62 GEF Climate Change Program Study 2004 The GEF has tested a number of programmatic By the 1990s Mexico was the 13th largest energy consumer approaches in the climate change focal area over the year. and the 12th largest energy-related CO2 emitter worldwide One approach has been technology based, supporting the (1.9 percent of global emissions). Less than 10 percent of the dissemination of low-GHG-emitting technologies across GEF portfolio funds are for EE. countries and regions (for example, fuel cells, concentrating solarpower,biogasification/cogeneration).Anothercountry- Other examples, such as China, counter these trends and based approach targets the development of national markets show pertinent focus. The World Bank and UNDP worked or long-term development effort, for example in the form together through the Energy Sector Management Assistance of rural or decentralized energy supply programs (examples Program on energy development, which allowed for early in Mali and Sri Lanka). In practice, this has taken the form interaction on the GEF climate change portfolio as a whole of follow-up phases of initial projects with expanding scope within China. Subsequently, both good and bad examples of as "replications."121 A phased project approach is certainly interagency cooperation can be observed. recommendable to invest in market transformation. A next step would be a forward-looking and transparent priority However, it is still somewhat disconcerting that the framework with common goals and intended results that GEF project portfolio in many countries misses out on facilitates country programming. opportunities for strategic impact by not addressing the major energy issues. Interviews among stakeholders 4.4.3 OVERALL EFFECTIVENESS indicated many reasons why such project choices are made. First, complex national issues are seen to be beyond the How effective has GEF been in selecting the right reach of the GEF, such as influencing overall energy policy. approachesanddeliveringresultswithinindividualcountries? Second, there may have been concerns that issues are not GEF projects are, of course, submitted for approval at the within GEF's role or mandate, such as working on power country level, but GEF priorities are also made clear at the sector reform. Third, some issues are perceived to represent global level. The current project approval practice is thus an a comparative advantage for other agents than GEF, such as interdependent circle, with implicit incentives for countries working with private sector industries. Whatever the reason, and IAs to propose projects they perceive GEF will favor, a need to work on policy frameworks and overarching power and for the GEF to approve proposed projects it believes sector issues is finally now emerging. are country priorities. Once the project reaches the GEF Council there is strong pressure to approve it. With the For countries with significant GEF portfolios (six or more current complex and long approval system, innovation is projects), a simple but integrated GEF country program more risky than copying projects previously cleared. with objectives and strategies would be useful, within which appropriate and linked projects could be approved. Smaller Although GEF projects can sometimes be in line with portfolios may not require a full program, but still need national priorities, the current system has led to cases of explicit priorities. inconsistent focus within countries where the GEF is not consistently addressing major climate change needs related Moreover, the study findings show that the issue of project to either GHG emissions sources or expressed national timing is important for effectiveness in countries with few goals. For example, in India, the top sources of direct projects. Of the 18 countries with 2 approved projects, 12 GHG emissions are power generation, transport, and iron had staggered projects, but not necessarily in the same area. and steel production. Top sources of indirect emissions For any concerted effect on markets, a certain magnitude of are construction, food crops, and textiles. Although the support is required. traditional use in India of biofuel--for cooking, fuel, timber, methane from paddy fields and livestock--contributes to Countries with simultaneous and complementary GEF GHG emissions, these are relatively limited in scope. So far, projects need coordination and cooperation to be effective. only 11 percent of GEF allocations in India have been for Such synergies are far from satisfactory. At the portfolio energy efficiency. The somewhat erratic evolution of the or focal area level, knowledge sharing is not systematic, portfolio is shown in Figure 4.13. An attempt to develop a focused, or systemwide. This diminishes both efficiency and GEFcountryprogramearlyinthisdecadedidnotmaterialize effectiveness of the portfolio. in a strategy. Most developing countries supported by the GEF require The pattern is the same for Mexico, whose energy support in the area of climate change, but they may require consumptionratioscomparefavorablywithOECDaverages. different types of support. The introduction of GEF stand- Chapter 4 - Overall Results and Performance 63 Act: 06 Bureau- five- ts. ve limiting 02 Efficency 20h enthT star India- re-rolling 02 yotoK capti and rent-20 vironmental 02 Plan 20 Electricity Cur (regional) 20 steel Energy 02-07 in Marc of created 20 year Aug ratifies P rotocol. 0302 10 allowing systems subsidies. 20 system biomass buses production/en tos efficiency . cell 10 rier ra 03 Accelerated-1 (APDP). 1 development ectorS conference. uelF Cleaner management 20 Bar Energy 20 reform? 0-00 egies: 0-0002 20 at efficiency sector power P rogram Blueprint-10 20 P Minister ower 9991 - str 9981 entr noitagerggatekra los,sesubllecleuf )tnalpla II) India Cur · M ( t Energy· P· mreh ower A communi can Laws 9981 rural st (IRED fir 1 999 for of sector in Electricity- vateriP methane energy UNFCCC efficiency ticipate bed reparationP to 9981 Act: par transmission. 998-991 Coal Energy Biomass EA: cation y:g transfer - to ener and vestin fs. able Minister testing 0%01- depreciation. boom. state agrees st institutes tarife enewr tax Fir- Act. 9961 9961 on hnology vention 990s1 ec ment Windfarm 9961 (Orissa) R conference rationaliz eform 9961 project power ocusF T· Con· global thermal of able revised. PVMTI, S olar India- Ministry- ventional S ources enewR- policy climate 9931v vention. IMELINE 9921 Noncon Energy created. 9931 9931 - energy No ratifies con T Bio (sectoral 9911 building areness GEF aw Options ts vitein ts. 9911 EA egies: at INDIA3 star capacity testing star to in 9911 9921 GHG str energy hed able 4.1 India- direct sector 992-1 9911 regional­ 9931 launc 9911 A Hydel S electionS phase hnological Institutional R enew IGURE 9911 ecT liberalization foreign in vestment. owerP GEF F imeT IRED Hilly ALGA methanion EA: studies) Pilot · · · 64 GEF Climate Change Program Study 2004 alone projects for capacity building and adaptation may sector partnership and private sector cooperation--not allow the GEF to respond strategically to the range of needs habitual strengths of development agencies. The 2003 encompassed in low- to medium-emission countries, while Project Performance Report process interestingly pointed continuing to funnel funds for mitigation projects in high- out problems of predictability in working with partners in emission countries. However, the introduction of new areas climate change and the immediate consequences for success of workmaytendtodisperseeffortsandputadditionalstrain or failure. Due attention to the importance of both financial on institutional capacities. The new pilot funding window on and substantive alliances, and to networking for replication, adaptation will present new strategic challenges and choices tend to be underestimated. for GEF in both countries with and without GEF mitigation projects. Nevertheless, the GEF is not alone in facing challenges of strategic development and effectiveness of its portfolio. A GEF projects may also gain in effectiveness and leverage significant gap between rhetoric and reality is a major theme results if appropriate partnerships are built. Such partnering in all evaluation reports on environment priorities, and "the in the GEF and Climate Change Program has often been more recent ones indicate a falling-off in performance in focused on obtaining financial resources. The target of a 4:1 the late 1990s. Effective priorities seem to have shifted away cofinancing ratio sometimes has been difficult for projects to from the environment."122 The overarching attention to the achieve and does not seem to have stimulated effectiveness in environment among stakeholders influences the momentum theportfolio.Veryimportantistheabilityof theGEFproject andeffectivenessof GEF.TheGEFfacesaconstantchallenge to generate new finance in the market. Climate change of keeping the environmental issues at the forefront of the projects are thus dependent on effective public­private development agenda. Chapter 4 - Overall Results and Performance 65 5. Key Findings And Recommendations The analysis presented in the previous chapters of this to achieve market transformation is either narrowly study reveals a number of key findings on the strategic constructed or consists of poorly grouped and often coherence and focus of the GEF climate change program, unconnected sets of market barriers or project activities. overall GHG impacts, market transformation outcomes, The first GEF Strategic Priority (SP1) in climate change performance and emerging issues in OP5, OP6, OP7 and is defined as "transformation of markets for high volume OP11, knowledge management, document management, products and processes."123 Market transformation projects and M&E systems. are understood to "consist of capacity building, marketing and awareness raising, standards and labeling programs, In the light of these findings, specific recommendations dealer incentives, and manufacturer technology transfer and are made, highlighted in bold below. These mainly relate to product design."124 No mention is made here of a number of overallGEFclimatechangeprogrammingandmanagement. important strategies that are key to market transformation These recommendations are supplemented by a host of and barrier removal, including enabling policies, availability lessons that derive from the global portfolio of GEF projects. of finance, and adequate business infrastructure. A broad understanding is emerging on the strategies that work and those that work less well, and the areas where The GEF Strategic Priorities, as currently formulated, further project innovation and learning is still necessary. obscure potential linkages or overlaps between proposed strategies. For example, the second, third, and fifth strategic 5.1 STRATEGIC ISSUES priorities give the impression that finance, sector reform, and market aggregation activities are separate and unrelated to the market transformation objective captured in SP1 when, 5.1.1 STRATEGIC COHERENCE clearly, they contribute directly to this overall goal. The strategic priorities are also a rather curious mix of these With time GEF has met with increasing expectations market transformation activities and a selective focus on with regard to its role and mandate in climate change. The specific sectors (for example, RE for productive uses and evolution of GEF's climate change OPs, strategic priorities, modal shifts in transport). performance dimensions, and indicators at best seem incremental, at worst inconsistent. The linkages between Thepracticalimplicationsof theOPbarrierremovalgoals GEF's overall mission or goals, its strategic priorities, OPs, and strategic priorities for the project clusters are unclear. project clusters, and performance measurement indicators Undoubtedly, there is a broad understanding that certain are no longer conceptually clear, nor are they entirely kinds of projects are no longer favored and that others are consistent. The inclusion of "new" areas not within the now strategic priorities. However, as our analysis in previous traditional GEF body of climate change work, such as chaptershasshown,thisisnotalwaysevidentintheportfolio, adaptation and stand-alone capacity building, presents andadirectcorrelationwiththestrategicprioritiescannotbe additional challenges and workload to the GEF system. made--notevenwiththoseprojectsthathavebeenapproved or have entered the pipeline more recently. This absence of conceptual elegance and coherence is best illustrated by the way in which GEF has defined market The match with performance indicators and M&E is transformation and the way in which it has formulated its incomplete and inconsistent. The 2000 GEF report on strategic priorities. The discourse within GEF on strategies measuring results from climate change programs sees 66 GEF Biodiversity Program Study 2004 market transformation as the "level of market penetration applicationsthatachievereducedoravoidedGHGemissions. of sustainable technologies and practices in given country Market transformation outcomes that contribute to this goal markets," yet indicators on market penetration and barrier are enabling policies, available finance, adequate business removal are unclear and proxy indicators inconsistently infrastructure, information and awareness, appropriate applied in project formulation. The strategic priority technology, and adequate capacity. And GEF strategic indicators present considerable challenges at the project priorities could be those strategies that contribute to these level. Thus, aggregation and reporting for the GEF portfolio market transformation outcomes and associated GHG on intended results will remain ad hoc. impacts. Furthermore, to maintain a strategic and innovative GEF Theelementsincorporatedinthecurrentstrategicpriorities role, the Climate Change Program must also keep abreast could be maintained, but could be reformulated in a more of the developments and trends in the climate change coherent manner that recognizes the various dimensions of field--without implying that GEF should precipitously market transformation more explicitly and rearranges sector launch activities in new areas. Although emerging issues are specific priorities more systematically and at different levels. discussedwithintheGEFfamily,theyoftendonotmaterialize A hierarchy of strategic objectives and priorities could be in support of a GEF position on the subject--including formulated. At the first level it would focus on overall market carbon trade; serious exploration of other high-impact areas transformation to achieve sustainable GHG impacts. At the and technologies, involvement in near zero emission clean secondlevelitwouldincorporatethefivebroadstrategiesthat coal technologies, and so forth. Strategic policy positions, contributetothisprimarystrategicobjective.Andatthethird such as the weight between types of projects (for example, level, sector and cluster priorities in the various OPs could be discontinuingSTRMs),arenoteasilyavailabletostakeholders made more explicit and systematic. Performance indicators in the IAs and in the field. The past approach--relying on and M&E reporting systems could then be reformulated to informal networks on GEF policies--is no longer effective. match the above framework. This is illustrated in Figure 5.1 below. In particular, it would be useful to further clarify GEF involvement in carbon finance programs and cofinancing It should also be underlined that any strategic framework, and where one program should start and the other end. whilefocused,mustcontainsufficientflexibilitytoincorporate Assuming carbon finance grows consistent with modest important country-specific circumstances. The aim is to forecasts, the greater the opportunities for GEF to address support countries in project development by providing barrier removal activities (and less on actual finance) as part them with a clearly comprehensible and easily applicable of a continuum, and the need for the GEF to address the framework that helps the stakeholders to better manage largest markets and lowest hanging fruit should accordingly expectations and measure performance. This is all the more decline. Whereas the GEF does not have an obvious role in important given the extremely ambitious task assigned to facilitating emissions trade, it needs to seize the leveraging the GEF--to lay the foundation for a GHG-stabilized world opportunity of funding that carbon trade represents. in developing countries--with limited resources. Much will also depend on improved communication from the GEF on In sum, there is a clear need to revisit the conceptual and its goals and approaches. strategic coherence of the Climate Change Program, and to place the OPs within a more consistent framework that will (1) The GEF Secretariat should take the lead facilitate project design, implementation, and monitoring. in improving overall strategic coherence by This is not as radical an undertaking as might first seem clarifying the overarching goal of market likely. The four climate change OPs are basically robust transformation outcomes that contribute to and allow the incorporation of the main GHG avoiding or GHG emissions reduction or avoidance, and reducing technologies and strategies: EE, RE, and transport the manner in which existing Operational energy--with the remainder of emerging GHG-friendly Programsandassociatedstrategiescontribute technologies able to be accommodated within OP7 (if the to this overall goal. interpretation of its objectives is broadened). The GEF should retain its four OPs as the basic A more coherent way of formulating GEF's strategic programmingpillarsof itsClimateChangeProgram.Within frameworkwouldbetomakeexplicitGEF'soverarchinggoal this framework, issues that require greater clarification as the removal of market barriers and sustainable market include: (a) what is understood by barrier removal and transformation for energy savings or clean technology market transformation; (b) broad overall desired outcomes Chapter 5 - Key Findings and Recommendations 67 FIGURE 5.1 POSSIBLE GEF CLIMATE CHANGE STRATEGIC FRAMEWORK Impacts GHG emissions reduction or avoidance TS RESUL Outcomes Sustinanle market transformation for increased energy savings or clean technology applications Enabling policies, Adequate finance Adequate business Awareness Innovation strategies, stan- available infrastructure created technology dards and certifica- diffused tion in place Develop enabling Develop financing Develop business Develop and Demonstrate policies, standards instruments and models and provide disseminate creative project and certification mechanisms enterprise support information and approaches and knowledge technologies PERFORMANCE Strategies within Operational Programs and Project Clusters and associated market transformation strategies for each priorities are also made clear at the global level. The current OP; (c) identification of priority project clusters and strategic project approval practice is thus an interdependent circle, priorities within each OP; and (d) how to monitor and assess with implicit incentives for countries and IAs to propose strategies (performance) and outcomes/impacts (results) in a projects they perceive GEF will favor, and for the GEF to conceptually clear and logically consistent framework. The approve projects once proposed. The current complex and strategic framework needs to be kept current by judiciously long approval system, combined with lack of clarity of debating GEF support options and emerging trends, GEF objectives and priorities, may provide a disincentive to adjusting strategic priorities in a transparent manner, and innovation because it becomes less risky to forward projects communicating the evolving GEF agenda to stakeholders. similar to ones previously cleared. Three broad trends may be observed. As mentioned in the previous chapter, the GEF has been fully responsive to its mandate as defined by the UNFCCC First,theGEFhasperformedacrediblejobinresponding and guidance from successive COPs. The COP-8 review of to country needs in climate change in the eligible countries, the UNFCCC financial mechanism found that GEF had through a complex array of approaches and strategies. GEF performed its role effectively (2002). GEF also has to be is involved in nearly all eligible countries. Higher levels of responsivetocountryneeds.However,thereisroomforGEF GEF funding have also, in general, been assigned to the to play a more creative role in interpreting and developing its developing countries with the highest overall potential for mandate more judiciously and systematically. GHG mitigation. The study supports this trend. However, it is noticeable that a large number of countries 5.1.2 STRATEGIC CHOICE receivingsimilarGEFallocationshavewidelydifferingGHG emission levels. The bulk of GEF's portfolio does not appear The current project development system does not tobedirectedtowardachievingmaximumimpact.Thereare always favor strategic choice. GEF projects are, of course, also clear anomalies: some countries with low levels of GHG submitted for approval from the country level, but GEF emissions have received considerable attention, while some 68 GEF Biodiversity Program Study 2004 countries with high emissions have not received adequate The marginal cost of carbon abatement varies from support.Insomecases,thesuccessinobtainingGEFsupport situation to situation and cannot be used as a parameter for has been justified by good results, in other cases not. GEF allocations. However, with limited resources, GEF is obliged to exercise fully its mandate to target markets for Second, the current demand-driven and project-led barrier removal where replication may have the greatest approval system has led to cases of inconsistent focus within uptake. In situations with limited markets for EE or RE, countries where the GEF is not always addressing major and relatively low GHGs, the effects of a GEF project on climatechangeneeds.Nationalcommunicationsfromeligible barriers, replication, market, and climate are also likely to countries have, in general, not been valuable in guiding GEF remain limited. programming. The GEF should urgently address the need for more coherent substantive programming that allows (2) The GEF should improve strategic choice and national climate change priorities, GEF strategic priorities, resource allocation within its Climate Change and IA country priorities to coalesce. Program,inordertoensurethatthebulkof the portfolio is directed toward mitigation efforts Third, although the strategic focus of GEF has shifted in countries with relatively higher levels of over time, this is not adequately reflected in the GEF GHG emissions and market transformation project portfolio. There has been a shift from technology potential. For countries with significant GEF demonstration projects in the early phases of GEF to more portfolios, integrated GEF country strategies market and business filtered approaches in recent years. need to be developed; smaller portfolios IAs no longer favor projects with an exclusive focus on require, at least, explicit priorities. PV SHS. Renewable energy for productive purposes and other RE sources such as wind and biomass are being given The GEF Climate Change Program is not so extensive as more attention. More EE projects incorporate financing to require an administratively complex financial entitlement mechanisms and ESCO development. There is more system; it is important that GEF retains flexibility in order to caution about supporting large capital-intensive emerging respond to opportunities where they arise. technologies such as solar thermal electric pilot projects in OP7. However, these strategic shifts are not always obvious 5.2 RESULTS AND ERFORMANCE P fromGEFportfoliodata,whichrevealsanirregularevolution of project clusters within each OP, resulting, in part, in dispersed portfolio innovation. The lengthy period from 5.2.1 OVERALL IMPACT ON REENHOUSE G project conception and design through to implementation GAS EMISSIONS implies that a time lag in learning is inevitable. At any given time a number of projects are still ongoing that GEF The incremental and catalytic nature of GEF support stakeholders have already realized are less promising. does not make impact analysis useful for organizational benchmarking, but may provide interesting insights into The current system has led to a relatively scattered which program strategies and target areas have the potential portfolio and cases of missed opportunities in terms of to yield greater impact within the portfolio. With this in potential impact. However, the climate change portfolio has mind, the performance of the GEF portfolio overall in by now reached a scope that is, for the most part, sufficient avoiding GHG emissions is satisfactory. It has brought to identify successful project strategies and conditions, based about considerable GHG reductions, at relatively total low on experience. This should allow strategic choice of areas, incremental costs. For closed projects with data, estimated geographically and operationally, that hold the most promise avoided direct and indirect emissions amount to 224 million for market transformation, barrier removal, replication, and tons CO2 at an incremental cost of US$194 million. The GHG impact. Such strategic choices must be based on the quality of GHG reporting and estimated targets have substantive programming framework referred to above. improvedwithtime;104activefull-andmedium-sizeprojects are collectively intended to enable roughly 1.7 billion tons of However, the past allocation system has served the GEF CO2 avoidance over 10­30 years, backed by US$605 million well in terms of flexibility; this should be retained as a in GEF funding. principle to reflect that local conditions are not always favorable to impact. The study finds that the notion of Nonetheless, there is an obvious tradeoff between "performance" can be applied to a country climate change immediate GHG impacts and long-term catalytic market portfolio only with considerable difficulty. transformation and barrier removal. The analysis shows Chapter 5 - Key Findings and Recommendations 69 that some parts of the portfolio, such as energy efficiency additional resources to implement and maintain improved and STRMs, are better at producing GHG impacts. M&E and data management systems in this area. However, individual projects, such as large-scale investments or geothermal exploration, may be responsible for high 5.2.2 MARKET TRANSFORMATION achievements in GHG avoidance but have little potential for replication or sustained barrier removal. Market transformation is a long-term challenge and a dynamic process. Sustainable market transformation is The key issue is that the portfolio has suffered from mixed possible and is starting to emerge in specific sectors and and unclear expectations on how to address GHG, where countries, but it takes longer than anticipated. There are implicitly projects are expected to deliver on both short- situations where a combination of favorable external term GHG and long-term barrier removal and market circumstances, appropriate choice of project strategies, good transformation. In many cases, projects cannot fail to implementation, and adequate GEF resources has helped a disappoint on one score or the other. The Climate Change move toward changing markets. Program is in need of overall GEF strategic guidance on the relativeimportanceof maximizingimmediateGHGimpacts The greatest progress has been made within the energy versus longer-term cumulative results that might derive from efficiency portfolio, where achievements can be observed in sustainable market transformation for clean GHG-avoiding specific countries and sectors, such as financing markets in technologies and systems. Hungary, energy-efficient appliances and products in Mexico and Poland, and industrial boiler conversion in China. Finally, the current quality and availability of GHG GEF support has certainly helped strengthen energy service targets, estimates, calculations, monitoring, and reporting industries where they are emerging, but is rarely sufficient are unacceptable. As the UNDP study on municipal to launch such an industry "from scratch." However, for heating and hot water pointed out, "This area of project many markets that are evolving, GEF can be seen to help intervention is probably the least understood at present." drive changes forward. This is especially challenging for large Although the data quality has improved in recent years, markets,suchasintroducingenergyperformancecontracting the portfolio still suffers from lack of targets; unrealistic in China. estimates, especially for replication; unavailable data; and inconsistencies in estimates among and within clusters. The experience of the renewable energy cluster is more While recognizing the complexity, GEF has to do better in mixed. Sustainable market transformation is not realistic developing and disseminating consistent and clear guidelines where RE remains, in general, more expensive and less and methodologies, an effort which has now started. accessible than traditional high-emitting energy sources, despite sustained efforts at volume increases and market This GHG methodology should be based on a substantive aggregation. Nevertheless, increased use of RE is emerging programming framework and should reflect a vision of how in countries with more developed RE and finance capacities long-term market barrier removal can be linked to climate supported by sustained GEF and other donor resources. GEF change mitigation. Some types of projects, such as capacity hascontributedtoemergingmarketchangesinspecificenergy building or research, are not expected to lead to immediate sectors in specific countries, such as for mini-hydro energy in GHG reduction, in which case this should be made explicit. SriLankaandthewindmarketinIndia.AlthoughPVsystems Corresponding indicators for substantive results should also are not yet affordable by major target groups, particularly the be developed. rural poor in Africa, some PV-oriented projects have been successful in niche market areas such as clinics, schools, (3) The GEF Secretariat should provide explicit high-value applications such as communications, and also guidance regarding the realistic calculation of where households have adequate levels of disposable income. GHG avoidance or reduction in project design The potential still has to be demonstrated for mini-grid and implementation and the manner in which applications using hybrids and productive uses of RE. Grid- impacts should be monitored and reported. connectedREsystemsmightbeviablewhereadequatepolicy andregulatorysupportisavailable.Globalmarketaggregation This should include clear and comprehensive guidelines of specific renewable technologies, as envisaged in OP7 and and methodologies for calculating and estimating GHG OP11, lies far in the future. impacts for various technologies and various assumptions and serve to establish realistic expectations and goals for GEF projects have made an important contribution to the portfolio. The GEF Secretariat should be provided with the development of standards, codes, testing, certification, 70 GEF Biodiversity Program Study 2004 and labeling both for EE and RE. These efforts are an management in the project design phase. The partial important element in market transformation: product and guarantee mechanism has been successfully applied in system quality can be enhanced such that maintenance financial markets with sufficient liquidity and competition. costs are minimized and a breakthrough in consumer However, the GEF operates in difficult markets where the acceptability is achieved. There is a potential to replicate required set of interventions are different in nature and these successes in a wider range of medium- to larger-sized wheretheneedfortechnicalassistancetosupportbusinesses developing countries, although it is more difficult in smaller in EE project development is as high--or higher--than the countries where the economies of scale for testing facilities need to provide cash inflow. are less evident. Within the GEF Strategic Priorities, this strategy was envisaged to be one of the main drivers behind ESCO development is still a challenge, but nevertheless market aggregation of high-volume products. This study important. ESCOs facilitate the development of project finds, however, that a favorable policy framework, access to pipelines. They allow technical risks to be transferred finance, the level of business development, and user demand away from end-users and financiers, and costs can be are also key drivers in market development. reduced through bundling and packaging. The full-service ESCO model is not necessarily the most appropriate in Thecurrentdispersionof theGEFportfoliodoesnotfavor all circumstances, and indeed might not be feasible in extensive replication and market transformation. GEF work underdeveloped markets. A range of complementary toremovemarketbarrierscouldbemademoreeffectivewith business models are possible. There is also need for better clear targeting of sectors and users, correctly balancing and integration of GEF projects with country SME and prioritizing barriers, and systematic coordination between enterprise support programs. projects. GEF projects have made a worthwhile contribution to The need for a GEF vision of a conceptual framework the development of EE standards, testing, certification, on how market transformation happens is already part of and labeling. There is much potential to replicate and Recommendation 1 above. Market transformation reflects spread this experience and knowledge in a wider range of replication and greater impact for all climate change countries. project clusters, as well as the win-win situations of global environmental benefits and local benefits. A good market EE projects with multiple strategies (policy, standards, development strategy would include the need to develop institutional development, capacity building, financial frameworks for main sectors and users that would reflect the instruments, ESCO development, information and varying levels of ambition in, for example, EE clusters versus awareness) are probably the most effective. At the same influencing emerging markets in renewable energy. time, GEF projects must be flexible enough to react to changes in the broader financial sector in the country, 5.2.3 EMERGING ISSUES: through alternative strategies. ENERGY EFFICIENCY (OP5) In fact, structural change in the manufacturing and industrial sectors of developing countries has probably This is probably the most effective and clearly defined been the most influential factor in changes in energy use. of GEF's OPs, with relatively clear delineation between We have provided examples of significant improvements in different clusters. The greatest impact has been where energy efficiency in countries such as China or Hungary projects have targeted specific EE products or technologies that have occurred independent of GEF projects. It has and those sectors with the largest savings and replication been argued that it is not realistic to expect a GEF project potential. Such projects are better able to understand and to influence relevant national industrial and economic target specific market barriers and work in a sustained polices that could impact energy efficiency. However, GEF manner to transform specific markets. The cluster shows projects do need to be cognizant of the effects of external achievements in market transformation in specific countries factors such as energy prices, power sector policies, and so and sectors, including difficult areas such as transforming forth. GEF projects are often not well equipped to seize financing markets. such opportunities, often because they were designed many years previously when external circumstances were Many EE projects are now incorporating financing different,andsometimesbecauseinflexiblebudgetlinesand components that require careful analysis of the specific work programs constrain the ability of projects to respond contextandsetof marketbarriersandprovisionof adaptive strategically and quickly to new policy opportunities. Chapter 5 - Key Findings and Recommendations 71 There are many examples of effective interventions within for middle-income homes, institutions, high-value uses the GEF EE portfolio and rich opportunities for learning. such as communications, and productive uses (including Theselessonsneedtobecapturedanddisseminatedeffectively irrigation). GEF and the IAs have already begun to review in order to shape future project design and GEF strategic their involvement in this area. There have been a number of choices in this area. The recent "World Bank GEF Energy recent reviews, but none sharp enough to provide definitive Efficiency Portfolio Review and Practitioners' Handbook" guidance on whether GEF should continue to fund pure PV captures well EE financing and ESCO development and projects.Whileanumberof reviewshavehighlighteddifferent shouldbedisseminatedwidelythroughtheIAsandineligible institutional models, financing arrangements, and business countries. To maximize GEF effectiveness within EE, the models for PV solar home systems, and more generally for GEF Climate Change Task Force should work with projects RE for rural electrification, none have provided the quality to extract portfolio-wide experiences, conduct thorough of analysis or systematic guidance that is evident in the analyses, and present synthesized findings that would assist World Bank GEF EE Handbook mentioned above. There with replication in handbooks or other guidance. This would areimportantlessonsregardingfutureGEFallocationstoPV be appropriate for the key EE clusters (EE products, EE in projects in terms of exploring more appropriate applications industry, and EE in the public sector) and also for successful and sectors--and being more strategic in selecting countries areas such as standards, testing, certification, and labeling. with higher potential impacts. In sum, the potential for energy savings and GHG PV also has applications in mini-grid and hybrid systems, reductions is immense, particularly in emerging economies combined with wind, hydro, and diesel generators. These and rapidly developing countries. As mentioned above, GEF systems have the potential to provide higher levels of service has tended to target countries where emissions are highest more suitable for productive uses. The GEF portfolio still and savings potential greatest. However, there are some has insufficient experience in either mini-grids or in RE for important energy-intensive countries which could still be productive purposes to extract effective lessons. targeted. Within EE, the study cautions against the notion of phasing out, globally, GEF support to specific clusters and There may be potential for a greater proportion of areas. The GEF may put its catalytic and innovative role to the GEF RE portfolio to incorporate varied types of RE good use by disseminating and replicating what is "already including emerging technologies such as stationary fuel cells, achieved" in one country in other circumstances. microturbines, and modern biomass. A number of GEF projects have included wind, microhydro and biomass, but 5.2.4 EMERGING ISSUES: programmatic learning from these projects is not yet evident RENEWABLE ENERGY (OP6) intheportfolio.RecentREprojectsenvisageabroaderrange of technologies and a greater focus on market development. Given the trend to underplay the range of technologies once It is probably true to say that the GEF Renewable Energy implementation starts, careful monitoring of such projects to (RE) portfolio has been less effective than its EE projects. generate learning would be useful. Examples are fewer of successful applications that indicate possibilitiesof sustainedmarkettransformation.Theportfolio The overall policy environment, and power sector reform is not as clearly delineated, and there is substantial overlap and regulatory frameworks in particular, are crucial for between the different clusters of RE for rural electrification, more widespread and sustainable applications of renewable RE grid-connected generation, RE productive uses, and energy.Powersectorreformcreatesawindowof opportunity RE products and markets. The sets of market barriers and for new regulatory frameworks, financial instruments, and challengestoREaredeterminednotonlybyREapplications institutional mechanisms to be put in place that support but also by the type of technology employed. The sets of renewable energy. Although this area is captured in one of issues for PV systems are often quite different from wind or GEF's strategic priorities and the IAs have long experience biomass, for example. in this area, there are insufficient examples where GEF has achieved success. GEF, in the past, perhaps concentrated too much on photovoltaics (PV). PV has low GHG impact and One area where GEF has been successful is the restricted potential for making a significant difference in development of standards, testing, and certification of RE rural electrification or poverty reduction. Increased market technologies and systems. This is a vitally important area volumes have still not brought costs down to affordable levels because effective standards and testing can significantly forthepoor.However,thereareimportantnicheapplications improve quality, reliability, and consumer acceptance. 72 GEF Biodiversity Program Study 2004 The GEF RE portfolio has explored two primary business mainly at an early demonstration stage; those that have models (with a range of submodels) suitable for rural started have a far way to go in the product lifecycle toward electrification. There appears to be a movement away from introduction, growth, and maturity. The recent efforts to fee-for-service to sales models. More still needs to be known address the fundamental challenges of the OP7 program about the degree to which sales models provide effective are commendable, but as yet are not likely to fully address after-sales maintenance and service. Fee-for-service models the fundamental obstacles of this program. The optimal have a number of potential advantages, especially for poorer strategy for ensuring sustained global cost reduction for households, and it is hoped that the GEF will continue to climate-friendly technologies remains elusive. explore this model. STAP proposals recognize the need for greater flexibility The GEF projects have also explored a range of finance and creativity in OP7 development. A specific strategy for models. Micro-finance for consumers (in the sales-based operationalizing the recent STAP recommendations has not model) has been effective. Perhaps there could be greater been developed, because the focus is still on financing and exploration of a range of dealer credit mechanisms? project implementation issues. However, with the proposals Subsidies are still common on many renewable energy rural of smaller projects, more countries, inclusion of other electrificationprojects.Increasinglytheemphasisisonoutput- barriers, policy-type interventions, broadening technology based subsidy allocation to increase their effectiveness. focus, and so on, the nature of the GEF OP7 is becoming increasingly indistinguishable from other GEF focal areas. Within the strategic framework in Recommendation 1 above, the GEF should develop a clear vision of its role and Three of the study findings call for further caution: objectivesinpromotingrenewableenergy,thatreflectsamore (a) market transformation is highly complex in local intuitive and useful cluster categorization of RE projects. circumstances; (b) a dispersed portfolio in terms of countries, This vision should more purposefully explore the potential projects, and technologies does not provide for critical mass within power sector reform to develop RE supportive policy, for learning or cost buy-down; and (c) technologies that are regulatory, financing, and institutional mechanisms, and now widely applied and for which there is demand (solar PV) deepen the experience in fee-for-service and concession still struggle with cost-competitiveness. It can be questioned models to understand and improve how they work. There is whether GEF can, or should, attempt serious market scope to explore more fully different niches--both potential transformation at a global level. and natural--for the IAs to promote GEF concerns. For example, the World Bank has significant action in energy In the meantime, OP7 provides the GEF with a window and financial sector reform measures, and UNDP works of opportunity to fund new technologies that are not actively in sustainable development policy frameworks. currently cost-effective, particularly as the technology focus has been minimized in the other OPs. A project-by-project Finally, the RE portfolio is in particular need of more approach to new technologies has not been effective in either systematic and programmatic learning, through in-depth galvanizing national innovation or in promoting global portfolio reviews and practitioners' handbooks on (a) a market aggregation. In addition to market and policy factors clearer set of GEF conclusions on PV that will shape future stressed in the Strategic Priority, the GEF involvement in strategic choices for this technology, based on the PV review OP7 is more likely to be effective if it is built on a vision work of UNDP; (b) new areas such as RE for productive and strategy for the specific technology promoted and purposes, mini-grids, and for specific RE technologies; and implemented through a set of interconnected and managed (c) the successes in the area of RE standards, codes testing, projects. and certification. Overall, initial conclusions from the portfolio suggest that 5.2.5 EMERGING ISSUES: more attention has to be given to active market aggregation LONG-TERM COSTS LOW- across countries and across technology applications, and that OF GEF needs to exercise its facilitating and catalyzing role in GHG-EMITTING TECHNOLOGIES (OP7) buildingmarketdevelopmentalliancesmorevigorously.More attention to transform markets and respond to policy and OP7 was refocused in 2003 into SP5 - Global Market political issues, institutional circumstances, and the need to Aggregation and National Innovation for Emerging match global benefits, local benefits, and project opportunity Technologies. At the time, the option of discontinuing this cost of the client country, rather than technology issues, will OP was also debated in the GEF family. OP7 projects are be the strategic direction for OP7 under this priority. Chapter 5 - Key Findings and Recommendations 73 The GEF should, of course, continue to keep a vigilant Because of the diversity in project clusters within climate eye on the effort and costs of the combined GEF family change, the challenges to effective learning are great. At the in this area compared with the potential gains in reducing same time, the traditional climate change approaches of technology costs and aggregate global markets. piloting new technologies, promoting market aggregation, raising awareness, replication, and innovation are strongly 5.2.6 EMERGING ISSUES: ENVIRONMENTALLY dependent on effective knowledge generation and sharing SUSTAINABLE TRANSPORT (OP11) at the project, country, and global level. In short, the ability to learn is a particular success factor for the climate change portfolio. The potential for global benefits--and local benefits--in transport, is enormous. This OP was introduced in response The Climate Change Program has benefited from some to country demand and projected growth in GHG emissions very good knowledge sharing initiatives. The UNDP-GEF in developing countries. In practice, the GEF's limited unit has proposed knowledge management approaches in resources and unclear comparative advantage has made it most of its climate change clusters, of which the learning difficult to play a major role in transport, which is largely around PV projects in Africa and municipal heating and hot dependent on political concerns. water in Eastern Europe has been most dynamic. The World Bank has generated several learning products, including The portfolio within transport is still young, and mixed in an incisive analysis of its EE portfolio, and should also be nature. There has been a push to promote greater nuance in commended for launching ex-post project impact studies. the range of strategies and technologies employed, moving The GEF Secretariat has historically contributed with series fromtechnologyoptionstointegrationwithurban/transport of publications highlighting lessons learned. The annual planning and a more balanced mix of sustainable transport Project Performance Review monitoring exercise and the options. Ultimately, much of the challenge within transport Climate Change Task Force are opportunities for bringing is to change human behavior. The traditional approach together portfolio experiences. In sum, there are examples of promoting low-emitting technologies will not suffice to of good learning efforts within IAs, and at headquarters level promote modal shifts to public transport or nonmotorized within the Climate Change Task Force. Study visits between transport. projects, especially within a region or within specific clusters, are relatively common (for example, within clusters on With the GEF traditional focus, it appears quite ambitious methane and FCB, and within EE in the Arab states and for the GEF to ensure modal shifts in developing countries, Europe). The Local Benefits Study visits have also provided where increased motorization is driven by growth and seen valuable information. as a sign of progress. The future pipeline may bring more coherence to the portfolio in line with the strategic priority, Effective knowledge management normally has three provided the GEF responds to questions such as: How can phases: (a) knowledge creation and acquisition, (b) knowledge the GEF integrate effectively with mainstream transport storage and repository, and (c) knowledge dissemination and planning? Is the GEF selecting key GHG-polluting transport application. Despite the above-mentioned studies, learning modes,suchasfreightgroundtransport?Continuedattention within the GEF family has been neither systematic nor is needed in refining the GEF role to be effective, with a clear systemwide,norhasithadstrongoutreachtooutsideexpertise. delineation of its comparative advantage in public transport This has diminished both efficiency and effectiveness of within larger investments and management systems. One the GEF Climate Change Program. Better learning and possibility is a GEF role in smaller cities; by its Strategic knowledge sharing would be particularly needed in the Priority, the GEF intended to prioritize projects initiated or following areas: supported by local municipalities. · Horizontal exchange, between projects within the same clusters, within and between countries. A 5.3 MANAGEMENT AND MPLEMENTATION I project manager interviewed only discovered the extent of similar projects in the region during a visit 5.3.1 KNOWLEDGE MANAGEMENT to the agency headquarters. Projects implemented by different agencies in the same country generally have AND DOCUMENTATION SYSTEMS good relations, but not necessarily close cooperation. The GEF Secretariat reviews require coordination 74 GEF Biodiversity Program Study 2004 plans from each project in a country where another given time. The portfolio information, project data, and project in a similar area is already active, but the effect documentation management are, in part, incomplete, dated, of this is uncertain. A project visited by the study or restricted, and hamper dynamic portfolio management plannedtodevelopaguideonbanktermsforEEloans, and effective monitoring. when the study team pointed out that the other GEF projectinthecountry(byanotherIA)hadworkedwith Whereas the IAs have means to monitor their project these banks for the past six years and already had this implementation, the mechanisms for overall knowledge information. This horizontal exchange is particularly sharing and document management are lacking, as are the needed at the implementation stage. Furthermore, meanstosharebetweenagencies.Basicprojectdocumentation project and field stakeholders consistently point to should be available and accessible. It is, for example, difficult difficulties in discerning GEF priorities at any given to ascertain when a project actually starts, its duration, and time(forexample,onwhattypesof newactivitiesGEF actual projected end; which makes planning of mid-term would fund), which hampers effective field uptake of reviews to guide implementation difficult. The respective strategic shifts. roles and responsibilities of the various agencies could also be revisited; only the GEF Secretariat and GEFME can monitor · The GEF system is weighted toward a centralized the overall portfolio across agencies, but they need the tools to approach. The vertical communication chain is long do so. The GEF database is not an analytical tool accessible and indirect, from GEF Council policy decisions, to parties outside the GEF Secretariat, updating is irregular, through the Climate Change Task Force to GEF IA it has limitations in data on results, and data inconsistencies coordination units, to regional departments, to the between GEF and IA databases are frequent. This function country offices, to projects on the ground and vice is seriously underresourced in the GEF Secretariat. To date, versa. This creates communication problems, referred the GEF website has not been actively used as a channel to tointhesectiononstrategiccoherence,andalsoapplies reach IAs, country stakeholders, and project management to active learning. Country stakeholders interviewed in the focal area. The recent initiative to revamp the GEF consistently expressed frustration with difficulties in Secretariat website provides a welcome opportunity for obtaining information and data on GEF concerns. broadening the GEF outreach. Documentation management This need is especially acute at the formulation stage, is particularly needed for sharing lessons and monitoring inwhichcountriesaredependentonclearmessageson results from evaluations. priorities and information on lessons learned. (4) The GEF Secretariat, together with the IAs and · Whereas the IAs have their own systems for assistedbyGEFMEandSTAP,shoulddevelopa knowledge management, there is a risk that GEF strategic and pragmatic approach to capturing issues "fall between the cracks." In reviewing the IA andsharinginformationandknowledgewithin knowledge networks, it was found that GEF may the climate change area, both among projects miss out on opportunities to facilitate internalization and between headquarters and the field and and assimilation of what is learned through GEF supported by electronic knowledge systems. projects. The key questions are to what extent GEF climate change concerns are mainstreamed within 5.3.2 MONITORING AND IAs, and how to promote learning between the IAs in common areas of interest. The GEF Secretariat and EVALUATION SYSTEMS the GEFME may play a facilitating role, but they also have limited capacities to provide extensive support. The monitoring systems at the project level--and certainly The climate change focal area would be a potentially at the IA coordination level--appear to have improved over good candidate for any knowledge management pilot the past years. Following the findings on strategic coherence that the GEF may undertake. above, there is room to systematically review monitoring systems to ensure that they reflect GEF systematically and The GEF knowledge storage systems are part of the coherentlyreflectGEFpriorities.TheGEFalsomaynothave problem. The OPS2 recommended a shift from an approval been able to capitalize on the IA results-based management culture to result- and quality-orientation; this will remain systems; monitoring tends to concentrate on implementation elusive as long as it is so difficult for any stakeholder to gain and procurement issues. The lack of analysis on what a full overview of what is going on in the portfolio at any generates results does not support project learning. Chapter 5 - Key Findings and Recommendations 75 As stated in Recommendation 3 above, there are specific complex that an incremental approach to improvement limitations in the estimates, measurement, monitoring, and is not likely to yield quick effects. The growing design reportingonGHGandCO2emissions.Inaddition,theGEF requirements--on incrementality, GEF criteria, the high performance in the climate change area needs to be assessed demands of cofinancing, the number of steps, and levels of in terms of qualitative results such as market transformation, departments involved--are all subject to complaint from replication, and barrier removal. This study observed the country level. A project-by-project approval system weaknesses and inconsistencies in the application of GEF at the GEF Council level was likely appropriate in earlier performancedimensions,inregularmonitoringmechanisms, times, but cannot be sustained with the current volume and the use of results-oriented or proxy indicators. And the of projects. Theoretically, a sound formulation process guidance on these issues available to field and project staff, generating quality design has a positive effect on results. as well as aggregate program indictors, are not easily usable However, the long process appears to yield diminishing or coherent. The current project monitoring system is not returns in terms of quality projects. In spite of solid likely to yield reporting on the GEF Strategic Priorities in a project documents, projects are likely to run into problems. satisfactory manner. It is also weak on assessment of impact; Restructuring of projects after implementation starts is not although the recent GEF post-project evaluations by the uncommon. World Bank must be commended. Many projects also experience further delays and (5) The GEFME should provide support implementation and procurement problems--in spite to the suggested task of improving the of rigorous approval processes. The reasons are many strategic coherence of the Climate Change and varied. Key factors include the capacity of local Program by providing guidance, tools, and implementation agents, the procedural burden of IA indicators for assessing GHG impacts, implementation processes, the absence of adaptive and market transformation outcomes, and the dynamic project management, erroneous assumptions of effectiveness of associated strategies in external factors mixed with a lack of preparatory activities, specific OPs and priority areas. andnonavailabilityorapplicationof lessonslearned.UNDP found that all its heating projects under implementation for more than four years required extensions of at least two 5.3.3 IMPLEMENTATION ISSUES years, a trend that is also evident in World Bank GEF EE projects. The 2003 Project Performance Report raised In assessing the GEF Climate Change Program, the project complexity as a key performance factor. Climate study did not aim to review project implementation change projects, with their technological issues and barrier activities, which are covered in other monitoring reports to removal goals, tend to be complex. the GEF Council. However, two aspects, already discussed on numerous other occasions, regularly affect program The annual project implementation review process results in a negative manner. Most seriously, the long and has had insufficient influence on future decision making. cumbersome project approval process causes habitual The IAs actively monitor their portfolio, although the delays in GEF project implementation. Such delays have level of detail varies from project to project. The World particularly severe effects for climate change projects Bank has instituted an annual follow-up for GEF portfolio because they address rapidly changing markets. As time improvement. Nevertheless, the project clusters and passes from conception to start, the problem addressed country portfolios go beyond each IA. The study finds that may not just deteriorate further, as for other focal area or there are currently no effective mechanisms for managing clusters, but changes completely. The project may find itself the progress of the climate change portfolio as a whole, irrelevant when it starts and is immediately faced with a either at the pipeline or at the implementation stage. need to reshape its strategy. There were many examples of this, especially within EE. As a building block in addressing The perception of the GEF--at the field level, among this issue, the GEFME is currently undertaking a review of projects and government partners, and within agencies--is thefactorsthataffectthelengthof timerequiredtoprepare, one of excessive bureaucracy and project micro- process, and begin implementation of GEF projects. management.Thisisnotanimagetobeproudof.TheGEF Council should continue to pursue further simplification on Thecurrenteffortstowardprojectcyclesimplificationare issues that are within the purview of the GEF, while the IAs commendable. However, the current system has become so also need to reflect on how GEF projects can best fit into 76 GEF Biodiversity Program Study 2004 their own systems and where these systems may require consensual nature of GEF work, it is more difficult to ensure more flexibility to accommodate GEF interventions. strategic leadership than it is for a simple organizational structure. Yet, more integrated decision making is needed, (6) TheGEFshouldmovetowardagreaterdecen- with strategic, organizational, and managerial implications. tralization in project-by-project approvals, The GEF partnership is currently facing some fundamental based on clear design principles for climate decisions on performance-based allocation systems. These change project cluster types and a focus on study findings do not support a notion that better results results. are generated through an allocation system--by itself--to potentiallyimportantareas.Forfuturesuccessof theClimate Such principles need not be prescriptive or narrow so as Change Program, any allocation cannot be made without a to limit innovation, but should rather reflect lessons learned substantive framework--overall and at the country level. from the portfolio and elsewhere and help to facilitate analysis during the project design process. This should be Second, how to solve the conundrum of renewable coupled with a more active management of the portfolio energy. Renewable energy remains the largest part of the as a whole, through the Climate Change Task Force, led by GEF portfolio, but with slow and limited impacts and the GEF Climate Change Team. The purpose is to support tradeoffs between carbon effects and local needs. Joint the progress of the Climate Change Program by sharing assumptions on cost reductions have often proved to be knowledge, facilitating a timely decision making process, and flawed, and the affordability issue perpetually plagues the communicating transparently with stakeholders. portfolio. Furthermore, the degree of activity in this area, worldwide, is enormous. The GEF role, which initially was 5.4. CONCLUDING REMARKS technical in nature, has become more complex and less clear. Is GEF's expertise in finance? In policy? In private sector development?Incommunitydevelopment?Allof theabove? The GEF has an important role to play in the worldwide To restore a strategic focus in the RE portfolio, stakeholders effortstocombatclimatechange.Asthefinancialmechanism must come to terms with realistic expectations. Ultimately, it for the UNFCCC, GEF has made a significant contribution is a policy decision as to what types of impacts GEF should to both mitigation efforts and capacity building in the pursue. developing world. Based on its partnership with experienced IAs in the field, the GEF has extended its support to most Third, how to maximize the generation and use of ideas eligible countries. and knowledge. The GEF financial contribution, although not negligible, cannot by itself generate the changes the Tomaximizeitsimpactandreachitspotentialasastrategic stakeholdersdesirewithinclimatechange.TheGEFmandate partnerfordevelopingcountriesandamoreeffectiveagentat is based on the premise that experience, innovation, and risk the global level, the GEF faces three key overall challenges: taking can be determining factors in promoting behavioral change. Within existing or expanded capacities, the GEF First,howtoensureprogrammaticandstrategiccoherence needs to seek optimal ways of making that experience count that reflects a clear GEF comparative advantage and makes and communicate lessons learned and policy directions in an the most of limited resources. Given the symbiotic and effective manner. Chapter 5 - Key Findings and Recommendations 77 Annexes ANNEX A: METHODOLOGY ISSUES METHODOLOGY The GEF climate change portfolio was analyzed from the This annex contains excerpts of the study Terms of perspective of the conceptual framework in Figure 1.1 in Reference (the CCPS2 Evaluation Framework) and more this report, with a focus on impact, outcomes, and strategies detailed information on the methodology used. (enabling policies, availability of finance, requisite business infrastructure, and so on). For each cluster review, separate SCOPE methodology notes guided the analysis. The analysis focused on aspects that were relevant at the program level and could The study draws lessons from past and current activities be aggregated from projects. Although exact attribution of that are particularly relevant to future programming, within results cannot meaningfully be aggregated,the achievements thethemesof (a)energy efficiency (OP5)and(b)REforrural mentioned show a credible link between GEF support and electrification (within OP6), with particular attention to the outcomes. challenges of market transformation and financing. Portfolio analysis and recommendations were driven by the following Consultations were held in a continuous manner key questions determined in the initiating framework: throughout the process, both formally and informally. Key formal benchmarks included the presentation of initial 1.Whathavebeentheresultsof theGEFinterventions guidance to the Climate Change Task Force in September (in terms of impact on GHG emissions and in terms 2003, a workshop on the methodology in November 2004, of sustainable market transformation outcomes with and a brainstorming workshop on preliminary findings in respect to enabling policies, available financing, June 2004. and requisite business infrastructure)? What are the global and regional trends that may influence the Toseekinformationonthekeyquestions,themethodology achievement of impact? That is, what results has the for the study included a series of desk reviews, project GEF achieved? cluster/thematic reviews, country portfolio analysis ,and 2. What has been the performance of the GEF in field visits. The documentation review included (a) general achieving these results? (that is, how did the GEF documentation on climate change to identify current achieve those results?) trends and issues and to contextualize performance 3. What approaches or strategies have been the most analysis; (b) past GEF reports, studies, and evaluations effective in reaching the above outcomes? How can (the first Climate Change Program Study, OPS2, specially the GEF become more strategic in addressing key managed project reviews, etc.), to identify emerging issues national priorities, capacities, and needs within and issues for follow-up; (c) internal GEF documents and climate change? documentation of the implementing agencies, including country programming documents; and (d) sample reviews In practical terms, it was determined that the study will of national communications. This study built on existing focus on full-size and mid-size projects at the country level terminal, mid-term, and thematic evaluation reports. as the main vehicles for reaching the GEF climate change objectives, with less attention to EAs, which were covered by The comprehensive portfolio review was based on existing a separate review in 2000. data in the GEF and IA databases and in the 2003 project 78 GEF Climate Change Program Study 2004 implementation reviews (PIRs), complemented by other programs, and production and marketing of RE implementation status reports and Council documents. The products such as solar cookers. data sets were circulated among the IAs for verification. The analysis in this report reflects data as of April 30, 2004. · Geothermal exploration: Technical demonstration and development of geothermal power plants. For the purposes of the study, projects were primarily clustered according to their main purpose and secondly in · Carbon reduction/sequestration: Projects encour- terms of technology (where appropriate). Ideally, a future aging fuel switching to low-carbon fuels and energy cluster classification of GEF climate change projects should production/recovery from fugitive emissions, inclu- be multidimensional and systematic, as some projects could ding some STRMs. fall into several categories. The CCPS2 operates with the following different clusters: The in-depth cluster reviews (electricity production with RE and EE programs) used as point of departure the · EE products and markets: Projects that aim to help thematic cluster reviews from the 2001 Program Study and produce and sell energy-efficient products (light bulbs, OPS2, complemented by project documents and monitoring stoves, CFC-free fridges) and a number of projects reports; the 2003 PIR process; other recent documentation; that aim to transform markets in general, through for and field visits. Other clusters within these two OPs and the example, labeling, codes, or DSM. otherOPswerealsocovered,withabrieferanalysis;including EE products and markets and EE in industry; biomass, · EE in the public sector: Projects that aim to work methane, and landfills. with the public sector, at municipal and central level, to promote EE. This includes municipal heating and Although no specific papers by the IAs were explicitly hot water, energy-efficient buildings, and public street commissioned for this study, the review used and expanded lighting programs. on recent studies undertaken by the IAs, including the "World Bank GEF Energy Efficiency Portfolio Review and · EE in industry: Projects that aim to make industrial Practitioners' Handbook"; the "UNDP Solar Photovoltaics processes more energy efficient (such as steel, cement, in Africa: Experiences with Financing and Delivery Models"; kilns, bottles, boilers) and projects that aim to promote and a World Bank review on productive uses of renewable EE in general industry or promote cogeneration of energy. Members of the study team took part in a UNDP electricity for industrial manufacturing. regionalworkshoponmunicipalheatandhotwaterinEastern Europe (February 2004). UNDP subsequently developed a · Financial institutions/ESCOs: Projects that have desk review of the heating projects, based on written project as their main or only component to ensure access to documentation; discussions with project managers, UNDP EE finance (through guarantees and credit lines, for Country Office staff, and UNDP-GEF staff; and external example) and to support ESCO development. sources of information on non-UNDP-GEF projects. · Rural electrification through RE, the largest cluster The field visits were important for gaining a clear overall, with projects that explicitly aim at providing comparative understanding of strategies and outcomes; electricity to rural areas with solar, wind, hydro, or reviewing if and how GEF projects have been effective in biomass energy. It can again be divided into grid, off- markettransformationfortheadoptionof renewable/energy- grid, and mini-grid. efficient technologies; and filling information gaps. The CCPS2 also fully used project or country visits from other · RE for productive uses (OP6): Projects with an exercises (local benefits study and SMPRs) that took place explicit purpose of developing RE for productive duringthestudyperiod,bycomplementingtheirreviewswith use and some projects that mainly aim at electricity additional questions related to the conceptual framework (if generation of such volume that use for production, not already covered). The study developed a GHG typology beyond households, is likely, such as subclusters of of countries to facilitate sampling and analysis of projects. A methane, solar thermal projects, and biomass use. limitednumberof existingGEFcountrymissionreportswere good sources on country focus and results, to which the Study · RE products and markets: Projects aiming at Team added review of GEF portfolios in a limited sample of market transformation for RE, through for example countries with similar and different conditions. This provided power sector reform, capacity building, national wind context to the performance analysis. Annexes 79 The use of applicable indicators for measuring results · Indirect proxy: When data are insufficient to form of the clusters was derived from "Measuring Results from an indirect reduction estimate, a proxy can be used Climate Change Programs" (2000) and the GEF strategic based on assumptions common to project type and priority indicators for the period of FY03­06 (GEF/C.21/ other variables. The proxy used in this calculation Inf.11, 2003). Aggregate targets were not available for past is normally a multiplier in the range of 1.5 to 3 periods covered by the study. Information is available from depending on technology and project categories. a limited number of project impact inventories in the 2003 PIR Indicator Sheets and field visits. Whereas indicators · Causality factor: Estimates the portion of indirect may be applied to specific project examples, their inclusion reductions attributable to GEF intervention, but is in project design and reporting is not consistent enough to not used in the current impact calculation. Extending "roll up" in terms of aggregated results. the wind farm example, a causality factor could be applied to the indirect reductions attributing half the APPROACH TO THE GHG IMPACT ANALYSIS savings to GEF intervention. For 43 closed projects and 124 active projects, CO2 Projects were evaluated for their projected CO2 reductions reductions were calculated using a slightly simplified version using data reported in the project documents, mid-term of the evolving methodology initiated in November 2003 reviews, and final evaluations, where available. Because andcurrentlyunderrefinementbytheGEFClimateChange of great variation in data availability and inconsistent Task Force in consultation with GEFME and the IAs. This assumptions found in existing project documentation, as approach applies the following equation: Total lifetime well as the absence of an agreed methodology for measuring reduction = direct lifetime reductions + indirect lifetime CO2 reductions, a number of data gaps were filled with reductions · causality factor* (*causality factor not used in conservative assumptions applied during this impact analysis, this impact calculation because of time constraints and data or were excluded from the calculation where a best guess gaps). This relies on a few critical concepts: could not be exercised with reasonable accuracy. Table A.1 shows the likelihood, as per the final project evaluations, · Timeframe,durationversuslifetime:Projectduration of reaching explicit or implicit GHG avoidance targets is simply the time the project is active. Lifetime refers established at project inception. to tangible effects from project activities and/or installed technologies that extend past the official TABLE A.1 GHGTARGETING PROFILE* project closing (that is, 20-year lifetime of a grid- connectedwindfarminstalledaspartof aprojectwith PROJECTS WITH TARGETS PROJECTSWITHOUT a 7-year duration). Assumptions about investment Appropriateness lifetime, often dependent on local circumstances, will Compliance dramatically affect any CO2 impact estimate. Likely Likely Lacking Targets Targets not · Direct reduction: Tangible CO2 reductions directly miss? meet? data needed needed attributable to project efforts, during project duration 14 9 3 7 9 and technology/investment lifetime. In the wind farm * Of 43, one project unaccounted for due to weak documentation. example above, the observed and anticipated CO2 reductions over the 20 years of the installation's life Three iterations were conducted of each set of projects, are considered direct reductions. active and closed. For the second and third iterations, only projects that initially claimed very large CO2reductions were · Indirect reduction: Replication effects catalyzed by examined with greater resolution; these were frequently theGEFintervention.Buildingontheexampleabove, reviseddownwardbyapplyingmoreconservativeassumptions additional private sector investments in the wake of than argued for in project documentation. GEF involvement could be indirectly attributable to GEF. In this calculation, not all projects are Although later projects generally had fewer data gaps judged to be able to be replicated, by either intent and slightly more consistent CO2 estimations, a wide band or results. Indirect reductions can also be claimed in of uncertainty remains throughout the portfolio that can principle by capacity building measures and other so- only be clarified through detailed ex-post and/or mid-term called intangibles, although quantifying this effect is evaluations. This would also allow assessment of direct ex- problematic. post project reductions, that is, where GEF funds are used 80 GEF Climate Change Program Study 2004 beyond the project duration (for revolving funds, continued it was largely impossible to extract the data. Instead, credit guarantees, or reinvestments). this component was conflated with the total direct figure. All methane and carbon figures are converted to CO2 equivalents here using IPCC guidance (that is, 1tC = 3.667t · Intermsof GHGreporting,projectstatusreviewsand CO2 e and 1tCH4 = 21t CO2 e). Time frames were not held PIRs are usually out of step with later findings from constant due to highly diverse project components, including final evaluations. In general, the targets and estimates technology lifecycle, financing modalities, and intervention have been revised downward both by final evaluations strategies. In some early project documentation, total that reported GHG results and by this study. investment lifetime is not included; in many of these cases, a lifetime of 20 years is assumed where no other indication · Underlying assumptions were often missing/lacking is given. inprojectdocuments,andnobreakdownwasgivenon (in)direct or direct emissions. At times, indirect and/ ISSUES ON OMPARABILITY AND C DATA GHGIN or direct contribution was therefore extracted from CALCULATIONS a given total CO2 reduction estimate if an educated guess could be made as to appropriateness. It is difficult to fairly and accurately compare GHG impact across projects not only because of inconsistent · Source of additional replication variance: An data, reporting, and assumptions in project documents, but indirect multiplier was applied in this study only if also because of the nature of the projects themselves. Many it could be determined from project documentation of the projects, especially those in countries where GEF what the direct reductions were. If only a total CO2 made its initial climate change investments, have no GHG savings was included (which may or may not include targets, estimates, or GHG results--simply because they aim replication), then a multiplier was not applied to to remove market and policy barriers, build capacity, and estimate replication. raise awareness. These and other important results resist quantification. Global benefits arising from these projects will · On multipliers in general: The indirect proxies tend beseendecadesdowntheroad,whichmakesitimpossiblefor toward the conservative side. Actual impacts for GEF to reliably claim a quantifiable portion of future carbon some projects could well be higher. Many projects abatement. estimated indirect impact based on the total market potential in a country and worked down from there; The GHG data quality, the state of document and not surprisingly, these estimates tended toward the information management and GHG calculations in the GEF high side (and were revised downward typically using areinadequate.InassessingavoidedGHGemissions,thestudy the proxy multiplier). team spent an inordinate time in addressing methodology and data gaps. Key issues on methodology application and · On closed projects: With roughly a third of the closed data quality and availability include: portfolio excluded from the impact calculation, actual results may be expected to be different, and could · Inconsistent and absent reporting guidance and only be estimated through a comprehensive ex-post requirements for GHG, although recent progress by evaluation study. Estimates were generally of low the Climate Change Task Force is noted. qualityfortheclosedprojects.Assumptionsunderlying technologies, time frames, and replication were · The concept of causality factor was not used in the inconsistent, which may skew results. Calculations studycalculation,becauseitwasfoundtobeinherently that should explain how the estimate or target was subjective; difficult to apply consistently; and the arrived at were missing. Basic conversion factors were notion of quantifying attribution conceptually flawed. missing. The analysis is as illustrative when direct and indirect emissions are juxtaposed. · For both closed and active projects, documents are often internally inconsistent: (a) targets, when · The methodology component on direct ex-post available, are listed in various places; (b) incremental project reductions was not used. Closed projects did costs analyses incomplete or not standardized; (c) notprovideusefulinformationonthiscomponent,and contradictions (that is, x tons here, y tons there). Annexes 81 · For both closed and active projects, GHG targets desperately needed improvements and regular and estimates are vague (for example, "reduce GHG updates. Documentation is often unlinked and must emissions"); time frame sometimes unclear ("during be searched for manually on the GEF/IA electronic project life"); assumptions often unclear or missing; network, where it even exists. Project documentation and calculations often missing. for closed projects is often missing, in particular final evaluations conducted by the IAs. Requests for basic · Project documentation is missing in hard copy or documents or data often have a long response time. electronically. The GEFSec project database lacks 82 GEF Climate Change Program Study 2004 ANNEX B: LIST CLIMATE CHANGE PROJECTS OF (AS APRIL 30, 2004) OF CLOSED OR COMPLETED PROJECTS TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FINANCING(US$FISCALEEAR ID MILLION) APPROVAL Argentina Efficient Street Lighting Program World Bank MSP 5 0.74 1999 569 Benin Village-Based Management of Woody Savanna UNDP FP STRM 2.50 1993 389 and the Establishment of Woodlots for Carbon Sequestration Brazil Biomass Integrated Gasification/Gas Turbine Project UNDP FP 7 8.12 1993 381 China Energy Conservation and Pollution Control in UNDP FP 5 1.00 1995 263 Township and Village Enterprise Industries China Issues and Options in Greenhouse Gas Emissions UNDP FP 7 2.00 1992 379 Control China Development of Coalbed Methane Resources in UNDP FP STRM 10.00 1991 380 China China Wind Power Development Project UNDP/ADB FP 6 12.00 2001 881 China Sichuan Gas Transmission and Distribution WB/UNDP FP STRM 11.40 1992 75 Rehabilitation Costa Rica Tejona Wind Power World Bank/IDB FP 6 3.30 1993 60 Côte d'Ivoire Energy Efficiency Market Development World Bank MSP 5 0.73 1999 570 Cuba Producing Energy Efficient Home Refrigerators UNDP MSP 5 0.75 2000 804 Without Making Use of Ozone Depleting Substances Czech Republic Kyjov Waste Heat Utilization World Bank FP STRM 5.80 1997 127 Ghana Renewable Energy-Based Electricity for Rural, Social UNDP FP 6 2.53 1997 333 and Economic Development in Ghana Global Research Programme on Methane Emissions from UNDP FP STRM 5.00 1991 382 Rice Fields Global Redirecting Commercial Investment Decisions to UNEP MSP 5, 6 0.75 1999 611 Cleaner Technologies ­ A Technology Transfer Clearinghouse Global Fuel Cell Bus and Distributed Power Generation UNEP MSP 7, 11 0.69 2000 819 Market Prospects and Intervention Strategy Options Global Monitoring of Greenhouse Gases Including Ozone UNDP FP STRM 4.80 1991 384 Global Alternatives to Slash and Burn UNDP FP STRM 3.00 1992 390 Global Global Alternatives to Slash and Burn Agriculture UNDP FP STRM 3.00 1995 277 Phase II Guatemala Renewable Energy-Based Small Enterprise UNDP MSP 6 0.41 2000 28 Development in the Quiche Region Hungary Energy Efficiency Co-Financing Program WB/IFC FP 5 5.00 1996 111 India Alternate Energy World Bank FP 6 26.00 1992 76 Indonesia Solar Home Systems (SHS) World Bank FP 6 24.30 1996 119 Iran, Islamic Teheran Transport Emissions Reduction World Bank FP 5 2.00 1992 572 Rep. of Jamaica Demand Side Management Demonstration World Bank FP 5 3.93 1993 64 Lithuania Klaipeda Geothermal Demonstration World Bank FP 6 6.90 1995 106 Annexes 83 TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FINANCING (US$ FISCALEEAR ID MILLION ) APPROVAL Mali Household Energy World Bank FP 6 2.50 1993 52 Mauritania Decentralized Wind Electric Power for Social and UNDP FP 6 2.00 1993 371 Economic Development (Alizes Electriques) Mauritius Sugar Bio-Energy Technology World Bank FP 6 3.30 1991 577 Mexico High Efficiency Lighting Pilot World Bank FP 5 10.00 1992 575 Peru Technical Assistance to the Centre for Energy UNDP FP 5 0.90 1992 315 Conservation Philippines Leyte-Luzon Geothermal World Bank FP 6 30.00 1991 80 Poland Efficient Lighting Project (PELP) WB/IFC FP 5 5.00 1995 96 Regional Creation and Strengthening of the Capacity for UNDP MSP 6 0.75 2000 27 Sustainable Renewable Energy Development in Central America Regional Control of Greenhouse Gas Emissions through UNDP FP 5 3.50 1993 376 Energy Efficient Building Technology in West Africa Russian Greenhouse Gas Reduction World Bank FP STRM 3.20 1993 70 Federation South Africa Concentrating Solar Power for Africa (CSP-Africa) World Bank MSP 7 0.23 2000 19 Sri Lanka Renewable Energy and Capacity Building UNDP FP 6 1.53 1996 425 Sri Lanka Energy Services Delivery World Bank FP 5, 6 5.90 1996 104 Sudan Community Based Rangeland Rehabilitation for UNDP FP STRM 1.50 1993 377 Carbon Sequestration Thailand Promotion of Electricity Energy Efficiency WB/UNDP FP 5 10.10 1992 81 Uganda Uganda Photovoltaic Pilot Project for Rural UNDP FP 6 1.80 1996 295 Electrification Zimbabwe Photovoltaics for Household and Community Use UNDP FP 6 7.00 1991 374 ACTIVE OR ONGOING PROJECTS TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FINANCING (US$FISCALYEAR ID MILLION ) APPROVAL Argentina Renewable Energy in Rural Markets Project World Bank FP 6 10.12 1998 124 Armenia Improving the Energy Efficiency of the Urban Heating UNDP FP 5 3.16 2003 1116 and Hot Water Supply Bangladesh Rural Electrification and Renewable Energy World Bank FP 6 8.54 2002 1209 Development Belarus Biomass Energy for Heating and Hot Water Supply UNDP FP 6 3.37 2003 1198 Bolivia A Program for Rural Electrification with Renewable UNDP FP 6 4.45 1997 314 Energy Using the Popular Participation Law Brazil Hydrogen Fuel Cell Buses for Urban Transport UNDP FP 11 12.62 2000 6 Brazil Biomass Power Generation: Sugar Cane Bagasse and UNDP FP 7 3.75 1996 338 Trash Brazil Energy Efficiency Project World Bank FP 5 15.00 1998 128 Bulgaria Energy Efficiency Strategy to Mitigate Greenhouse Gas UNDP FP 5 2.60 1997 302 Emissions 84 GEF Climate Change Program Study 2004 TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FINANCING(US$FISCALYEAR ID MILLION) APPROVAL Cameroon Private Sector/GEF Co-financing of Global UNDP FP 6 0.18 1994 1839 Warming Mitigation in Cameroon through Biomass Conservation, Restoration Cape Verde Energy and Water Sector Reform and Development World Bank FP 6 4.93 1998 444 Chile Reduction of Greenhouse Gases UNDP FP 5 1.70 1993 372 Chile Removal of Barriers to Rural Electrification with UNDP FP 6 6.07 2001 843 Renewable Energy China Capacity Building for the Rapid Commercialization of UNDP FP 6 8.85 1997 261 Renewable Energy China Promoting Methane Recovery and Utilization from UNDP FP 6 5.31 1996 304 Mixed Municipal Waste China Barrier Removal for the Widespread UNDP FP 5 9.86 1998 445 Commercialization of Energy-Efficient CFC-Free Refrigerators in China China Energy Conservation and GHG Emission Reduction UNDP FP 5 8.00 1999 622 in Chinese Township and Village Enterprises (TVE), Phase II China Barrier Removal for Efficient Lighting Products and UNDP FP 5 8.14 2001 841 Systems China Targeted Research Related to Climate Change UNDP FP 5, 6, 7, 11 1.72 2001 880 China Demonstration of Fuel Cell Bus Commercialization in UNDP FP 11 5.82 2001 941 China (Phase II-Part I) China Second Beijing Environment Project World Bank FP 5 25.00 2000 7 China Efficient Industrial Boilers World Bank FP 5 33.56 1996 97 China Energy Conservation World Bank FP 5 22.35 1997 98 China Renewable Energy Development World Bank FP 6 35.73 1998 446 China Energy Conservation Project, Phase II World Bank FP 5 26.00 2002 1237 China Passive Solar Heating for Rural Health Clinics World Bank MSP 5 0.78 2001 1280 Croatia Energy Efficiency Project World Bank FP 5 7.08 2001 944 Cuba Co-generation of Electricity and Steam Using UNDP FP 6 12.52 2000 782 Sugarcane Bagasse and Trash Czech Republic Low-Cost/Low-Energy Buildings UNDP MSP 5 0.45 1999 571 Ecuador Renewable Energy for Electricity Generation-- UNDP FP 6 4.08 2002 1135 Renewable Electrification of the Galapagos Islands Ecuador Power and Communications Sectors Modernization World Bank FP 5, 6 3.19 2001 938 and Rural Services Project (PROMEC) Egypt, Arab Introduction of Viable Electric and Hybrid-Electric UNDP MSP 11 0.75 2000 31 Rep. Bus Technology Egypt, Arab Fuel Cell Bus Demonstration Project in Cairo, Phase I UNDP FP 11 6.51 2001 926 Rep. Fiji Renewable Energy Hybrid Power Systems UNDP MSP 6 0.75 1999 632 Global Technology Transfer Networks (TTN) Phase II: UNEP FP 5, 6, 13, 2.01 2003 2043 Prototype Verification and Expansion at the Country 3, 14 Level Global Solar Development Group (SDG) (a.k.a. Solar WB/IFC FP 6 10.00 1999 595 Development Corporation SDC) Global Renewable Energy and Energy Efficiency Fund (IFC) WB/IFC FP 5, 6 30.00 1996 667 Annexes 85 TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FINANCING(US$FISCALYEAR ID MILLION) APPROVAL Global Efficient Lighting Initiative (Tranche I) WB/IFC FP 5 9.58 1999 519 Global Solar and Wind Energy Resource Assessment UNEP FP 6 6.81 2001 1281 Global Promoting Industrial Energy Efficiency through a UNEP MSP 5 0.95 2002 1340 Cleaner Production/Environmental Management System Framework Global Global Promotion of Youth-Led Enterprises in Off- World Bank MSP 6 0.80 2002 1315 Grid Renewable Energy with Applications Global Efficient Lighting Initiative (Tranche II) WB/IFC FP 5 5.65 1999 1439 Global Photovoltaic Market Transformation Initiative (IFC) WB/IFC FP 6 30.05 1997 112 Guinea Rural Energy World Bank FP 6 2.00 2000 8 Hungary Public Sector Energy Efficiency Programme UNDP FP 5 4.20 2001 835 Hungary Rehabilitation and Expansion of Small Hydro-Plants World Bank MSP STRM 0.41 2003 1702 on the River Raba in Hungary Hungary Energy Efficiency Co-Financing Program 2 (HEECP2) WB/IFC MSP 5 0.70 2002 1316 India Biomass Energy for Rural India UNDP FP 6 4.21 2000 10 India Coal Bed Methane Capture and Commercial UNDP FP STRM 9.19 1998 325 Utilization India Development of High Rate BioMethanation Processes UNDP FP 6 5.50 1992 370 as Means of Reducing Greenhouse Gas Emissions India Optimizing Development of Small Hydel Resources in UNDP FP 6 7.50 1992 386 Hilly Areas India Removal of Barriers to Biomass Power Generation, UNDP FP 6 5.65 2003 1199 Part I India Removal of Barriers to Energy Efficiency Improvement UNDP FP 5 7.03 2003 1240 in the Steel Rerolling Mill Sector India Energy Efficiency World Bank FP 5 5.00 1998 404 Indonesia West Java/Jakarta Environmental Management Project World Bank FP STRM 3.11 2000 765 Iran, Islamic Carbon Sequestration in the Desertified Rangelands of UNDP MSP STRM 0.75 2001 673 Rep. of Hossien Abad, South Khorasan, through Community- based Management Jordan Reduction of Methane Emissions and Utilization of UNDP FP 6 2.74 1996 280 Municipal Waste for Energy in Amman Kenya Removal of Barriers to Energy Conservation and UNDP FP 5 3.19 1999 573 Energy Efficiency in Small and Medium Scale Enterprises Kenya Joint Geophysical Imaging (JGI) Methodology for UNEP MSP 6 0.98 2003 1780 Geothermal Reservoir Assessment Lao PDR Off-grid Electrification Pilot Demonstration, A World Bank MSP 6 0.74 1998 424 Component of the Laos Southern Provinces Rural Electrification Latvia Economic and Cost-effective Use of Wood Waste for UNDP MSP 6 0.75 2001 914 Municipal Heating Systems Latvia Solid Waste Management and Landfill Gas Recovery World Bank FP STRM 5.12 1997 123 Lebanon Barrier Removal for Cross Sectoral Energy Efficiency UNDP FP 5 3.40 1999 636 Lithuania Elimination of Green House Gases in the UNDP MSP STRM 1.00 2002 1381 Manufacturing of Domestic Refrigerators and Freezers at Snaige 86 GEF Climate Change Program Study 2004 TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FINANCING(US$FISCALYEAR ID MILLION) APPROVAL Lithuania Heat Demand Management (formerly Vilnius Heat World Bank FP 5 6.05 2001 948 Demand Management Project) Macedonia Mini-Hydropower Project World Bank MSP STRM 0.75 2000 32 Macedonia Development of Mini-Hydropower Plants World Bank FP STRM 1.50 1999 637 Malawi Barrier Removal to Malawi Renewable Energy UNDP FP 6 3.42 1999 641 Programme Malaysia Industrial Energy Efficiency Improvement Project UNDP FP 5 7.30 1998 448 Malaysia Biomass-based Power Generation and Co-generation in UNDP FP 6 4.03 2001 940 the Malaysian Palm Oil Industry, Phase I Mexico Demonstration Project of Hydrogen Fuel Cell Buses UNDP FP 11 5.42 2001 931 and an Associated System for Hydrogen Supply in Mexico City, Phase I Mexico Action Plan for Removing Barriers to the Full-scale UNDP FP 6 4.74 2003 1284 Implementation of Wind Power Mexico Renewable Energy for Agriculture World Bank FP 6 8.90 1999 643 Mexico Methane Capture and Use (Landfill Demonstration World Bank FP 6 6.57 2000 784 Project Mexico Introduction of Climate Friendly Measures in World Bank FP 11 6.10 2002 1155 Transport Mongolia Commercialization of Super Insulated Building UNDP MSP 5 0.75 2000 22 Technology Mongolia Improved Household Stoves in Mongolian Urban World Bank MSP 5 0.78 2001 862 Centers Morocco Market Development for Solar Water Heaters UNDP FP 6 2.97 1999 646 Mozambique Energy Reform and Access Project World Bank FP 6 3.37 2002 1158 Namibia Barrier Removal to Namibian Renewable Energy UNDP FP 6 2.70 2001 935 Programme, Phase I Nicaragua Off-grid Rural Electrification for Development WB/UNDP FP 6 4.37 2003 1079 (PERZA) Pakistan Fuel Efficiency in the Road Transport Sector UNDP FP 5 7.00 1992 391 Peru Photovoltaic-Based Rural Electrification in Peru UNDP FP 6 3.96 1998 449 Peru Renewable Energy Systems in the Peruvian Amazon UNDP MSP 6 0.75 2001 857 Region (RESPAR) Peru Obtaining Biofuels and Non-wood Cellulose Fiber from UNDP MSP 6 0.99 2002 1558 Agricultural Residues/Waste Philippines Palawan New and Renewable Energy and Livelihood UNDP MSP 6 0.75 2000 29 Support Project Philippines Metro Manila Urban Transport Integration Project World Bank FP 11 1.48 2000 785 - Marikina Bikeways Project Component Philippines CEPALCO Distributed Generation PV Power Plant WB/IFC FP 7 4.03 1999 652 Poland Integrated Approach to Wood Waste Combustion for UNDP MSP 6 0.98 2001 982 Heat Production Poland Gdansk Cycling Infrastructure Project UNDP MSP 11 1.00 2001 1279 Poland Coal-to-Gas Project World Bank FP STRM 25.33 1992 67 Poland Zakopane/Podhale Geothermal District Heating and World Bank FP STRM 5.40 1999 654 Environment Project Annexes 87 TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FINANCING(US$FISCALYEAR ID MILLION) APPROVAL Regional Caribbean Renewable Energy Development UNDP FP 6 4.78 2001 840 Programme Regional Pacific Islands Renewable Energy Programme (PIREP) UNDP MSP 6 0.70 2002 1058 Regional Commercializing Energy Efficiency Finance (CEEF) WB/IFC FP 5 11.25 2002 1541 - Tranche I Regional Energy Efficiency Improvements and Greenhouse Gas UNDP FP 5 6.36 1997 267 Reductions Regional Capacity Building for the Adoption and Application of UNDP MSP 5 0.99 2000 5 Energy Codes for Buildings Romania Capacity Building for GHG Emission Reduction UNDP FP 5 2.29 1996 284 through Energy Efficiency Romania Energy Efficiency Project World Bank FP 5 10.35 2001 883 Russian Capacity Building to Reduce Key Barriers to Energy UNDP FP 5 3.38 1997 292 Federation Efficiency in Russian Residential Buildings and Heat Supply Russian Removing Barriers to Coal Mine Methane Recovery UNDP FP STRM 3.30 2003 1162 Federation and Utilization Russian Cost Effective Energy Efficiency Measures in the UNDP MSP 5 1.00 2002 1646 Federation Russian Educational Sector Russian Developing the Legal and Regulatory Framework for WB/IFC MSP 6 0.73 2004 2194 Federation Wind Power in Russia Senegal Sustainable and Participatory Energy Management World Bank FP STRM 4.77 1996 118 Slovak Republic Reducing Greenhouse Gas Emissions through the Use UNDP MSP 6 1.00 2002 1318 of Biomass Energy in Northwest Slovakia Slovenia Removing Barriers to the Increased Use of Biomass as UNDP FP 6 4.40 1999 658 an Energy Source South Africa Pilot Production and Commercial Dissemination of UNDP MSP 6 0.80 2002 1311 Solar Cookers Sri Lanka Renewable Energy for Rural Economic Development World Bank FP 5, 6 8.00 2002 1545 Sudan Barrier Removal to Secure PV Market Penetration in UNDP MSP 6 0.75 1999 660 Semi-Urban Sudan Syrian Arab Supply-Side Efficiency and Energy Conservation and UNDP FP 5 4.61 1997 264 Rep. Planning Syrian Arab Increasing the Efficiency of the Hydrocarbon Sector by World Bank MSP 5 0.75 1999 662 Rep. Using Waste Gas Tanzania Transformation of the Rural Photovoltaics (PV) Market UNDP FP 6 2.57 2003 1196 Thailand Removal of Barriers to Biomass Power Generation and UNDP FP 6 6.83 2000 13 Co-generation Thailand Building Chiller Replacement Program World Bank FP 5 2.50 1999 540 Tunisia Experimental Validation of Building Codes and UNDP FP 5 4.36 1999 520 Removal of Barriers to Their Adoption Tunisia Barrier Removal to Encourage and Secure Market UNDP MSP 5 0.71 1998 576 Transformation and Labeling of Refrigerators Tunisia Solar Water heating World Bank FP 6 4.00 1993 86 Turkmenistan Improving the Energy Efficiency of the Heat and Hot UNDP MSP 5 0.75 2001 983 Water Supply Uganda Rural Energy for Development World Bank FP 6 17.90 2000 787 Uganda Energy for Rural Transformation Project (APL) World Bank FP 6 12.45 2000 1831 88 GEF Climate Change Program Study 2004 TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FINANCING (US$FISCALYEAR ID MILLION) APPROVAL Ukraine Climate Change Mitigation in Ukraine Through UNDP FP 5 2.03 2001 934 Energy Efficiency in Municipal District Heating (Pilot Project in Rivne) Stage 1 Uruguay Landfill Methane Recovery Demonstration Project World Bank MSP STRM 1.00 2000 766 Vietnam Systems Efficiency Improvement, Equitization and World Bank FP 6 4.85 2002 965 Renewables (SEER) Project - Renewables Components Vietnam Demand-Side Management and Energy Efficiency World Bank FP 5 5.72 2003 1083 Program FUTURE PROJECTS APPROVED BUT NOT YET STARTED ( ) TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FISCALYEAR FINANCING (US$ ID MILLION) APPROVAL Brazil Biomass Power Commercial Demonstration World Bank FP 7 40.48 1997 63 Burkina Faso Energy Sector Reform Project WB/UNDP FP 5, 6 3.29 2002 1062 Cambodia Rural Electrification and Transmission (a.k.a Renewable World Bank FP 6 6.08 2001 946 Energy Promotion) Chile Sustainable Transport and Air Quality for Santiago World Bank FP 11 7.33 2003 1349 China End Use Energy Efficiency Project UNDP FP 5 17.38 2003 966 China Renewable Energy Scale Up Program (CRESP), Phase 1 World Bank FP 6 41.57 2001 943 China Efficient Utilization of Agricultural Wastes WB/ADB FP 6 6.40 2002 1105 Costa Rica National Off-grid Electrification Programme Based on UNDP FP 6 1.15 2003 1132 Renewable Energy Sources, Phase I Croatia Removing Barriers to Improving Energy Efficiency of UNDP FP 5 4.59 2001 882 the Residential and Service Sectors Croatia Renewable Energy Resources Project World Bank FP 6 6.35 2002 1291 Cuba Generation and Delivery of Renewable Energy Based UNEP FP 6 5.66 2004 1361 Modern Energy Services in Cuba; the case of Isla de la Juventud Eritrea Wind Energy Applications UNDP FP 6 2.27 2004 1136 Ethiopia Renewable Energy Project World Bank FP 6 5.21 2003 1686 Georgia Promoting the Use of Renewable Energy Resources for UNDP FP 6 4.71 2003 1137 Local Energy Supply Global Fuel Cells Financing Initiative for Distributed WB/IFC FP 7 9.85 2004 1685 Generation Applications Global Development of a Strategic Market Intervention UNEP MSP 7 1.00 2004 1599 Approach for Grid-Connected Solar Energy Technologies (EMPower) India Fuel Cell Bus Development in India (Phase II - Part 1) UNDP FP 11 6.28 2001 929 India Solar Thermal Power World Bank FP 7 49.75 1996 578 Kazakhstan Wind Power Market Development Initiative UNDP FP 6 2.90 2000 783 Maldives Renewable Energy Technology Development and UNDP MSP 6 0.75 2004 1029 Application Project (RETDAP) Mali Household Energy and Universal Rural Access Project World Bank FP 6 3.76 2003 1274 Mexico Hybrid Solar Thermal Power Plant World Bank FP 7 49.70 2000 12 Mexico Large Scale Renewable Energy Development Project World Bank FP 6 25.35 2003 1900 Annexes 89 TOTAL GEF COUNTRY PROJECT GEF NAME AGENCY TYPE OP FISCALYEAR FINANCING (US$ ID MILLION ) APPROVAL Morocco Solar Based Thermal Power Plant World Bank FP 7 43.90 1999 647 Morocco Energy and Environment Upgrading of the Industrial World Bank MSP 5 0.75 2003 1838 Park of Sidi Bernoussi Zenata, Casablanca Peru Lima Urban Transport World Bank FP 11 8.28 2003 1081 Philippines Capacity Building to Remove Barriers to Renewable UNDP FP 6 5.45 2002 1264 Energy Development Philippines Electric Cooperative System Loss Reduction Project World Bank FP 5 12.35 2003 1532 Philippines Rural Power WB/UNDP FP 6 9.35 2002 1071 Poland Polish Energy Efficiency Motors Programme UNDP FP 5 4.50 2002 1265 Poland Krakow Energy Efficiency Project World Bank FP 5 11.18 2000 786 Poland Demand-side Energy Efficiency in Public Buildings, WB/EBRD MSP 5 1.00 2004 1445 Lodz Municipal Energy Services Company Regional Development of Geothermal Energy in Europe and World Bank FP 6 25.70 2003 1615 Central Asia and World Bank-GEF Geothermal Development Fund, Tranche 1 Regional Energy Management and Performance Related Energy UNEP FP 5 2.36 2003 1096 Savings Scheme (EMPRESS) Regional Commercializing Energy Finance (CEEF) - Tranche II WB/IFC FP 5 6.75 2002 2174 Senegal Energy Sector Investment Project World Bank FP 6 5.00 2001 921 South Africa Solar Water Heaters (SWHs) for Low-income Housing UNDP MSP 6 0.73 2000 805 in Peri-Urban Areas Tunisia Development of On-Grid Wind Electricity in Tunisia for UNDP FP 6 10.53 2004 967 the 10th Plan Tunisia Development of an Energy Efficiency Program for the World Bank FP 5 8.50 2004 1905 Industrial Sector for Tunisia Uruguay Energy Efficiency Project World Bank FP 5, 6 7.22 2003 1179 90 GEF Climate Change Program Study 2004 ANNEX C: COP DECISIONS AND GEF COP GEF REPORT TO COP AND SESSION COP DECISIONS GUIDANCE ( ) OTHER COP DECISIONS OTHER DOCUMENTS COP-1 - Decision 11/CP.1, Initial guidance on policies, program - Decision 9/CP.1, Maintenance - GEF Report to INC/FCCC on the priorities and eligibility criteria to the operating entity or of the interim arrangements Restructured Global Environment Facility entities of the financial mechanism referred to in Article 21.1 (A/AC.237/89, December 14, 1994) - Decision 12/CP.1, Report of the Global Environment - Decision 10/CP.1, - GEF Report on the Development of Facility to the Conference of the Parties on the Arrangements between the an Operational Strategy and on Initial development of an operational strategy and on initial COP and the operating entity Activities in the Field of Climate Change activities in the area of climate change of the financial mechanism (FCCC/CP/1995/4, March 16, 1995) COP-2 - Decision 10/CP.2, Communications from the Parties - Decision 12.CP.2, - GEF Report, (FCCC/CP/1996/8, June not included in Annex I to the Convention: guidelines, Memorandum of 27, 1996) facilitation and process for consideration (Guidelines for Understanding (MOU) between the preparation of initial national communications.) the COP and the Council of - Instrument Establishing the GEF, adopted March 1994 - Decision 11/CP.2, Guidance to the Global Environment the GEF Facility (Enabling activities that facilitate endogenous - Decision 13/CP.2, MOU - GEF Operational Strategy, October1995 capacity-building, including data collection; transparency, between COP and the - Operational Criteria for Enabling and pragmatic application of the incremental costs Council of the GEF: annex Activities, GEC/C.7/inf.10, 1996 concept on a case-by-case basis; and, disbursement of on determination of funding financial resources to meet the agreed full costs incurred necessary & available for by the developing country Parties in compliance with implementation of Convention Article 12.2.) COP-3 None - Decision 11/CP.3, Review of - GEF Report (FCCC/CP/1997/3, the financial mechanism October 31, 1997) - Decision 12/CP.3, Annex - First Overall Performance Study of GEF to MOU between COP and Council of GEF on the - Revised Operational Guidelines for determination of funding Expedited Financing of Initial NC of necessary & available for NAIPs, (Part I) February 1997 the implementation of the Convention COP-4 - Decision 2/CP.4, Additional guidance to the operating - Decision 3/CP.4, Review of - GEF Report (FCCC/CP/1998/12, entity of the financial mechanism (Provide funding to the financial mechanism September 29, 1998) developing country Parties in accordance to Articles 4.3, 4.5, and 11.1: implement adaptation response - Decision 12/CP.4, Initial - New Delhi Statement of First GEF measures under Article 4.1; assist with their prioritized national communications from Assembly, April 1998 technology needs, studies for preparation of national NAIPs programs, and public awareness activities; and, support capacity building. Streamline and simplify GEF's project preparation cycle.) COP-5 - Decision 10/CP.5, Capacity-building in developing - Decision 8/CP. 5, Other - GEF Report (FCCC/CP/1999/3, countries (non-Annex I Parties) (Provide financial and matters related to October 8, 1999) technical support; assess ongoing efforts and elaborate communications from NAIPs special needs of developing countries; and, strengthening - Operational Guidelines for Expedited national focal points.) Financing of Climate Change Enabling Activities-Part II: Expedited Financing for (Interim) Measures for Capacity Building in Priority Areas, October 1999 COP-6 - Decision 5/CP.6, Bonn Agreement on the - GEF Report (FCCC/CP/2000/3 Add.1, Implementation of BAPA (Establishment of: a special October 13, 2000) climate change fund, a least developed countries fund, and an Expert Group on Technology Transfer. GEF - GEF Review of Climate Change and others to support adverse effects of climate change Enabling Activities, October 2000 activities and response measures.) Annexes 91 COP GEF REPORT TOCOP AND SESSION COP DECISIONS GUIDANCE ( ) OTHER COPDECISIONS OTHER DOCUMENTS COP-7 - Decision 6/CP.7, Additional guidance to an operating GEF Report (FCCC/CP/2001/8, entity of the financial mechanism (Provide funding to September 28, 2001) developing country Parties in accordance to Articles 4.3, - Climate Change Program Study 4.5, and 11.1: strengthen adaptation activities, support (Executive Summary) "country-team" approach, improve climate change related data collection, undertake more in-depth public awareness activities, strengthen establish early warning systems for extreme weather, assists with national communications.) - Decision 7/CP.7, Funding under the Convention (Establishment of special climate change least developed countries funds; Parties in a position to do so to provide funding for developing country Parties.) - Decision 10/CP.7, Funding under the Protocol (Establishment of an adaptation fund for developing country Parties.) - Decision 27/CP.7, Guidance to an entity entrusted with the operation of the financial mechanism of the Convention, for the operation of the least developed countries fund - Decision 28/CP.7, Guidelines for preparation of national adaptation programs of action 92 GEF Climate Change Program Study 2004 ANNEX D: MANAGEMENT RESPONSE TO THE of the latter, (i.e., the tons of GHG emissions reduced CLIMATE CHANGE PROGRAM STUDY through GEF projects), the evaluation team concludes that the portfolio's performance is satisfactory when measured by this straightforward indicator of the avoidance of tons of The publication of the Climate Change Program Study CO2 equivalent. In addition, the study team also reviewed represents a significant step forward in the documentation a large body of project experience and provide ample and evaluation of GEF's work in the climate change focal evidence that the GEF's portfolio is stimulating the type of area. At the time of the first Climate Change Program Study catalytic, learning experiences that make it valuable over the undertaken in 2000, the portfolio was still at a relatively longer run. While they note that much has been achieved immature stage of its development--many projects had in the field of energy efficiency in terms of both learning yet to begin implementation and the little experience that experiences and tons avoided, they note the contrast with existed was largely in the form of proposals and work plans the renewable energy field, wherein the abatement is limited that had not left the drawing board. Since that time, the and the achievements are, at times, unclear. portfolio has grown and matured into one having significant implementation experience from projects on the ground. The study suggests that the work of the GEF in the Most of these projects still face significant challenges in climate change focal area can be improved by sharpening implementation, and the achievement of project goals its programming framework; clarifying its strategy; cannot always be taken for granted. In this regard, the study improving resource allocation; pinpointing the role of GHG team has made great progress in understanding the GEF's abatement; improved sharing and harnessing the knowledge climate change portfolio. The description and analysis of the generated; and more clearly demonstrating impact. The portfolio presented in this study is far and away the most GEF Management team intends to respond to all of these complete and comprehensible overview of GEF's work in recommendations over the coming year. support of international efforts to combat climate change. The purpose of this note is to provide an indication of The study team argues that the theme of the GEF's the nature of the Management Response to the conclusions work in the climate change focal area can best be referred and recommendations reached in the Climate Change to as that of "market transformation." While this term has Program Study. To date, there has been insufficient time normally referred only to one area of intervention in which to fully respond to the points raised by the evaluation. theGEFisengaged(currentlyembodiedinStrategicPriority However, it is appropriate to indicate our plans to address 1), the evaluation team seeks to broaden the use of the term. them over the coming months, and to reserve the right to Management believes that the use of the term in this context respond to specific elements at a later point in time. After a still fails to incorporate fully the challenges facing GEF in brief methodological caveat below, we will discuss our direct achieving its mandate. Much GEF work in both the energy response to the recommendations of the Program Study efficiency and renewable energy fields focuses on creating Team. and developing markets--as well as transforming them. The team's limited focus on market transformation creates A METHODOLOGICAL NOTE a bias in the study: evidence of market transformation can be identified in the energy efficiency arena, but not in the renewable energy field. Because markets for inefficient goods The evaluation team chose to use tons of CO2 avoided already exist, they can be readily transformed into markets through GEF projects as an important quantitative indicator for efficient goods. In contrast, renewable energy markets of the impact of GEF programming in the climate change need to be built from the ground up: they are incipient focal area. The study team properly notes that the portfolio markets, often too young and fragile to be "transformed." has always been caught in the tension between undertaking In management's view, "market development" encompasses projects with immediate GHG emission-reduction benefits "market transformation," and therefore, provides a more and undertaking projects with a greater potential for long- accurate depiction of the GEF's approach to the climate term impact through replication and learning effects, change focal area as expressed by the Operational Strategy but with limited immediate GHG benefits. After much and Operational Programs. discussion, we believe that the study team has struck an appropriate balance. Reflecting this balance, the study team The study also notes that there remains an unresolved writes "This study is sensitive to the above arguments that tension between the long-term mission of transforming GEF's impact is primarily catalytic and long-term." Except markets and the more immediate, concrete goal of reducing for the limited number of projects funded under the heading greenhousegas(GHG)emissions.Whentheyreviewestimates of Short-term Response Measures, GEF's role has never Annexes 93 beenmerelyfocusedonreducingGHGemissions.Thestudy these seven programmatic-level indicators tend to be team concludes that "The key question is how the GEF can qualitative in nature, and therefore, difficult to aggregate. maximize its comparative advantage of catalytic, innovative This is one area in which the efforts of the Implementing and incremental support in ways that change markets to Agencies, Executing Agencies, and GEF Secretariat will be more climate-friendly behaviors." The GEF Focal Area redoubled--in developing and using indicators appropriate Task Force confirms that this latter, catalytic role has always to the role of the GEF as an institution promoting learning, been the vision that the GEF has had for itself in the global innovation and replication (see discussion below). But the effort to confront climate change. We remain reluctant to see efforts by the study team to document what has been learned the GEF's role reduced to one of identifying the cheapest at the programmatic level--apart from the GHG reduction carbon reductions measured in narrowly defined terms. estimates--show that they do understand and value the More recently, carbon finance and flexible mechanisms have GEF's work in climate change beyond the mere estimate dramatically reduced the demand for Short Term Response of GHG abatement. We remain concerned, however, Measures. We consider this to be a positive trend, as it leaves that not all readers of the study will be equally as adept at the GEF relatively free to focus on its longer-term catalytic comprehending this larger, more complex picture. mission. RESPONSE TO ECOMMENDATIONS R We concur with the study team that the most important role for GEF in the climate change focal area is to be a catalytic force--focused on innovation and learning--aimed The study team makes 6 recommendations with respect at assisting developing countries to meet their sustainable to the GEF's work in climate change. While still considering development goals while protecting the climate, consistent the details of the management response to each finding and with the principles of the UNFCCC. Although the study interpretation raised, GEF management will respond to all team understands the role of the GEF as a catalyst, there of the recommendations made. remains a significant risk that not all of those reading this report will understand that distinction or rather, will choose Recommendation 1 of the study team focuses on the to maintain that distinction. Once some readers learn that strategic coherence of the climate change programming the completed GEF projects have been estimated to avoid framework. The study team notes that the goal of GEF over 200 million tons of CO2 equivalent including both interventions needs to be clarified; the expected outputs, direct and indirect effects, the risk is that the entire climate impacts, and respective indicators should be identified; the change portfolio will be reduced to and summarized by these priorities within the programming framework need to be numbers. Having been involved in the estimation of these pinpointed; and effective approaches to monitoring these quantitative benefits, we understand how they can give a interventions need to be defined. The evaluation team is of false sense of security that progress is being made, whereas the view that the existing Operational Programs can serve as the reality of developing markets for renewable energy and the basis for continued work, but that the overall framework, energy efficiency is quite complex. An abatement estimate, priorities, focal technologies, and approaches to monitoring, or a unit abatement cost, can easily become an end in itself. obtaining feedback, and learning from the portfolio need to If given an unduly large emphasis, an unbalanced emphasis be clarified. on these measures can eventually erode GEF's primary mission toservetheUNFCCC,jeopardizing its commitment In response to this recommendation, the GEF Climate to innovation, learning, and catalytic activities. Change Task Force acknowledges that the programming framework needs clarification, fine-tuning, and in some From our discussions with the evaluation team, we areas, rethinking. We agree that the Operational Programs understand that measuring emission reductions is one can continue to provide the basis for that programming important indicator of project and portfolio effectiveness. framework, and that the requested clarification of strategic The Monitoring and Evaluation Working Paper 4 entitled priorities within that broader framework is a welcome "Measuring Results from Climate Change Programs" challenge.ThethinkingwithintheGEFclimatechangefocal pointed out that estimates of carbon emissions avoided area has evolved on a continuing basis from the development might be more appropriate and manageable as project-level of theoperationalstrategyandprogramstotheidentification indicators, rather than as program-level indicators. In fact, of clusters of similar projects, to the formulation of they proposed that seven program-level indicators would strategic priorities to increase effectiveness and impact. provide greater insights into the effectiveness of GEF's The thrust of these activities and their logical progression work through the Operational Programs. Unfortunately, has been to constantly re-focus and to concentrate efforts 94 GEF Climate Change Program Study 2004 so as to demonstrate impact more effectively, based upon inefficiencies may exist. The study team itself concludes feedback drawn from experience. Successfully clarifying that no "administratively complex financial entitlement" our programming framework will improve our ability to system is needed. Rather, the study team recommends that communicate GEF's work to those outside the immediate "GEF retains flexibility in order to respond to opportunities GEF family and to formulate projects that have a greater where they arise." In fact, this flexibility has served the chance of achieving their stated goals. We also acknowledge GEF very well in the past. Larger countries have received that certain policy issues--such as the mix and eligibility of larger resource allocations which have been prepared and technologies, the approach to carbon finance, and the value approved in a well-reasoned manner to drive innovation and of on and off-grid renewable electricity--will have to be learning. The study team uses the case of China to prove addressed in the process. this point. At the same time, it must be acknowledged that large emissions may occur in countries where fossil fuel costs Too strict or narrow a strategic focus can preclude are artificially low. As a result, the enabling conditions for innovation, rather than encouraging it. There is also a risk a successful GEF intervention may not be met. However, that by concentrating efforts further, the opportunities for smaller countries that were well-positioned either because "country-drivenness" diminish. Cognizant of these and the of structural changes or the correct enabling environment many other pressures that must be managed, we accept the havealso beenused todemonstratestrategicapproaches that challengeof reformulatingandfine-tuningourprogramming could not have been feasible in larger countries. The study framework and priorities so as to present them in a coherent points to the cases of Sri Lanka and Hungary as positive and comprehensible way. By doing so, we believe that we will examples of cases where significant GEF operations prove increase both our transparency and our effectiveness. valuable. In these instances, GEF can target early market development opportunities where energy efficiency and Recommendation 2 focuses upon strategic choice and renewable energy can gain a foothold in order to grow or resource allocation within the climate change program. accelerate future emission reductions. The evaluation team recommends that the GEF's support to mitigation efforts should concentrate in countries that, as The GEF management response is to take careful note a result of higher GHG emissions, have more to mitigate. of this recommendation and the associated caveats, and For countries with globally significant emission levels, GEF to encourage the development of a cost-effective, country- projects are liable to be numerous and substantial. In such driven portfolio consistent with its constantly evolving cases, the country's portfolio should come to be viewed and programming framework. The study reminds GEF to bear managed as integrated programs. Although countries with in mind that the most promising mitigation opportunities limited emissions will have limited portfolios, they should are found in countries with highest GHG emissions. GEF still be explicitly managed to achieve explicit country-level management will continually strive to deploy GEF's priorities. resources in the most cost-effective manner, minimizing any likely inefficient allocations while also taking into account The Management Team acknowledges this the strategic opportunities offered by facilitating low-GHG recommendationandnotesthattheanalysisof theevaluation development paths in countries that do not presently emit team confirms that the current climate change portfolio is large quantities of GHG's. Finally, it is worth noting that largely consistent with this recommendation. At present, whatever decision the GEF Council finally makes regarding taken as a whole, the countries with larger GHG emissions resource allocation frameworks will be used to define future have more projects and larger projects than countries with resource allocations. lower GHG emissions. However, the study team notes some breaches of this rule-of-thumb in countries with moderate In Recommendation 3, the study team recommends and lower levels of emissions, but without demonstrating that the GEF Secretariat provide explicit guidance regarding why GEF activities in such countries constitute a problem. therealisticcalculationof GHGabatementforuseinproject The implication is that if some countries have received a design and monitoring and evaluation. greater share of GEF resources than their emission level might justify, then other countries are deprived of support Management accepts this recommendation. With all to their climate change mitigation efforts, leading to an of the caveats made earlier about the pitfalls of reducing inefficient allocation of resources. While any suggestion of the complexity of GHG avoidance to a single number, the an inefficient resource allocations must be taken seriously, GEF Secretariat has worked with the Implementing and the study has not documented evidence of inefficient Executing Agencies and the GEF Office of Management allocations other than to point out the conclusion that such and Evaluation to further develop an approach to estimating Annexes 95 GHG emissions avoided through GEF projects (cf. GEF/ strategic support to improve the strategic coherence of the C.24/3). This methodology has formed the basis not only for GEF programming framework in the climate change focal the evaluation of targets for the Third GEF Replenishment, area.Inparticular,thishelpshouldextendtodevelopingtools, butalsoformuchof theestimationof GHGemissionsavoided guidance, and indicators to track progress toward achieving as part of the current program study. The methodology market transformation under the climate change programs has been developed to pay attention not only to the direct and strategies. GHG reduction benefits brought about by the investments stimulated under the project, but also, and more importantly, Again, Management accepts this offer of assistance, to take account for the indirect GHG reduction benefits and we view this recommendation as being closely linked brought on through replication, learning, improved enabling both to Recommendations 1 and 4. If the GEF is to environments, development of markets, and improved clarify its programming framework to better reflect its access to finance. In this instance, the GEF methodology for catalytic role in pursuing global environmental benefits, calculating GHG benefits may differ from those adopted by we should better communicate how we define how our other institutions but this approach appears more consistent goals are defined, progress toward those goals is tracked, with GEF's mission. As this methodology has been defined, and impacts are demonstrated. Management anticipates tested, and refined over the past two years, the next logical that such refinements and improvements will only help to step will be to publish it as a guide for project proponents. We sharpen the efficacy of GEF programming over the longer fully expect to have this methodological guideline published term, and will, therefore, seek additional resources and by the end of the 2005 fiscal year. reallocate existing resources in order to improve knowledge management. Recommendation 4 states that the GEF Secretariat, IA's, EA's,theGEFOfficeof MonitoringandEvaluationandSTAP Finally, in Recommendation 6, the evaluation team should work together on a strategic and pragmatic approach suggests that the GEF should move towards a greater tocapturingandsharingknowledgeandinformationbetween decentralizationinproject-by-projectapprovalsbasedupon projects; between in-country and headquarters staff; and clear design principles. This decentralization is expected to through written, verbal and electronic means. lead to a greater focus on results. Management welcomes this recommendation and is eager Management is willing to explore different options to pursue knowledge management activities first throughout to respond to this recommendation. Many pilots for the GEF family and eventually beyond it to the rest of the decentralized decision-making are under way, and the world.Wesharewiththeevaluationteamthefavorableviewof results are constantly under review. Examples range from theknowledgemanagementactivitiesinitiatedbybothUNDP global framework projects--like the UNEP SWERA; the and the World Bank's GEF team. We have been encouraged IFC Environmental Business Financing Program; and by the attention given to this topic by STAP over the past the UNDP/UNEP National Communications Support year. Over the coming year, the Climate Change Task Force Program and the UNDP/GEF Small Grants Program. hopes to work with all concerned parties to design a system of Several other models have been approved and others are knowledge management that is concrete, strategic and suited under active consideration across the different focal areas to GEF's primary role as an institution committed to learning of the GEF ­ Black Sea/Danube Investment Fund, Africa by doing and catalyzing innovative activities in pursuit of StockpileProgram,ECAGeothermalFund,Mediterranean global environmental benefits. Management considers an Investment fund, etc. All these approaches are still in their activeknowledgemanagementprogramessentialfortheGEF early development/implementation, but offer potential to fulfill its mandate. benefits such as lower transaction costs for individual projects and stronger mainstreaming potential due to Recommendation 5 follows closely upon its predecessor. linkages with the Agencies' country assistance programs. As In this recommendation, thestudy team recommends thatthe a result, greater co-financing, strategic focus, higher profile GEF Office of Monitoring and Evaluation should provide for the global environmental agenda in country sector 1The Secretariat and the Implementing Agencies propose to undertake in early 2005 a review of GEF experience with such approaches to provide lessons for the project cycle streamlining exercise. 96 GEF Climate Change Program Study 2004 work, and stronger synergies between individual country commenting on all of the specific findings and conclusions projects could be expected. However, such approaches of the study, management will respond to all of the have to be balanced with need to maintain high standards recommendations made by the climate change program of quality overall portfolio focus that are expected of GEF study team. Although the preceding pages provide some interventions.1 indication of what those responses will be, the precise details will take shape throughout the remaining years of CONCLUSION GEF 3 and GEF 4. Management's expectation is that this process will begin with the fine-tuning of the programming In summary, the GEF Climate Change Team has framework which will provide the foundation for the next benefited from the experience of the climate change replenishment, and that fine-tuning should pave the way program study, and we very much appreciate the hard for clarification of remaining issues in the climate change work that the study team has done. Without immediately focal area. Annexes 97 Endnotes 1. The GEF Climate Change Program is defined for 11. IPCC (Intergovernmental Panel on Climate Change) the purpose of the study as the GEF Climate Change 2001. "Climate Change 2001: The Scientific Basis." Portfolio (closed, on-going and future projects), the four Contribution of Working Group I to the Third Assessment Climate Change Operational Programs and Strategies and Report. Cambridge University Press. corresponding performance and M&E frameworks. 12. IPCC. 2001. "Climate Change 2001: Synthesis 2. All numbers are from the GEF Secretariat project Report." database, Project Management Information System, as per April 30, 2004. 13. The IPCC reports these projected changes in degree Centigrade, rounded to the nearest 0.05ºC per unit time. In 3. UNFCC (United Nations Framework Convention on Fahrenheit, the changes would be time 9/5, that is, 1.1 ºF ± Climate Change). March 1995. "Report by the GEF to the 0.4ºF. First Conference of the Parties." FCCC/CP/1995/4. 14. IPCC 2000. "Special Report on Emissions 4. UNFCCC.June1995."ActionTakenbytheConference Scenarios." A special report of Working Group III of the of Parties at its First Session." FCCC/CP/1995/7/Add.1; IPCC. Cambridge University Press. decision 12/CP.1. This decision appears in Appendix 3.B. 15. Similarly, IPCC reports sea-level rise in centimeters. 5. GEF. 1998. "Study of GEF's Overall Performance." The conversion rate is by 1 centimeter = 2.54 inches, so the projected range of increase is 6 ­ 37 inches. 6. GEF/C.21/9. April 2003. "Business Plan FY04-06." 16. IPCC. 2001. "Climate Change 2001: Impacts, 7. This is based on the results chain developed within Adaptation and Vulnerability." Contribution of Working results-based management in development assistance Group II to the Third Assessment Report. Cambridge (applied by the Organisation for Economic Development University Press. Co-operation and Development-Development Assistance Committee[OECD-DAC],WorldBank,andUnitedNations 17. IPCC. 2000. "Special Report on Regional Impacts Development Programme [UNDP]). of Climate Change: An Assessment of Vulnerability." 8. Outcome is defined as the likely or achieved short- 18. IPCC 2001. "Climate Change 2001: Mitigation." term and medium-term effects of an intervention's outputs Contribution of Working Group III to the Third Assessment (OECD-DAC glossary). Report of the IPCC. Cambridge University Press. 9. GEF. 1995. "Operational Strategy of the GEF." 19. Grubb, M. 2003. "On Carbon Prices and Volumes in Chapter 3. theEvolvingCarbonMarket." InGreenhouseGasEmissions Trading and Project-Based Mechanisms. Organisation for 10. GEF project strategies emanate from the GEF Economic Co-operation and Development. Instrument, Council decisions on Operational Programs and Strategic Priorities, UNFCCC/COP guidance on 20. GGI (Global Governance Initiative). 2004. modalities, the Business Plans, guidance on GEF review "Assessment of the World's Efforts on Climate Change." criteria, among others. Chapter 2. World Economic Forum. 21. This is a term used by the UNFCCC. 98 GEF Climate Change Program Study 2004 22. Industrialized countries are listed in Annex B to the 34. IPCC. 2001. "Climate Change 2001: Mitigation." Protocol, but with few exceptions this is the same as the Contribution of Working Group III to the Third Assessment Convention's Annex I. However, Article 3 of the Protocol Report of the IPCC. Cambridge University Press. specifies that Annex I Parties shall ensure that their CO2- equivalent does not exceed their assigned amount, which is 35. Goldemberg, J and W. Reid, eds. 1999. "Promoting listed in Annex B of the Protocol. Development While Limiting Greenhouse Gas Emissions: Trends and Baselines." United Nations Development 23. WRI (World Resources Institute). 2003. Climate Programme and World Resources Institute. Indicators Analysis Tool (CAIT). www.wri.org. 36. IPCC. 2001. "Climate Change 2001: Mitigation." 24. IPCC. 2000. "Special Report on Emissions Contribution of Working Group III to the Third Assessment Scenarios." A special report of Working Group III of the Report of the IPCC. Cambridge University Press. IPCC. Cambridge University Press. 37. Gupta and Bhandari 1999; Yamin 1999; Pinguelli 25. Agarwal, A., and S. Narain. 1991. "Global Rosa and Ribeiro 2001; Byrne and Glover 2002; IEA 2002; Warming in an Unequal World: A Case of Environmental Winkler and others 2002; Baumert and Figueres 2003; CAN Colonialism." Center for Science and Environment. 2003; Global Environmental Subcommittee 2003; Höhne and others 2003; Willems and Baumert 2003, Ott and others 26. IPCC. 2001. "Climate Change 2001: Mitigation." 2004; Sugiyama and Deshun 2004. Contribution of Working Group III to the Third Assessment Report of the IPCC. Cambridge University Press. 38. "Sink" means any process, activity or mechanism that removes a greenhouse gas, an aerosol, or a precursor 27. IPCC. 1995. "Second Assessment Synthesis of of a greenhouse gas from the atmosphere (UNFCCC 1992, Scientific-Technical Information Relevant to Interpreting Article 1 Definitions). Article 2 of the UN Framework Convention on Climate Change." 39. GEF/C.23/Inf.8. May 2004. "GEF Assistance to Address Adaptation." 28. IEA (International Energy Agency) 2002. "Beyond Kyoto: Energy Dynamics and Climate Stabilisation." 40. See http://unfccc.int/issues/aij.html IEA/Organisation for Economic Co-operation and Development; Aldy, J. E., J. Ashton, R. Baron, D. Bodansky, 41. Note that Article 6 JI is more restricted in scope than S. Charnovitz, E. Diringer, T.C. Heller, J. Pershing, P. R. the Activities Implemented Jointly pilot program, because Shukla,L.Tubiana,F.Tudela,andX.Wang.2003."Beyond the CDM effectively combined the Brazilian proposal for a Kyoto: Advancing the International Effort Against Climate Clean Development Fund with the concept of project-based Change." Pew Center on Global Climate Change. JI. Developing countries cannot participate in JI under Article 6. 29. Economiesintransition(EITs)whoarepartof Annex I,suchasRussia,cannotreceivefundingthroughthefinancial 42. See http://carbonfinance.org/cdcf/home.cfm and mechanism, which is for "developing countries." However, http://carbonfinance.org/biocarbon/home.cfm EITs can still receive funding from GEF, but outside its role as the financial mechanism (Yamin and Depledge 2003). 43. Another major development in carbon trading, although less relevant to developing countries, is the 30. Yamin, F. and J. Depledge. 2003. "The International European Union's Emission Trading Scheme (ETS), which Climate Change Regime: A Guide to Rules, Institutions and is critical to its plan for achieving its Kyoto targets. Procedures." Draft chapter 10: Finance, Technology and Capacity Building. Institute of Development Studies. 44. Ellis, J., J. Corfee-Morlot, and H. Winkler. 2004. "CDM: Stock Taking and Looking Forward." Draft for 31. Decision 12/CP.1, based on GEF report FCCC/ review. Organisation for Economic Co-operation and CP/1995/4. Development/International Energy Agency. 32. Climate Change Secretariat. 2002. "A Guide to the 45. Sinha, C. S. 2004. "State and Trends of the Carbon Climate Change Convention and its Kyoto Protocol." Market 2003." Presentation at South Asia Forum on Clean Development Mechanism. February 2. 33. IPCC. 1996. "Technologies, Policies and Measures for Mitigating Climate Change." IPCC Technical Paper 46. GEF/C.20/4. November 2002. "Summary of No. 1.; Johannson T. B., R. H. Williams, H. Ishitani, and Negotiations on the Third Replenishment of the GEF Trust J. Edmonds. 1996. "Options for Reducing CO2 Emissions Fund." from the Energy Supply Sector." Energy Policy 24 (10/11): 985-1003. 47. GEF/C.21/9. April 2003. "Business Plan FY04-06." Endnotes 99 48. GEF/C.21/Inf.10. April 2003. "A Proposed GEF 64. UNDP Multi-Year Funding Framework/Results- Approach to Adaptation to Climate Change." Oriented Annual Report, Strategic Goal 3 on Energy and Environment for Sustainable Development; World Bank. 49. GEF/C.21/Inf.11. April 2003. "Strategic Business 2000. "Fuel for Thought." Planning; Directions and Targets." Annex 2: Climate Change. 65. World Bank. 2000. "Fuel for Thought." 50. Paragraph 13 in the Summary of Negotiations. The 66. UNDP. 2002. "Energy for Sustainable Development: GEF-III targets are based on projected levels of financing A Policy Agenda." of US$529 million, and reflect the cumulative impact of all projects approved during the FY03-06 period, including 67. Mentioned in World Bank power sector evaluation, in most cases replication of the project without GEF input environment sector evaluation, the UNDP 2003 Annual after project completion. An intermediate target was also Report of the Administrator, and the review of the GEF's established: approval of projects to avoid 200 million tons private sector engagement (GEF/C.22/Inf.6). CO2 by the end 2004. Consequently, these targets do not apply to the existing portfolio reviewed by this study. 68. GEF/C.23/11. April 2004. "Principles for Engaging the Private Sector." 51. GEF/C.20/4. November 2002. "Summary of the Negotiations on the Third Replenishment of the GEF Trust 69. The term "project" in this report includes full-size Fund." projects (FPs), medium-seized projects (MSPs) and short- term response measures (STRM). It excludes enabling 52. Beijing Declaration, paragraph 10; and GEF/C. activities (EAs) and Project Development Facilities (PDFs). 22/11. October 2003. "Performance-Based Framework for Allocation of GEF Resources." 70. 2003 Project Performance Report, elapsed time for FY2003: World Bank 795 days, UNDP 370 days, UNEP 391 53. GEF.May2004."JointSummaryof theChairs:GEF days. Council Meeting." 71. EAseachhaveaceilingof US$450,000.Theyarehere 54. GEF/C.22/7.October2003."ActionPlantoRespond treated as a project type, that is, a time-bound intervention to Recommendations for Improving GEF's Performance." with specific objectives and inputs. 55. STAP (Scientific and Technical Advisory Panel). 72. Thelevelof allocatedresourcesisthemostappropriate 2004. "Opportunities for Global Gain: Exploiting the Inter- indicator of GEF engagement and prioritization. However, Linkages between the Focal Areas of the GEF." Draft. the number of approved projects show similar trends. 56. GEF/C.22/Inf.9. November 2003. "GEF Project 73. GEF. May 2004. "Instrument for the Establishment Cycle: An Update." of the Restructured GEF." Preamble, paragraph 9. 57. OPS2 recommendation, GEF/C.22/7. October 74. GEF. May 2004. "Instrument for the Establishment 2003. "Action Plan to Respond to Recommendations for of the Restructured GEF." Paragraphs 9 and 27. Improving GEF's Performance." 75. Guiding principle 3 in the "Operational Strategy of 58. GEF/C.17/Inf.11. April 2001. "The GEF the GEF," 1995. Programmatic Approach: Current Understandings." 76. GEF. 1995. "Operational Strategy of the GEF." 59. GEF/C.19/8. April 2002. "Clarifying the Roles and Chapter 1. Responsibilities of the GEF Entities." 77. GEF/C.22/11. October 2003. "Performance-Based 60. Speech by the UNDP Administrator, 2003. Framework for Allocation of GEF Resources." 61. World Bank. 2000. "Fuel for Thought." 78. Within each region, the largest contributors to CO2 emissions are shown separately from their regional totals to 62. UNDP. DP/2004/16. May 2004. "Annual Report of illustratewhereinterventionsandreplicationhavethepotential the Administrator 2003." Paragraph 110. to yield greater effect on global environmental benefits. 63. World Bank. 2002. "Promoting Environmental 79. GEF.May2004."InstrumentfortheEstablishmentof Sustainability in Development: An Evaluation of the World the Restructured GEF." Annex D. Bank's Performance." Operations Evaluation Department. 100 GEF Climate Change Program Study 2004 80. The two types of EAs--for national communications 90. World Bank. September 2004. "Impact Assessment: and add-on funds for capacity building--are recorded in Poland Efficient Lighting Project (PELP): Final Report." the Project Management Information System as separate initiatives and therefore are presented as such in this report. 91. These figures look less attractive when total co- TheIAs,inpractice,managetheseasinterconnectedactivities financing is included in the calculation. For example, co- in the same country. financing by IAs in the 24 closed projects amounted to 10 times the GEF grants. On this basis, average direct project 81. The four regional development banks (ADB, African abatement costs for these projects work out at US$81 Development Bank, EBRD, IADB), Food and Agricultural per metric ton carbon or US$32 per metric ton carbon Organization, United Nations Industrial Development including replication effects. However, great caution should Organization, International Fund for Agricultural be attached to the interpretation of these figures because the Development. types of IA financing differ greatly between projects and not all co-financing is directed to abatement. 82. These agencies can now directly access funds for PDF-A grants for the development of eligible concepts. Two 92. DevelopedusingtheWorldBankInstituteKnowledge (ADB, IADB) also have direct access to MSP and FP funds. Assessment Methodology (KAM), which is designed to help (GEF/C.22/12. October 2003. "Review of Experience with client countries understand their strengths and weaknesses Executing Agencies under Expanded Opportunities.") in making the transition to the knowledge economy. The methodologyconsists of asetof 76structuralandqualitative 83. The amounts for future projects not yet approved, variablesthatserveasproxiesforfourpillarsthatarecriticalto including those with PDFs an pipeline projects, may differ the development of a knowledge economy. The comparison oncetheyareapproved.Thetableshowsamountstentatively is undertaken for a group of 121 countries, which includes earmarked in the GEF Project Management Information most of the developed OECD economies and about 90 Systems as of the end of April 2004. developing countries. 84. Excludes EAs. 93. The GEF EE products portfolio, June 2002. 85. Financial ceilings for PDFs range from US$25,000 94. TheWorldBankhastakentheinitiativetocommission for PDF-A, US$350,000 for PDF-B in single countries for ex-postimpactstudiesforasampleof fourclosedEEprojects projects having entered the GEF pipeline, and up to US$1 inthiscluster.Findingswillbereadybytheendof November million in PDF-C for technical design and feasibility work 2004. for large projects. 95. UNDP. 2004. "Solar Photovoltaics in Africa: 86. Analysis of GEF Council approval of PDF-A (56) Experiences with Financing and Delivery Models." and PDF-B/C (83) since 1995 to November 2003. The assessment is a low estimate, because PDF titles and actual 96. Survey by Zimbabwe Department of Energy/ projecttitlesattimesdiffer,andsomePDFswerenotmatched ESMAP (Energy Sector Management Assistance Program). to a project. 97. GEF. 1995. "Operational Strategy of the GEF." 87. The World Bank GEF Coordination Unit has Chapter 3. recently commissioned the first ex-post evaluations of four GEF/World Bank EE projects. This is a commendable 98. GEF/C.21/9. April 2003. "Business Plan FY04-06." initiative that will yield more lessons learned on impacts and sustainability. 99. Ibid. 88. One project with an improbable estimated reduction 100. Thisreviewrelies,inpart,onthesuperb"WorldBank was eliminated from the impact calculation, leaving a GEF Energy Efficiency Portfolio Review and Practitioners' group of 27 projects that together form the basis of the Handbook," prepared by Jas Singh in January 2004. CO2 calculations for closed projects. Alternative transport 101. More than US$200 million GEF funds have been occupies a small space in the portfolio with only two projects, allocated to PV projects, half of which are in Africa. but neither had CO2 data, which effectively removed the cluster from the impact calculation. 102. Recent studies/reports have provided valuable overviews categorizations of the range of PV business 89. A brief description of project clusters in included in models and financing schemes that have been employed Annex A. internationally. "The GEF Solar PV Portfolio: Emerging Experience and Lessons," GEF Monitoring and Evaluation Endnotes 101 Working Paper 2, August 2000. "Summary of Models for 115. The study uses the standard grouping of low-income the Implementation of Photovoltaic Solar Home Systems (US$735 or less GNI per capita), middle-income (US$736- in Developing Countries," Report IEA-PVPS T9-02:2003. US$9,075) and high-income (US$9,076 or more). "Financing Mechanisms for Solar Home Systems in Developing Counties," Report IEA-PVPS T9-01:2002. 116. Analysisof theeffectivenessof GEFenablingactivities "Solar Photovoltaics in Africa: Experience with Financing indevelopingnationalcommunicationsandbuildingcapacity and Delivery Models." UNDP Monitoring and Evaluation requires a different framework than mitigation projects, Report Series, Issue 2, 2004. and was not a key scope of this study. A separate, in-depth review of EAs, particularly on qualitative aspects and use 103. GEF/C.21/Inf.11. April 2003. "Strategic Business of national communications, may be useful in the future, to Planning: Directions and Targets." complement the most recent review of climate change EAs that focused on process issues. 104. GEF/C.23/Inf.16. May 2004. "Reducing the Long Term Costs of Low Greenhouse Gas-Emitting Energy 117. The CCPS2 conducted a review of the content of Technologies." national communications for sample countries that have received considerable GEF funds or rank high on GHG 105. GEF/C.23/Inf.9. April 2004. "Solar Thermal emissions: Indonesia, the Philippines, Sri Lanka, Morocco, Portfolio: A Status Report." Egypt, Poland, Mexico, Uganda, Russia. 106. Case Study, OPS2, 2002. 118. Countries with EAs but for which national 107. GEF/C.23/Inf.9. April 2004. "Solar Thermal communications are not yet completed include China, Portfolio: A Status Report." India, Brazil, Bahrain, Libya, Saudi Arabia, Bosnia and Herzegovina (pending), Serbia, United Arab Emirates, 108. OP 11, GEF Council, June 2001. Zambia, Venezuela, Cameroon, Gabon, Guinea Bissau, São Tomé and Principe, Nepal, Rwanda, Sierra Leone, Malta, 109. UNEP data, 2004. Mozambique, Oman, Suriname, and Tonga. 110. GEF/C.23/Inf.17. May 2004. "GEF/UNDP Fuel- 119. World Bank Country Assistance Strategy, UNDP Cell Bus Programme: Update." Country Program Outline or Country Cooperation Framework. 111. UNFCCC.April2004."TheRangeandEffectiveness of Capacity-Building in Developing Countries Relating to 120. World Bank. 2002. "Promoting Environmental Decision 2/CP.7." Technical Paper prepared by Groupe- Sustainability in Development: An Evaluation of the World conseil baastel ltée. Bank's Performance." Operations Evaluation Department. 112. A LogScale gives a "compressed" picture of useful 121. GEF Secretariat. 2004. "Programmatic Approach in values between xmin and xmax suitable for use as tick mark the Climate Change Focal Area." Internal paper. positions on a logarithmic scale. An actual size scale would show more dispersion. Figure 4.9 includes all long-term 122. World Bank 2002 evaluation and four donors mitigationand STRMprojects, closed, activeand future, but environmental aid program evaluations: Norway, 1995; excludes funds for EAs. A quartile is one of the four divisions Denmark, 1996; Finland, 1999; and the United Kingdom, of observations that have been grouped into four equal-sized 1999. sets based on their statistical rank. The quartile including the top statistical ranked members is called the first quartile. 123. GEF/C.21/9. April 2003. "Business Plan FY04-06." 113. GEF Replenishment negotiation, GEF/C.20/4, 124. GEF/C.21/Inf.11. April 2003. "Strategic Business November 2002, paragraphs 17-18, and the 2003 Project Planning: Directions and Targets." Annex 2: Climate Performance Report. Change. 114. Thisincludescountrieswithcurrentorfutureprojects. 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