The joint implementation procedure in Poland

Zbigniew Karaczun & Miroslaw Sobolewski
in collaboration with Andrzej Kassenberg
Institute for Sustainable Development

1. THE CRITERIA AND PROCEDURE FOR APPROVAL OF AIJ/JI PROJECTS IN POLAND

Since 1994 Poland has been a Party to the Climate Convention. In addition, Poland signed the Kyoto Protocol (which obliges it to reduce its emissions by 6 percent of its 1988 base year level in the period 2008-2012); however, it does not intend to ratify the Protocol in the near future. In accordance with the plenipotentiary powers delegated by the Prime Minister, the Minister of Environmental Protection, Natural Resources and Forestry (hereafter the Minister of Environmental Protection) coordinates the implementation of the commitments under the Climate Convention.

As an Annex-I country, Poland may participate in JI as both the party which finances projects and the party which hosts them. Because of the relatively low costs of reducing greenhouse gas emissions and the well-developed institutional support structure to permit the implementation of investment projects, Poland is primarily interested in the latter of these roles and is perceived as such on the international scene. The management of AIJ projects now under way in Poland is coordinated by the JI Secretariat established in December 1995, which now functions within the structure of the Climate Convention Office, seated at the National Fund for Environmental Protection and Water Management, the largest Polish institution to finance the implementation of environmental policy, under the supervision of the Minister of Environmental Protection.

The JI Secretariat developed evaluation criteria to select those projects that best serve Poland's interests. These criteria include the following provisions (Uniform Reporting Format, 1999):

• Prior to the beginning of each JI project, it must be feasible to estimate the expected emission reduction; after the implementation of the project, it must be feasible to estimate the real reduction.
• JI projects should not lead to deterioration of other local/regional environmental quality indicators. Where proposed JI projects might lead to increases in air pollution, waste water discharges, or waste disposal, appropriate mitigation measures should be incorporated into the JI project.
• JI projects should directly or indirectly result in cost-effective realization of environmental goals. Where JI projects involve the installation of new capital equipment, they should also lead to a net reduction (or at least no increase) in the facility's costs of meeting current and anticipated environmental standards (e.g., standards resulting from harmonization with the European Union environmental directives and/or other international treaty commitments). Thus, process changes and new technologies that prevent pollution are encouraged.
• JI projects should encourage economical use of natural resources and their re-use or waste recycling.
• JI projects should favor the use of advanced production processes and contribute to their promotion to the greatest possible extent.
• JI projects should comply with macro-economic policies at the national and provincial levels.
• Projects should be undertaken only by such Polish partners as could be expected to be solvent in the long-term.

In addition, projects implemented as part of AIJ must meet the requirements which result directly from decisions taken by the Parties to the Convention, e.g., each project should be formally approved by the governments of the cooperating countries; it also must meet the requirement of environmental additionality, that is, it should be demonstrated that the project brings specific, measurable, long-term effects in climate change prevention which would not emerge without the project's implementation.

The implementation procedure for AIJ projects in Poland has a number of stages (Uniform Reporting Format, 1999) as follows:

1. The first stage involves the preparation of a proposal by the project proponent (a foreign company) and its Polish partner, to be submitted to the JI Secretariat. This proposal should contain detailed technical specification of the project, information regarding the manner of its implementation and monitoring of its effects. The information submitted should make it possible to identify the environmental effect to be achieved.

2. The second stage is that of project approval. After obtaining documentation from the project proponent, the JI Secretariat passes the information regarding the project to all interested institutions (governors of provinces, ministries and experts) seeking their opinions. The notification that the proposal has been submitted is also passed to the Director of the Department of Environmental Policy and European Integration of the Ministry of Environmental Protection which notifies the Minister of Environmental Protection.

3. The Minister of Environmental Protection appoints a Steering Committee for the project, consisting of the Director of the Department of Environmental Policy and European Integration, the Head of the JI Secretariat, representatives of other Departments of the Ministry of Environmental Protection, representatives of the Chief Inspectorate for Environmental Protection and various experts. The Steering Committee verifies the proposal, clarifies all related uncertainties and, in the course of its work, submits its recommendations concerning the project to the Minister of Environmental Protection.

4. At the following stage, the project is approved and designated for implementation. When the recommendations of the Steering Committee are positive, the proposal is considered approved by the Polish government. After the official signing of an agreement between the Polish Government and the Government of the country from which the project proponent originates, the project may be implemented within the framework of the AIJ/JI program.

5. The last stage consists in monitoring the environmental effects achieved as a result of the implementation of the project and reporting on such effects and experiences gained in its implementation to the Secretariat of the Framework Convention on Climate Change. The Polish JI Secretariat is responsible for the correct execution of this work.

Despite adoption of the project selection criteria and procedure, a number of problems persist. The Secretariat lacks sufficient staff and resources to adequately evaluate proposals or monitor project results. Project implementers have complained of bureaucratic inefficiency in negotiating the bilateral agreements required by the UNFCCC.

2. AIJ/JI PROJECTS IN POLAND

Over the four years of its work, the JI Secretariat has received more than 60 AIJ programs/proposals. In practice, there are three AIJ programs currently being implemented in Poland: fuel switching and energy efficiency measures (in collaboration with Norway), an energy supply system for the town of Byczyna (with the Netherlands) and sustainable heat and power improvements for public networks in the town of Szamotuly (with the Netherlands). The first AIJ program, co-financed by the Government of Norway, GEF and the Polish partners, was launched in 1996. To date, the Norwegian program consists of 31 separate individual projects now under different implementation stages (JI Secretariat, 1999a). These are:

• Twenty-two coal to gas conversion projects (and 5 additional projects on "the waiting list") executed in non-industrial, small and medium-sized boiler-houses;
• Nine projects for energy efficiency improvement in new residential buildings. The financing for these projects consists of:
• A grant in the amount of 25 million USD allocated by GEF to Poland,
• A grant from the Government of the Kingdom of Norway in the amount of 1.1 million USD,
• The Polish government's own funds in the amount of 22 million USD (including the financial assets of the National Fund and the Provincial Funds for Environmental Protection and Water Management, credits allowed by the Bank for Environmental Protection, and the Polish investors' own funds).

The expected overall environmental effect achieved as a result of the program implementation will be the reduction of carbon dioxide emissions by 278,911 Mg CO2/year. In the case of coal to gas conversion projects, the environmental effect was calculated as the difference in emission levels between new coal-fired boiler-houses and new gas-fired boiler-houses. In the case of projects for energy efficiency improvement in new residential buildings, the environmental effect is the difference in emission levels between a new building erected in accordance with the Polish Standard (for heat insulation of buildings) and a new building erected using advanced energy efficiency technologies. Additional information on the program is given in Table 1.

In addition, the Polish Government signed an agreement with the Government of the Netherlands, under which 14 projects were pre-qualified and evaluated for possible implementation as JI programs (JI Secretariat, 1999a). Under this program, two pilot projects were selected and they are now are under way: the heating systems for two towns: Byczyna and Szamotuly. The Byczyna project involves the use of modern gas boilers to replace the existing coal boilers (with a total output of 4.4 MW). The Szamotuly project involves energy efficiency improvement in the process of heat energy production by fuel conversion (from coal to gas) and cogeneration. The total cost of the projects is estimated at 1,356,000 USD, where the AIJ component represents 912,000 USD. The environmental effect expected as a result of the project's implementation is the reduction of carbon dioxide emissions by 6,966 Mg CO2/year. This effect is calculated as the difference in emission levels from the areas of the two towns in 1997 (before the investment project was started) and the emission levels following the modernization. It is not clear how environmental effects have been calculated and how they have been split between domestic measures and the AIJ component. Additional information on the program is given in Table 1.

Moreover, two programs proposed by the Netherlands await approval by the Polish Government (JI Secretariat, 1996b). One involves the construction of a bio-gas intake facility at a solid waste landfill and the other entails the use of waste wood for heat energy generation. Six programs have also been proposed by Switzerland (all of them designed to convert coal-based heating to systems based on gas/oil). Sweden has proposed one program (landfill gas disposal). The Dutch and Swedish programs await approval by the Minister of Environmental Protection, whereas the Memorandum of Understanding has still to be signed for the Swiss project . The expected environmental effect to be achieved as a result of the implementation of the above programs is a carbon dioxide emission reduction of about 96,215 Mg CO2/year.

3. ANALYSIS OF AIJ/JI PROGRAMS

The reduction of greenhouse gas emissions was recognized as one of the priorities of the Environmental Policy of the State; moreover, one of the basic principles of this policy is to enter into foreign cooperation in order to enhance the effectiveness of environmental protection programs. Consequently, the implementation of AIJ/JI programs is consistent with the spirit of Polish environmental policy. An effective arrangement was the early establishment of the JI Secretariat and its affiliation with the National Fund for Environmental Protection and Water Management. As the largest financial institution to support environmental projects in Poland, the National Fund has great experience in selecting good projects, which, in this case, can be recognized as AIJ/JI programs, as well as in supervising their implementation and monitoring the environmental effects achieved. In addition, owing to the situation of the JI Secretariat at the Fund, the financial assets obtained within the framework of AIJ/JI can be combined with the Fund's own assets, as a result of which these projects can channel support to priority climate protection projects in Poland. Despite these positive aspects, a careful analysis of the AIJ/JI projects implemented to date and those projected brings attention to a number of issues, the most important of which follow:

• There is no firm concept as to how the JI mechanisms could apply in the implementation of environmental policy in Poland. JI promises the potential for substantial funds to support the implementation of programs to protect climate and improve air quality in the country. Moreover, the development of an effective concept of how JI may be used and how such a program would be implemented could bring long-term benefits to the Polish economy through the development of the marketing of services and production in the area of energy efficiency, the development of renewable energy sources, and the creation of new jobs.
  
  
• Given the lack of a firm concept regarding JI mechanisms, projects awaiting implementation are selected very randomly. Additionally, Polish actors do not submit the list of projects to be implemented within the JI framework, rather they only approve the projects proposed by foreign partners. In consequence, the selected projects are those where GHG emissions reductions are cheapest, although a large number of projects could be implemented on a commercial basis. In the absence of a more effective policy, the AIJ/JI projects will tend to concentrate on the least-cost reduction options and Poland may loose the opportunity to attract projects that are more compatible with other environmental priorities.
  
  
• The narrow diversity of project types also results from the adoption of the principle of reduction cost minimization as the project selection criterion. The application of a simplified procedure for cost and benefit estimation dooms some project types to rejection. As a result, the overwhelming proportion of projects, both those under way and those proposed for implementation, are cheap and simple coal to gas/oil conversion projects (out of 37 projects, 30 contain the component of energy carrier replacement). Although these efforts bring a positive environmental effect, as many experts (Hille 1996, Wiúniewski 1998) believe, it is precisely these sort of investment projects that impede the development of energy efficiency programs and production based on renewable resources in Poland. Projects such as these not only drain financial resources allocated to environmentally friendly modernization of the energy sector, but also diminish the interest of local governments in alternative energy development programs (i.e., if local authorities will invest in new natural gas pipelines and boilers they will not be interested in switching energy systems from conventional ones to renewables until they receive return from the investment cost or until the end of the equipment lifetime, which is usually 30 years). Moreover, since projects involving the replacement of an energy carrier and energy generation efficiency enhancement (at the source) are not accompanied by actions to rationalize energy use by end users (e.g., by installation of heat energy consumption meters), the environmental effect achieved is dissipated (e.g., instead of diminishing the amount of heat taken up, users open their windows).
  
  
• In respect to fuel conversion projects, it is also difficult to say that the criterion of environmental additionality is satisfied. Most boiler-houses being modernized are old, technologically obsolete facilities, which would be modernized regardless. The modernization process of local heating systems under way in a large number of regions in Poland indicates that advanced, highly efficient facilities are being installed in boiler-houses. Many of these projects are implemented on a commercial basis (e.g., in Silesia), where power boiler replacements usually involve the component of energy efficiency enhancement at the point of end use (Beblo, 1999 - unpublished information). This fact should be considered when developing principles for elaborating reference scenarios for Polish JI projects, assuming likely technological developments in cases where a given project fails to be implemented. Due to the high level of energy waste in Poland, a large potential for profitable energy efficiency and fuel switching measures has been identified. Recent changes in energy pricing are expected to speed up the expected technology change. Energy prices were formerly heavily subsidized during the socialist era; this is no longer true. Today high utility bills create a strong incentive for various commercially viable efficiency projects. Such projects should not be eligible as AIJ/JI activities, as they would likely be undertaken anyway. The issue of additionality should be resolved with greater precision.
  
  
• Public participation is not envisaged at any stage of the approval and verification of AIJ/JI projects. Representatives of local NGOs do not take part in discussions on the feasibility of implementation of projects (only representatives of local governments are invited to present opinions); neither are representatives of environmental NGOs invited to take part in the work of the AIJ/JI project Steering Committees. The exclusion of NGO representatives and local communities from the decisionmaking process contradicts UNFCCC principles.
  
  
• The economic criteria for the selection of undertakings carried out within the framework of AIJ projects are unclear. The economic efficiency of coal to gas conversion projects implemented under the Polish-Norwegian agreement varies between 4.6 and 64.2 USD/1 ton of reduced CO2 (i.e., by 1400 percent). Such a large difference may indicate the lack of consistent methodology for evaluating the economic aspects of individual projects.
  
  
• There are no clear rules for determining the environmental effect of AIJ projects. This is indicated by the adoption of different implementation times for similar projects (15 years for Dutch projects to modernize heating systems in towns, where the main investment projects involve coal to gas conversion in municipal boiler-houses; and 17 years for Norwegian coal to gas conversion projects in non-industrial boiler-houses). Given the rate of technological change in energy efficiency (new advancements which raise electric and thermal energy efficiency by several dozen percent appear every 7-10 years), it is unrealistic to accept the 50-year implementation time for energy efficiency projects in new buildings.

4. CONCLUSIONS AND RECOMMENDATIONS

1. JI projects may play an essential role in the implementation of Polish environmental policy and the mobilization of additional funds for environmental purposes. The legally binding limits to greenhouse gas emissions as provided under the Kyoto Protocol must come into force before interested foreign partners begin project implementation. Countries such as Poland should demonstrate an active engagement in this field and regard the ratification of the Protocol as one of their foreign policy priorities.

2. Under the plenipotentiary powers extended by the Prime Minister, the Minister of Environmental Protection is authorized to approve AIJ/JI projects, making the Ministry of Environmental Protection responsible for developing a strategy for using the JI mechanism to implement the government's environmental policy. Unfortunately, to date this policy has not been worked out. As a result, AIJ/JI projects are selected on a random basis, and selection consists in approving (or rejecting) proposals submitted to Poland rather than in actively seeking investors who would support recognized priority programs. In consequence, the following is recommended:

• Developing a National Strategy for using the JI program to implement priorities of government environmental policy. In addition to experts, representatives of NGOs should assist in developing the Strategy;
• Estimating a viable "emission budget" that would meet the costs for the duration of JI projects, in keeping with the long-term premises of Polish economic policy. Such a budget would enable the identification of the optimum level of government funding support for JI projects. Otherwise, there is the risk that only JI projects requiring contingent benefits will be approved;
• Preparing, on the basis of the National Strategy, a list of projects to be implemented under the JI program. This list should give priority to projects which bring long-term benefits to Poland and ensure that sustainability principles are satisfied (i.e., promote renewable energy sources and energy efficiency). Representatives of NGOs, provincial authorities and local governments should take part in preparing this list;
• Obliging the JI Secretariat to promote the listed projects and to actively search for investors interested in implementing them.

3. The JI Secretariat established within the structure of the National Fund for Environmental Protection and Water Management administers AIJ/JI projects. This solution is an effective one, and complements the positive fact that clear criteria have been adopted to select projects which will serve Poland's interest best. However, they should be complemented with the following indicators:

• Projects selected for implementation should meet positive economic efficiency and financial non-feasibility standards. JI funding support should ensure projects' financial feasibility. A failure to adopt such a criterion would disturb the market of environmental protection funding and encourage support to be granted to projects performed purely on a commercial basis;
• The maximum project implementation time (i.e., the period over which the donor country would receive credits) should be fixed at 10 years. Otherwise, the proponent would continue to gain credits despite the creation and availability of new, more advanced solutions with greater benefits for the environment. Without such a fixed implementation time, the development of energy efficiency technologies and energy provision from renewable sources may be curbed or arrested;
• Only projects which gain public acceptance should be approved. Public participation should be encouraged within the framework of an environmental impact assessment performed for each project.

4. The procedure for selection and approval of JI projects should be more open and transparent. This may be achieved by appointing representatives of NGOs to take part in the work of JI project Steering Committees. A public information campaign should form part of the National Strategy.

5. The JI Secretariat in Poland, despite its early establishment, has not accumulated substantial experience. By September 1999, agreements on the implementation of AIJ projects were concluded with only two countries. Compared with both the expenditures incurred by Poland for air protection investment projects (about 1 billion USD in 1997) and the foreign assistance funds expended for this purpose (about 10 million USD annually over the 1990's), the value of AIJ projects under way (2 million USD) is slight. Consequently, the experience gained in the course of the AIJ implementation phase may be too small to ensure that projects are efficiently managed. Therefore, it is recommended that work should be sped up in approving AIJ projects awaiting acceptance from the Polish government.

• It should be borne in mind, moreover, that the implementation of the projects in question will also bring other environmental effects in the form of reduced emissions of sulfur dioxide, nitrogen oxides and particulate matter, and will substantially contribute to the local improvement of the state of the environment.
• According to the April 6, 1999, letter of Mr. M. Michalik, Deputy Minister of Environmental Protection, to Mr. P. Samecki, Undersecretary of State at the Office of the Committee for European Integration, Poland will approve Swiss projects provided that the provisions obliging Poland to transfer part of GHG emission credits to its Swiss partners are omitted from the agreement (i.e., on the condition that these projects are regarded as AIJ).

References

1. Backer L., 1995: Update on Climate Convention negotiations [in:] Climate Change and the UN FCCC; Background Information. Edited by Z. Karaczun. CANCEE, CNE, Warsaw - Brussels

2. CC Secretariat, 1992: United Nations Framework Convention on Climate Change. UNEP/IUC. Geneva.

3. Hille, E., 1997: Energy efficiency and saving [in:] Selected Problems of the Polish Energy Policy [in Polish]. Edited by Z. Karaczun. PKE. Warsaw - Cracow.

4. Napieraj, K., 1999: Information regarding projects under way within the JI framework [in Polish]. Letter of 12 April 1999.

5. JI Secretariat, 1999a: Information for the Management Board of the National Fund concerning the implementation of AIJ/JI projects [in Polish]. Warsaw, 28 June 1999.

6. JI Secretariat, 1999a: Information for the Vice-President of the Management Board of the National Fund concerning a review of current proposals of JI projects [in Polish]. Warsaw, 14 July 1999.

7. Uniform Reporting Format, 1999: National Program on AIJ under the Pilot Phase. Poland. http://www.unfccc.de/program/aij/aijprog/aij_ppol.html

8. Wiúniewski G., 1998: Institutional and legal aspects of using RES in Poland [in Polish]. RES Seminar, the Commission of the Parliament of the Republic of Poland, 19 May 1998.