Joint Implementation for International Emissions Reductions through

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Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Acronyms and Abbreviations ab. abbreviation ADH Association for District Heating a.s. akciova spolecnost, joint-stock company cap capita (inhabitant) CDM Clean Development Mechanism CEA Ceska energeticka agentura, Czech Energetic Agency CHP Cogeneration Plant CHMI Czech Hydrometeorology Institute CR Czech Republic DH District Heating EEA European Environmental Agency EIA Environment Impact Analysis EIONET European environmental information network EPC Energy Performance Contracting ESCo Energy Saving Contracting ET Emission Trading GDP Gross Domestic Product GHG Greenhouse Gas ICCC Inter-Ministerial Commission on Climate Change IPP Independent Power Producers JI Joint Implementation KP Kyoto Protocol MoE Ministry of Environment MTI Ministry of Trade and Industry NGO Non-Government Organisation NPF National Property Fund NRC National Report Centre PES Primary Energy sources PCF Prototype Carbon Fund PPP Purchase power parity SEF State Environmental Fund of CR Tp Teplarna, cogeneration plant WB World Bank y year 3 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 OVERVIEW The Czech Republic is an inland country lying in the centre of the temperate zone of the northern hemisphere in the central part of Europe. With an area of 78 866 km 2 , it is the 21 st in size among the countries of Europe; its population of 10 309 137 inhabitants places it in 12 th position and its population density of 131 inhabitants per km 2 is 13 th highest in Europe. The Czech Republic has state borders of 761,8 km with Poland, 810,3 km with Germany, 466,6 km with Austria and 251,8 km with Slovakia. Important geographic regions: Northwest Bohemia, North Moravia, and Prague Population Density of population per km squared No. of municipalities Area, region, district Area km squared 1998 1999 1998 1999 1998 1999 Czech Republic 78 866 10 289 621 10 278 098 130 130 6 244 6 244 Capital Prague 496 1 193 270 1 186 855 2 406 2 393 1 1 Central Bohemia 11 014 1 108 465 1 111 354 101 101 1 147 1 147 South Bohemia 11 346 700 685 699 866 62 62 743 743 West Bohemia 10 875 857 384 856 693 79 79 636 636 North Bohemia 7 799 1 180 325 1 180 694 151 151 505 505 East Bohemia 11 240 1 233 215 1 231 459 110 110 1 086 1 086 South Moravia 15 028 2 051 389 2 049 640 137 136 1 470 1 470 North Moravia 11 068 1 964 888 1 961 537 178 177 656 656 Including: Sector Area, region, district No. of registered businesse s 1998 Public enterprises and corporatio ns Private enterprises and corporatio ns including : Under foreign control Governme nt Private non-profit institutions serving household s Househol ds Czech 1 781 334 2 571 218 014 56 093 15 526 74 589 1 470 466 Capital Prague 313 009 596 68 288 21 133 1 147 10 118 232 687 Central 193 129 233 17 453 4 698 2 226 8 736 164 478 South Bohemia 117 795 175 11 364 3 031 1 638 6 411 98 207 West Bohemia 143 564 258 16 085 7 243 1 330 6 501 119 390 North Bohemia 187 973 300 21 396 5 816 1 540 7 537 157 196 East Bohemia 205 677 287 19 735 3 411 2 234 9 874 173 546 South Moravia 339 344 367 39 718 7 543 3 244 14 677 281 335 North Moravia 280 843 355 23 975 3 218 2 167 10 735 243 607 4 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Source: Statistical Yearbook of the Czech Republic ´99 and ´00 Including: Sector Area, region, district No. of registered businesse s 1999 Public enterprises and corporatio ns Private enterprises and corporatio ns including : Under foreign control Governme nt Private non-profit institutions serving household s Household s Czech Republic 1 963 391 3 197 259 990 81 547 14 734 79 053 1 606 155 Capital Prague 360 245 662 86 018 32 760 1 021 10 614 261 755 Central Bh i 210 700 318 21 969 7 652 2 159 9 307 176 944 South Bohemia 129 248 241 13 070 4 016 1 554 6 794 107 568 West Bohemia 160 976 319 19 516 10 016 1 262 6 973 132 906 North Bohemia 203 780 354 24 657 7 974 1 453 8 270 169 042 East Bohemia 219 777 375 22 129 4 749 2 122 10 360 184 790 South Moravia 367 865 495 45 145 10 043 3 120 15 334 303 768 North Moravia 310 728 433 27 486 4 337 2 043 11 401 269 361 Economy GDP: 50 million EURO (1998), expected trend 2-5% growing Inflation: less than 5%, currently about 2% Interest: 7-15% Significant economic sectors: Heavy industry, Chemistry, Mining, and Power Pattern of GDP in 1995 and expectation in 2020: Industry Construction Agriculture Services CR 1995 34.1% 7.3% 5.2% 53.4% CR 2020 26.2% 7.9% 3.0% 62.9% State regulation: Part of energy sector (power, gas and heat) only. Household sector, exclusive of new flats. Industry is mostly privatised, and therefore unregulated. Legislation: Strongly harmonised with EU. Stock exchanges: Undeveloped. One of the weaknesses of Czech Economy System. Options are included as financial instruments. Energy Energy balance in PJ and domestic natural resources 1998 1999 Solid fuels 1 119.3 984.6 Liquid fuel 7.4 7.8 Gaseous fuel 7.2 7.4 Primary heat and electricity 149.6 151.5 Domestic natural resources 1 283.5 1 151.5 5 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Imports 1998 1999 Solid fuels 45.4 35.2 Liquid fuel 384.0 360.0 Gaseous fuel 320.6 317.3 Imports 780.1 744.9 Exports 1998 1999 Solid fuels 270.6 259.8 Liquid fuel 55.2 51.9 Gaseous fuel 1.4 2.1 Exports 366.2 358.0 Gross consumption of primary energy resources: 1998 1999 Solid fuels 882.7 799.1 Liquid fuel 313.1 325.6 Gaseous fuel 322.8 327.2 Primary heat and electricity 140.7 140.0 Gross consumption of primary energy resources 1 658.8 1 591.9 Total losses: 1998 1999 Mining 14.1 12.2 Fuel upgrading 50.2 40.6 Heat generation 43.4 42.7 Power generation 433.2 411.1 Distributions 40.1 16.7 Total losses 581.0 523.3 Final consumption in total: 1 054,6 PJ (1998) 1 007,9 PJ (1999) Balance of electric power in GWh : 1998 1999 Generation, total 65 112 64 692 Imports 8 383 8 983 Exports 10 844 12 258 Resources used in the country 62 651 61 417 Consumption in energy processes 10 213 10 023 Losses in networks 4 953 4 627 Final consumption in total 47 485 46 767 The energy intensity of the economy is very high, and fuel consumption has been decreasing, whilst while electricity consumption has remained fairly constant. It is expected that this trend will remain for at least 10 years. 6 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 District heat: Well developed since the beginning of the century; about 24% of electricity comes from cogeneration. Energy policy: The main goal is to improve energy productivity and to liberalise the energy market. Ownership Generation: CEZ has a 72% share (67% shares held by National Property Fund - NPF) 28% auto-producers and IPP. Transmission grid: One company 100% owned by CEZ Distribution: 8 regional private companies (about 50% shares hold by NPF) Policy maker: Ministry of Trade and Industry (MTI) Regulator: Regulatory office (will be split from ministry MTI) Energy projects implementation:Private companies Energy legislation: Czech Parliament currently approves New Energy Law Power market: Competition is in power generation. Prices between dominated generator CEZ and distributors are regulated. Prices between IPP and distributors are not regulated. Industrial tariffs are regulated as maximum prices. Residential tariffs are regulated as fix prices. Distributors still hold the monopoly for power trading. New Energy Law will liberalise the market including trading derived forms (futures, options, forwards). Fig. 1. Share of GDP production 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CR 1995 CR 2020 Norway Germany Portugal A ustria IItaly Belgium Finland Denmark Greece France Share of GDP production [%] Services A griculture Building Industry 7 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Environment The Czech Republic's State Environmental Policy was updated in January 2001. It is a basic and strategic document for the preparation of detailed programs for the individual components of the environment and for dealing with particular environmental issues. The State Environmental Policy (SEP) describes: " initial conditions " priority environmental problems " principles of SEP (e.g. sustainable development, public participation in formation and implementation of SEP, inter-sectoral co-operation and sectoral policy integration) " targets and measures of SEP " sectoral policy measures and objectives " environmental policy instruments " costs and effectiveness of the proposed targets " environmental policy targets (baseline scenario cEurope 1990-95 d, optimum scenario cEurope 2005 d). In Chapter 4 cPrinciples of SEP d the criteria for sustainable development, public participation in environmental policy forming and implementation, intersectoral economic co-operation and co- operation with the representatives of universities, NGOs, industry, and the state administration are defined. The Ministry of Environment regularly publishes the Statistical Environmental Yearbook of the Czech Republic, which contains information on: " environmental change 3 causes and factors " state and trends of environmental components " environment and health " instruments of environmental policy - environmental legislation " supplementary information The Czech Republic 3 production CO 2 PES (Mtoe) CO 2 emission Mt/yr t CO 2 /toe kg CO 2 /USD (PPP) t CO 2 /cap 40.40 119.6 2.96 1.28 11.59 BACKGROUND TO KYOTO A strategy to mitigate climate change in the Czech Republic was approved by the Government of the Czech Republic on May 17, 1999, Decision No.480. In order to fulfil this, the STRATEGY OF PROTECTION OF THE CLIMATIC SYSTEM OF THE EARTH IN THE CZECH REPUBLIC will universally support international co-operation in the framework of the UNFCCC and the Kyoto Protocol. A number of the mechanisms for compliance with the Kyoto Protocol and evaluation of its effectiveness have not yet been resolved on an international level and will be the subject of further complex negotiations in the immediate future amongst UNFCCC Parties with various levels of economic and social development and also in the EU countries and countries with transforming economies. For this reason, this document is considered to consist of open material, oriented towards ongoing activities and not to correspond to a single campaign. This material is reflected in specific form in the conceptual material of the individual sectors that can contribute to a decrease in the risk of detrimental impact on the climatic system of the Earth. It is expected that in the light of last international negotiations on COP6 3 bis the Strategy will be up-dated. By course of the Decision No.480 of the Government of the Czech Republic on May 17, 1999, Key measures for the relevant sectors are summarised as follows: 8 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 To be carried out by the Ministry of the Environment: " organisational provision for compliance with the UNFCCC and the Kyoto Protocol, " co-ordination of the work of the Inter-ministerial Commission on Climate Change in the sense of Government Decision of October 12, 1998 No. 669, " carrying out and co-ordination of regular monitoring of greenhouse gas emissions using standard methods and update of emission projections, " co-ordination of scientific and research work connected with monitoring the risks of climate change and their impact on the territory of the Czech Republic and preparation of suitable adaptation measures. To be carried out by the Ministry of Industry and Trade: " carrying out of tasks following from the State Program for Energy Savings and Greater Utilisation of Renewable Resources To be carried out by the Ministry of Transport and Communications: " development and introduction of means of transport for highway, railway, water and air transportation, corresponding to the standards laid down by the pertinent international bodies for the sphere of environmental impact and safety, " preference for non-motorised kinds of transportation by creation of the pertinent infrastructure, " modification of systems of highway transportation and development of alternative kinds of power for motor vehicles. To be carried out by the Ministry of Agriculture: " an increase in the area of forests through suitable afforestation of unused farming land, " development of new technologies of soil treatment and cultivation procedures. To be carried out by the Ministry of Finance: " creation of financial bases for fulfilling the contents of the document Strategy of Protection of the Climatic System of the Earth in the Czech Republic in the framework of carrying out tasks laid down by Decisions of the Government of the Czech Republic No. 480 and No. 483 of 1998. KYOTO AND BEYOND The UN Framework Convention on Climate Change (UNFCCC) was adopted in 1992; the Czech Republic acceded to the UNFCCC in 1993 on the basis of Decision of the Government of the Czech Republic No. 323 of June 16, 1993. In December 1997, a Protocol was accepted at the Third Conference of Parties to the Convention in Kyoto, which requires that selected Parties to the UNFCCC set quantitative reduction targets for emissions of greenhouse gases that, in the first stage (to the control period 2008 - 2012), would ensure an overall decrease in global emissions by 5.2% compared with the 1990 level and also indicates means for achieving this goal. The Protocol requires that the Czech Republic reduces its total emissions of greenhouse gases by 8% by the end of the first commitment period compared to the 1990 level, i.e. by the same amount as prescribed for the EU countries. Through the Decision of the Government of the Czech Republic No. 669 of October 12, 1998, the Government agreed to sign the Protocol. It also required that the Minister of the Environment and Ministers of Foreign Affairs, Industry and Trade, Agriculture, Transportation and Communications, and Finance provide for implementation of the Protocol and submit to the 9 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Government a strategy for protection of the climate in the Czech Republic (points III/2 and III/3 of the Decision). The Czech Republic signed the Protocol on November 23, 1998. The current energy intensity of the Czech Republic is one of the highest in the world. Gross consumption of primary energy sources equals approximately 170 GJ per capita, which, in relation to the structure of energy sources, also results in a high value for the total amount of emissions of greenhouse gases per inhabitant - 14.4 t CO 2 (the average in economically developed countries at the present time is less than 13 t of CO 2 per capita). This thus leads to increased responsibility of the Czech Republic in attempts to decrease overall emissions. Emissions of greenhouse gases in the Czech Republic decreased in the 1990 - 1994 period by 24%, stabilised in 1995 and exhibited an annual increase of 4.6% in 1996; this value decreased in 1997 (1.6%). In 1990, total emissions, expressed as the carbon dioxide equivalent, equalled 187.5 million tons per annum.; this value had decreased to 151.6 million tons by 1997. The reason for the decrease by almost 20% by 1997 apparently lies in the decrease in economic activity and a number of investments in modern technology with higher energy efficiency. The protection of the global climate system is also reflected in the recently accepted State Environmental Policy and must subsequently also be the subject of other basic strategic documents accepted at the level of the Government. It follows from objectives of the UNFCCC that strategic procedures must be evaluated in the sense of Government Decision No.669/98, i.e. jointly, and especially by the Ministries of Industry and Trade, Transportation, Agriculture and Finance. In light of the significant greenhouse gases emission reduction potential, advantageous initial conditions and favourable projection of a development in the Czech Republic over the time period to the year 2010, it is possible to commence implementation of point III/b of Decision of the Government No.669 of October 12, 1998 and commence the pertinent ratification measures for the Kyoto Protocol. The ratification is expected to take place as in other EU countries. Key Elements in the Strategy to Reduce Greenhouse Gases Emissions The principal strategy to reduce emissions and to reduce risks of climate change must be balanced and inter-related. It is necessary that they take into account the economic needs and capabilities both of the country and of the population. They can be reflected particularly in a broad spectrum of measures related to energy saving and an increased portion of utilisation of renewable energy sources that are in accord with the State Environmental Policy, the State Program of Energy Savings and Renewable Sources, the State Energy Policy and the programs of the State Environmental Fund and the Czech Energy Agency. It is necessary that particularly these programs become those that, through their application, significantly affect further emission trends in CR. At the present time, energy saving must be considered as an unambiguously most significant emission reduction potential. Support for saving programs must be based primarily on market stimulation, which should open prospects for business in energy services, where it is more advantageous for a company to sell energy saving equipment than energy. It is necessary to complete the reform in energy prices, remove production subsidies, include external costs (costs for remedying damage to the environment) in final prices and gradually adjust domestic energy prices in relation to the prices common in the surrounding countries. The development of more energy efficient technologies can be substantially supported by a targeted information campaign, certification and standardisation of energy-production products and equipment, energy audits, extended consulting activities, support for developmental programs, etc. The target of the program of extended utilisation of renewable energy sources consists in support for the development and implementation of facilities for the production of energy from economically acceptable renewable sources. Under the conditions in the Czech Republic, this could correspond to the renewal and construction of new small hydropower sources, the utilisation of biomass and geothermal energy and, currently to a limited degree, also solar and wind energy. Further requirements on the utilisation of these sources should not extend beyond the framework of the State Program for Energy Savings and Greater Use of Renewable Resources. Similarly to energy savings, emphasis must be placed here on research, development and the role of demonstration projects. 10 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Measures in the Sector of Energy Production and Consumption The total contribution of the energy production sector in the Czech Republic (including the industry and transportation sectors, the commercial sector and sectors of housing and civic infrastructure) in the overall aggregated balance of emissions of greenhouse gases equals about 85% at the present time, where energy production corresponds to 39%, industrial energy production 30%, transportation 8% and the commercial, housing and the civic infrastructure spheres, also 8%. The greatest attention must be paid to measures that force or otherwise involve producers, sellers and consumers to save or use energy more economically. The basic source of savings is a decrease in the level of demand for energy and its final consumption. In the sphere of energy production, a decrease in the volume of emissions of greenhouse gases can be achieved through: " smooth elimination of subsidies on energy production (support for combined production of heat and electricity in the construction of new and reconstruction of old sources); " support for increasing conversion to gas in towns and cities with combined production of electricity and heat and simultaneous utilisation of local secondary sources of energy for supply of heat. Measures in the Transport Sector A number of effective measures have already been formulated in the approved transportation policy and include support for: " the development and introduction of means of transportation for highway, railway, water and air transportation, corresponding to the standards laid down by the pertinent international bodies in the sphere of environmental impact and safety; " gradual introduction of economic instruments (including internalisation of external costs) in an attempt to increase the implementation of economically acceptable transportation systems and means of transportation and decrease the environmental burden; " gradual transfer of part of the volume of passenger and freight transportation in highway and air transportation to railway, combined or water transportation; " the development of non-motorised kinds of transportation through creation of the pertinent infrastructures; " preference for public passenger transportation, introduction of integrated transportation systems and development of their infrastructures; " improvement of organisation and regulation of highway transportation (more effective systems of traffic control, construction of P+R parking lots, etc.; " development of alternative kinds of power for motor vehicles. Measures in Waste Management Sector Emissions of greenhouse gases from waste (escape of methane from landfills, waste combustion, etc.) can be affected through the manner of waste liquidation. A considerable benefit can be gained from sorting waste at the level of the producer, which can also affect the consumption of energy in processing raw materials from recycled waste and extend the range of business opportunities. Measures in the Sectors of Agriculture and Forest Management Measures adopted in these sectors have an impact both in decreasing emissions of CH 4 and N 2 O (agriculture) as well as an increased level of CO 2 sinks through absorption (forest management). 11 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Science, Research, Education and Public Awareness The fourth Conference of Parties to the Convention in Buenos Aires in 1998 made a decision to increase support for science and research in the sphere of climate change, adaptation measures, creation of systems leading to improvement of monitoring of emissions of greenhouse gases, including sinks and refining forecasts of emissions of greenhouse gases over longer periods of time. Estimation of the Possible Emission Potential of CR for Flexible Mechanisms in the Kyoto Protocol Estimates are based on the results of modified forecasts of trends in emissions of greenhouse gases to the year 2010 and are apparent from the following table: Resultant emissions of CO 2 equiv. in Mt 1990 2008-2012 (CR target acc. to KP) 1997 2010 "high growth" scenario 2010 "slow growth" scenario 2010 estimated potential 187.5 172.5 151.4 169 157 3.5 - 15.5 As the final forecast depends very highly on development of the economy for the period until the end of the first control period of the Kyoto Protocol (average for the years 2008 - 2012), it was decided that 0,75 Mt CO 2 is a maximum of total year emissions. Because of the continuing uncertainties in relation to the magnitude of the emission potential of the Czech Republic that can be taken into consideration (see above) and the undefined international rules for projects and emission trading, it must be recommended that extreme care be exercised in the preparation of new JI projects and that the general principles set forth in this material be followed. They also include an administrative base for qualified consideration and approval, including control mechanisms. Until internationally valid rules and a regime for overall provision for compliance with the Kyoto Protocol are accepted, it is necessary not to commence concrete discussions on future emission credits. This is also true of approaches to trading in emissions and any negotiations in CDM projects (with countries outside of Annex I). Procedure for AIJ Projects Selection in the Czech Republic Types of AIJ projects Due to the fact that this phase of the common implementation is the pilot phase, we can consider all investment projects or groups of projects leading to considerable reduction of greenhouse gases emission, i.e. reducing emissions by 10 % or more against reference level (original condition eventually hypothetical level of the new equipment), as AIJ projects. The following areas for AIJ projects were selected: " Utilisation of renewable energy sources; " energy savings in building heating (regulation, insulation) in public sector; " energy savings in building heating (regulation, insulation) in housing sector; " utilisation of waste industrial heat in existing installations; " construction of collection systems for landfill gases in old landfills and use of energy thereof; " public transport gasification; " afforestation Other installations leading to a substantial decrease in GHG emissions shall also be eligible. 12 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Amount of Emissions Allocated to AIJ The principle of AIJ projects is the pilot phase without subsequent creditation (transfer of credit to the investor country). Considering today's trend in greenhouse gas emissions, many industrially advanced countries will have considerable problems in fulfilling their own obligations resulting from the Kyoto protocol. This is why, during COP5, it was suggested to transfer evaluated emissions savings from AIJ projects to the credits with regressive validity. The Czech Republic and most of the countries in transition expressed their fundamental disapproval. This question might be raised again in the future. Considering the danger for the Czech Republic resulting from this approach, it is necessary to limit the amount of emissions appropriated for theoretical part of foreign investors in AIJ projects in accordance with real emissions potential of the CR already in the pilot phase. The National Strategy (1998) and the Strategy to Mitigate Climate System of the Earth in the CR (1999) estimates the potential amount of emissions. From the results, it is possible to estimate 0,35-1,550 Mt CO 2 as a year limit. This estimated amount strongly depends on the economy's development, which is very uncertain. When real development of the greenhouse gas emissions during the last several years is taken into consideration, and when guided by the effort to minimise the risk of potential failure of the Kyoto protocol obligations for reference period (2008-2012), it is recommended 0,75 Mt CO 2 at most. The emission production forecast will be updated in the Third National Communication, which is currently being prepared. The above estimate was done as the inventory of the possible yearly potential and represents today 9s level of knowledge. It can be corrected yearly, in order to serve in 2018 as the reliable base for fulfilment of the Czech obligations resulting from the Kyoto protocol. Project administration The National Reference Centre for AIJ/JI (NRC) Projects The National Reporting Centre for AIJ/JI (NRC) Projects is established within the Department of Integrated Financing of the Ministry of the Environment. The NRC administrates the AIJ projects, provides preliminary project assessment and develops the methodology, etc. It also serves as the liaison body for potential foreign parties. During periods between expert sessions it serves as a secretariat of the Expert Commission for Assessing of AIJ projects. Expert Commission for Assessing of AIJ projects The Minister of the Environment appoints the expert AIJ committee. The Deputy minister will be a president of the Committee. Members of the Committee will consist of representatives of the Ministry of the Environment, professional institutions (Hydrometeorology Institute, State Environment Inspection, SEF, CEA) and a representative of non-government organisations, together comprising 10-11 members plus a chairman. The sessions of the Committee will be held twice a year (in May and November) and its chairman has the right to invite further specialists, depending on the nature of selective projects. He can also establish the auxiliary commissions according to the nature of the projects. Procedure for the project selection The Ministry of the Environment invites the project applicants to present AIJ project proposals by public announcement in the bulletin of the Ministry of the Environment, "Vestnik MZP", on a web site of the Ministry of the Environment and through announcement in the daily press. Proposals should be sent to the Ministry of the Environment. Conditions and proprieties of the presented projects will also be published in "Vestnik MZP c and on the Ministry of the Environment's web site. The NRC administrates the projects, and within 20 days, issues its standpoint on the formal requisites of the submitted projects. Any incomplete applications are returned to the applicant for supplementation with a deadline of 10 days. Within 10 days, the NRC assesses the supplemented applications and submits a complete application to the Commission. The Commission meets twice a year (in May and November). The recommendation of the Commission is submitted to the Minister of Environment for the final decision, which cannot be reversed. 13 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Conditions for submitting projects The project's proposal will be delivered for registration with the Secretariat of the UNFCCC and to the organisation responsible for AIJ/JI project in the investor country. The project proposal has to use the FCCC/SBSTA/1997/ - Uniform Reporting Format: Activities Implemented Jointly under the Pilot Phase. The conditions: " minimum reduction of greenhouse emission is 10% against the reference level; " investor's opinion and the agreement of the organisation responsible for AIJ/JI; " the source of financing; " respect of CZ legislation, mainly the environment protection; " the project cannot lead to the transfer of pollution between air 3 water 3soil . Criteria for project evaluation " the amount of emissions reductions must be at least 10% in comparison with the reference level; " the transparent calculation of the baseline (reference level) of GHG emissions; " economic effectiveness of the project; " additionality (not only to fulfil the Czech legislative requirements, no pollution transfer); " compliance with the priorities of State Environmental Policy and State Program of Support for Energy savings and Use of Renewable Sources of Energy; " the best available technology; " the benefit for dissemination of know-how and new technologies; " compliance with the macroeconomical policies, both at national and regional levels (e.g. growth of employment). Monitoring and evaluation of AIJ projects The monitoring and evaluation is provided by the National Reference Centre. The project proposal and yearly report of already approved projects will be sent to the secretary of UNFCCC. It is expected that AIJ rules will be transformed into rules for JI projects. The following graph shows that the present GHG emissions are under the Kyoto target. This is the main reason why JI and ET will not be the main focus for the Czech Republic's government and its Environmental policy. This is also the reason why our companies are unlikely to start the activities themselves. On the other hand, if good offers are made by proposed investor countries, there is no reason not to participate in JI. Total GHG emissions 1990-1998 100 110 120 130 140 150 160 170 180 190 1990 1991 1992 1993 19941995199619971998 year Mt Kyoto target 14 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 KEY PLAYERS General The Czech government, having ratified the Kyoto Protocol, will follow developments in the rest of the world and Europe, but will not be active itself. This is because other problems need to be prioritised that are considered to be of more urgency. Energy policy competence is currently split between several governmental bodies. Their responsibilities are: Ministry of Trade and Industry - responsibility for energy legislation, authorisation and regulation Ministry of Finance - responsibility for price control Ministry of Environment - responsibility for environmental legislation and EIA processing Czech Energy Agency - responsibility for conservation programs State Environmental Fund 3 supporting the environment improvement projects State Energy Inspection - responsibility for supervising of energy system. The Czech energy efficiency policy is managed through: " Institutional programs for improving energy efficiency (run by Czech Energy Agency and State Environment Fund). " Regional Energy and Environment Concepts and Action Plans preparation (supported by Czech Energy Agency and State Environment Fund). " A system of regulations to promote the rational use of energy (the first Energy Conservation Law has just been approved by the Czech Parliament). " An appropriate system of incentives to stimulate and promote energy efficiency improvements, initiatives and projects and corresponding mechanisms to facilitate financing of investments and programs (ESCo, EPC, TPC). " The energy efficiency training programs for technicians and engineers, managers, architects, local and municipal officials, etc. (supported by Czech Energy Agency). Private sector As the main part of the energy sector was already privatised it is clear that the private sector will play the main role in JI and ET. From the experience of AIJ projects, there are very active Dutch companies in the Czech Republic (especially BTG.). In the case of Decin, the project enabled a decrease in the emissions burden in one of the most polluted areas of the Czech Republic. Publicity offered by AIJ projects together with a lack of financial sources often awoke a hope to get the needed amount for the other projects financing by means of participation in AIJ projects. The chance as an approved AIJ project helps to finance the project. The main participants are listed in the Annex 1. THE JOINT PROJECT IN THE CURRENT CONTEXT The activities of the country team have helped to inform a greater number of potential participants in JI, some for whom JI and ET are seen as a new way of obtaining financial support for their investment plans. As a result of the Czech Air Pollution Act of 1991, all energy sources have had to be cleaned up until the end of 1997 (dramatic degree of SO 2 and dust). Also, there is an overcapacity of installed output for power production (start up of nuclear plant Temelin, 1. block 1000 MW). This situation leads to the improvement of energy efficiency, rather than new capacity. Taking account of gas and heat supply, as well as electricity, efficiency of their production must be considered. If an adequate consideration of combined heat and power technologies takes place, this should change the reason why our industry partners which offered the project for energy savings (not typical JI project) will not take one of the advantages of JOINT project 3 to get in a contact with the Western industry partner and to start JI process together. 15 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 The JOINT project presents the opportunity to bring together the experience being developed from around Europe, thus increasing international experience on JI. For the Czech Republic's government partners, this represents the value of the project, especially in terms of baseline methodology, AVM and institutional framework. JOINT PROJECT ACTIVITY Country Team Membership Overall aims and objective of the Country Team As the body responsible for the Kyoto targets, the Ministry of Environment has welcomed the JOINT project. Despite several AIJ projects being implemented in the Czech Republic, the lack of an adequate baseline methodology remains. Until now, the process of AVM has been too simple, as well as the institutional framework as it is only been within the National Reference Centre at MoE. However, within the country team, there are representatives of the CEA and the SEF. These are now the organisations with the experience of the programs for environment protection and energy savings financed from state budget or international programs (PHARE, ISPA etc) and we can suppose that in the future they will administrate JI projects, PCF etc. Teplarna Strakonice, a.s. and its partner the Association for District Heating of the Czech Republic state the following declaration concerning the JOINT project's strategy: The great possibility of using the EU support devoted to the reduction of GHGs, and especially CO 2 ,via this project, is welcome together with the hope, that the project will be utilised in the participating CEE members countries to reach these project's targets, ie: " to assume the potential of GHG and CO 2 emissions reductions within the energy sector, including energy production, supply, management, saving; " to create the possibility/offer to realise intended projects resulting in the CO 2 emissions reductions within the CEE partners´countries with the implementation of the Joint project; " to realise projects resulting in CO 2 /GHG emissions reduction. On the way to meeting these targets, the projects partners should create an international pressure on the co-operation / consideration of the state authorities to encourage them: " to suggest or accept a general approach to the ways of the above mentioned technology developments and applications " to establish CO 2 /GHG statistics methodology and measuring and monitoring methods " to design the legal measurements and handling system with CO 2 /GHG emissions (in the form of energy levies, CO 2 taxation, etc.) " to specify the rules and regulations for CO 2 emissions quota models, trading, joint projects It was stated at the meeting in London that the CEE countries with economies in transition consider the uncertainty of the energy policy framework as being the main problem that prevents project investments and realisations, and that this will also be the main obstacle from the view of international investors. To remove this barrier by determining a system and rules will open the general way and the involved partners will not waste the effort to get over everyone alone, will get the advantage of the co- designer / consultant of the rules, will get the experiences like developers of the way. An international effort should help to improve the situation. The project aims to reach the EU commitments, and continue progress thereon. However, there is also the increasing problem of the impact of electricity market liberalisation within the EU countries. The European combined heat and power and district heating sectors cannot agree that liberalisation brought the decrease of energy prices without stating that these energy prices are not mostly linked with the cleaner and more efficient energy generation and management. The liberalised market is currently far behind the EU stated targets, and does not follow the declared trends. It has been already published that this is only a 16 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 transition period - a similar term used in CEE countries for an economy state - but the CHP and DH systems operators lay the main question: How will the EU target to reduce the GHG and CO 2 emissions, double the CHP electricity production, increase energy efficiency and the share of renewable energy sources be met?. The lack of the rules will make problems for EU investors as well. These questions occupy all of the members of Euroheat & Power, unichal, Cogen Europe and other international organisations, associated heat and power producers, energy plant operators, district heating suppliers, CHP/DH/DH technology manufacturers, project-design organisations, energy consulting agencies, as well as universities. These organisations create action plans for CHP/DH promotion, a relevant area for Joint Implementation. Therefore, it is important to address these organisations and keep them informed about the project's progress, especially since these organisations have made an effort to create international pressure to urge the EU government and CEE governments to establish the energy policy framework for CO 2 handling, and for environmental friendly technologies for energy generation and supply. Country Team activities In addition to the regular bi-monthly meetings, the country team organised the workshop before COP6 , involving approximately 25 participants from MoE, CHP, utilities and municipalities (see Appendix 4). At the end of JOINT project, the country team is intending to organise a further workshop to disseminate the results of the project and to find the potential continuation of the project, to stay in contact with key players in JI, ET etc. In addition, the web site of CITYPLAN will be updated and will inform about the JOINT results (in a manner agreed at the final meeting in Vienna). Members Jiri Barton CEA-Czech Energy Agency Irena Ruzickova CEA 3 Czech Energy Agency Jiri Bem - CEA Czech Energy Agency Lenka Kovarova Ministry of Environment Alena Kobrova Ministry of Environment Milan Podsednicek National Environment Fund Hana Luptovska Teplarenske sdruzeni (Association for District Heating of the Czech Republic, ab. ADH CR) Ales Seitz TP Strakonice Ivan Benes CITYPLAN Jan Kartak CITYPLAN Ludmila Skurovcova CITYPLAN Roles and responsibilities Team leader: Cityplan has been responsible for the whole project. Industry partner: Association for District Heating of the Czech Republic. The Association represents more than 67 % of the District Heat in the Czech Republic, its member companies supply 60 % of the Czech households by DH (See: http://www.tepsdru.cz). The Association expects the support of DH systems and cogeneration. (Due to the distorted energy prices, especially the ratio between the gas price for individual heating and the price of DH (fully covered the costs), nowadays there exist activities to disconnect end-use consumers and use individual gas heating. This problem deals especially with the large DH systems of combined heat and power generation. Government: CEA and SEF. The CEA and SEF have been responsible for co-ordination of the project activities with the state policy and legislation. Energy/Environment consultant: Ministry of the Environment of the CR 3 the department of Integrated Financing -has been responsible for co-ordination with the Ministry activities, and exchange of information. 17 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Inputs to Working Groups Working Group 1: Industry Opportunities for emission reductions As already explained, even if the production of CO 2 is decreasing, we recognise that the current energy intensity of the Czech Republic is one of the highest in the world and that it is necessary to change this. The investment to the more effective technology can reduce the production of CO 2 emissions. For the calculation of the potential reduction we used the results of GEMIS 3.1. model computation, which is used in CITYPLAN. This model includes yearly updated database of energy sources and energy conversion and transmission units in CZ. We calculated the five scenarios of the future development comparing with the base scenario (year 1996): 1. Nuclear 3 power plant Temelin in operation: + 4 TWh of electricity production, heat production constant 2. Biomass 3 the implementation of 2,254 TWh biomass production (according the Environment policy of MoE), a part of electricity consumption (electric heating) is replaced by wooden/straw pellets. 3. Heat Pumps - 1TWh of the electricity consumption (electric heating) replaced by heat pumps. 4. Cogeneration 3 the replacing of heating sources by cogeneration. 5. Other renewable 3 the implementation of other sources: small hydro, wind, solar. Source M t CO 2 t CO 2 /cap reduction t CO 2 /cap production Nuclear power plants -14,60 -1,41 10,18 Biomass -13,00 -1,26 10,33 Cogeneration -8,60 -0,83 10,76 Heat pumps -2,30 -0,22 11,37 Other renewable -1,50 -0,15 11,44 Total -40,00 -3,88 7,71 renewable+coge n. -25,40 -2,46 9,13 Industry issues As was already explained, the reduction of GHG emissions is not the urgent problem in our state. Thus the JI activity will not probably start from our side, at our large power producers. As a result of the past 7 years' investment, there was a difficulty in offering a typical JI project from our industry partners. For this reason, we offered projects for energy savings (reconstruction of the DH nets) and, only in two cases, extending of cogeneration production by installing new turbines. Due to the present situation of over installed power capacity these projects are not realistic. 18 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Installed heat cap. Installed electr.cap. heat product. heat sold heat losses electr.pro d. electr.sol d Investme nt CO2 reduct. MW MW GJ GJ GJ MWh MWh mil. EUR t/y Tp Ceske Budejovice 479,266,25121768 322932 590100020566816727520,130000 5 boilers (2gas, 3coal) 3 generators Dhnets: 133km steam 6km hot water Tp Tabor 226,38,7510598508691511430001108850,13,13500 10boilers (4HFO, 6gas) 1 generator Dhnets: 30km steam Tp Pisek 84,157,87100924998768800016924116981,23500 5boilers (2coal,3HFO) 2 generators Dhnets:13,4 km steam 5,2 km hot water second.Dhnets: 5,2 km hot water Tp Strakonice 214242087094 102311 1115000102050855971,94200 5boilers(3coal, 2HFO) 2 generators Dhnets: 35km steam Sec.Dhnets: 20 km hot water Sezimovo Usti 129485 2,15600 Investment: steam-hot water Total: 48,546800 control system DH improvement Heat exchanger improvement gas turbine new pipes new control system Another situation could be in a case of implementation of renewable sources, but the offered potential projects are in a small scale and mainly only heat production. Investor Place Description Investment thous.EUR Town Rostin Rostin Central heat source, straw boiler, water accumulator 170 m3 2 163 City of Benesov Benesov Reconstruction of the waste water station 1 118 19 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Investor Place Description Investment thous.EUR Municipality of Horousany Horousany Central heat source, straw and wood chips boiler 1 382 Verner Ecostart s.r.o. Dlouhe Pole Waste wood pellets assembly 389 Trebicska tepelna spolecnost Trebic Present heat boiler station will be completed by 4 cogen.units + solar panels 331 Municipality of Velky Karlov Velky Karlov Central heat source - straw boiler 782 MAEN spol. s r.o. Prague 9 Utilisation of biogas from the waste storage for the heating of town Struzna 618 EZOP, s.r.o. Vrchlabi 1 Utilisation of biogas from the waste storage for the heating of town Dolni Brna 343 Municipality of Bouzov Bouzov Replacing of coal boiler by biomass boiler 549 Municipality of Moravany Moravany Reconstruction of the present coal heat station by biomass (for schools and public b.) 212 City of Ostrava Ostrava Replacing of coal boiler by waste wood boiler+solar collectors 86 Masny prumysl Krasno Valasske Mezirici Utilisation of organic waste (meal industry) in a biogas cogeneration unit. 279 AKTON spol. s r.o. Boskovice Reconstruction of the boiler house and the wood drying 136 Priorities for industry for JI The main priority for the industry partners is the establishment of clear rules and mechanism (sharing the credits, price). Framework for addressing priorities and issues The framework has to be prepared at MoE at NRC with the accordance of the world and Europe development and the experiences obtained from AIJ phase and from the JOINT and project results. WG 2: Baselines Understanding baselines In the adopted AIJ projects, the baseline was calculated very simply 3 the replacing of the present source by a new one and just making a comparing of the present source's emissions with the new source's emissions (mainly coal versus gas). The baseline was calculated on an individual, case by case. It is currently under discussion whether or not to take gas production as a baseline. The ideal situation will be to have the computer model with the energy system data for the whole Czech Republic. The base scenario will reflect the state energy policy declared until 2010 to reach yearly energy savings 120-225 PJ and the yearly implementation of the renewable production in amount of 70-87 PJ. This will enable calculations for a proposed JI project to be made more easily, and will facilitate the decision for the acceptance of the project. As a unique methodology does not exist, we have been pleased to learn from the JOINT results, using the SAFIRE model and other calculations. Information requirement for baselines As there is not a state baseline methodology it is up to the project developer to construct a baseline and then prepare the baseline document. The NRC will decide whether this baseline calculation is acceptable and complete or whether it should be changed. 20 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 General sector information is available from public sources (state statistical yearbook) or from Government Institutions and, therefore, the problem relates to the methodology rather than obtaining data. Management of information for JI All information about AIJ and JI is concentrated at the MoE at NRC. As it is described in the procedure for AIJ, the NRC will serve as the liaison body for potential foreign parties. During periods between expert sessions it will serve as the commission's secretariat. Calculation of baselines 3 available capacity, institutional arrangements, etc. The MoE regularly publishes a statistical environmental yearbook of the Czech Republic. In the sphere of air pollution prevention. a system of instruments has been developed primarily for the purpose of providing information essential for decision-making processes, and to serve for objective monitoring and evaluation of the state and development of air quality. The registration and monitoring of the amounts of emissions from air pollution sources can serve as a database for a calculation of emission reduction. The data availability in the Czech Republic is therefore very good. WG3: Finance Previous experience of financing climate change projects (e.g., AIJ, GEF, etc.) The two institutions in our Republic, the CEA and SEF, are responsible for co-financing the environmental and sustainable energy projects 3 special state programs driven by the Czech Government. These two institutions were involved in the financing of AIJ projects (see Appendix 2). Also, private investors were financing the AIJ projects (municipalities, industry companies as the investors). The Czech commercial banks did not assist. Current state-of-play for GHG, carbon emissions trading Emissions trading are at a very early stage. Small studies have been undertaken to map the present situation and the interest of potential participants. However, a plan for its implementation will not be formulated, until existing problems are solved. WB together with CEA is now preparing the program for PCF activities. Ideas and options for financing of climate change projects CEA and SEF will continue in the supporting projects according the yearly updated programs and condition approved by Czech Government. The participation of the commercial banks will be similar as in any other projects. Key finance stakeholders As was already mentioned, none of the Czech finance stakeholders were involved in AIJ projects until now. Rather, participation was by foreign finance institutions (see annex 2). WG4: Accreditation, verification and monitoring Previous/on-going experience and activities The National Reference Centre provides the monitoring and evaluation. The project proposal and the yearly report of already approved projects are sent to the secretary of the UNFCCC. An independent auditor can check the reports. The project can lose the status of AIJ/JI project in case of not achieving the design parameters. Availability of technical expertise to undertake AVM The National Reference Centre was established at the end of 2000. However, the experience and expertise of the focal point is still being developed. Existing or potential institutional arrangements The NRC will remain as the single focal point. In the future, the structure may change, depending on the development of the JI and ET process. Capacity building requirements Fully led by Czech Government and their policy. 21 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Links with UNFCCC All AIJ/JI activities are concentrated at and controlled by NRC, which is the contact point with the secretariat of the UNFCCC in the forms and rules required by UNFCCC. WG5: Institutional arrangements Previous and current activities and experience on climate change, Government commitments and Kyoto Protocol The National Climate Change Strategy in the Czech Republic has been formulated as an open document, which could be amended at any time to reflect on an actual course of international negotiations. A first evaluation process started on 31 March 2000 at the high ministerial level. Ministries of Industry and Trade, Transportation and Communications, Agriculture and Finance reported to the Ministry of the Environment A general evaluation process of the current national programme should start immediately after COP-6. It should react on expected COP-6 outcomes regarding the Kyoto mechanisms and compliance regime and it should be finalised by the second half of 2001. Proposed/likely institutional framework for JI Institutional and material needs Institutions involved Requirements Current state Optimum state Necessary changes 1. devise, publish and implement national programmes MoE, ICCC MoE, ICCC personal recruitment 2. provide details of national policies and measure and estimate an effect of policies and measures MoE, ICCC MoE, ICCC personal recruitment 3. provide the GHG 9s inventory CHMI CHMI personal recruitment 4. assign base years MoE MoE personal recruitment 5. evaluate national programmes MoE, ICCC MoE, ICCC personal recruitment 6. report on the state of emissions CHMI CHMI personal recruitment Capacity to establish institutional framework Needs for additional personnel in state institutions Personnel reinforcement in 1999 and 2000 Personnel needs in 2001 - 2003 Activities Institution s State at the beginning of 1999 / optimum state 1999 2000 2001 2002 2003 emission inventories CHMI 2/4 0 0 1 1 national programs MoE 0/1 0 0 1 Kyoto mechanisms MoE 0/1 0,5 0,5 administrative support for UNFCCC, incl. OECD, EU etc. MoE 0,6/2 0 1 1 22 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 Capacity building/training needs This is a part of State Environment Policy document where are specified the aims and actions. Legislative issues The Czech Republic has expressed its full respect to the development in the EU in many documents and in this environmental policy. The orientation of the Czech Republic towards the European Union has increased attention both to continuing differences in environmental legislation and to differences in enforcement of that legislation and the energy with which certain problems are being tackled. Measures that are clearly bound up in the concept of sustainable development and that are an essential part of the pre-accession strategy are as follows: " Harmonization and implementation of EU environmental legislation in the Czech Republic; " Adaptation of the administrative and institutional basis for environmental protection and adoption of successful methods of enforcement; " Improvement of many environmental quality parameters to at least the level of the average for EU Member States; " Improvement of the data and information base, the successful introduction of a unified environmental information system, enabling provision of information on the state of the environment at local levels (regions, districts, cities), including the ability to model and evaluate the effectiveness of measures implemented; " Participation of the private sector and the general public in environmental activities; " Strengthening investment, especially in water protection but also in air protection and waste management; " Effective cooperation with the European Environmental Agency (EEA), providing harmonized data as part of the European environmental information network EIONET. 23 Joint Implementation for International Emissions Reductions through Electricity Companies in the EU and CEE Countries (JOINT Programme) - EC Energie Project Number ENG2-CT1999-00004 APPENDICES Appendix 1: Key stakeholders Participant MW CEZ, a.s. 10 145 Aliachem a.s. 76 ECK GENERATING, s.r.o. 372 ECS spol. s r. o. 53 Elektrarny Opatovice a.s. 360 Energetika Trinec, a.s. 86 Energotrans a.s. 352 Chemopetrol, a.s. 311 Kaucuk, a

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