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					    Private Sector and Development Series
          What are the Opportunities for Georgia in the New Green Economy?
                                                 By Zaal Lomtadze

Problem statement                                           dressed by designing long-term recovery meas-
                                                            ures.
The global financial crisis that began in 2008 has          In response to these challenges, the notion of a
presented a dangerous test to both the vigor and            "Green Economy that is able to allocate natural
the resilience of the world economy. With so many           capital and financial capital in a far more effective
aspects of life affected, governments around the            and efficient manner into the foreseeable future"
globe were expected – even pushed – to act, and             was put forward. The present global crisis creates
they did. They based their urgent response largely          the opportunity for a decisive turn towards the
on traditional mainstream ideas of prioritizing             Green Economy through the embedding of its
growth above everything else.                               principles into the – indeed massive – recovery
The immediate, superficial causes that triggered            packages around the globe. Thus, a "green recov-
the crisis are known, and – probably - could have           ery" would constitute the first and very significant
been addressed effectively if anticipated earlier;          step towards the Green Economy.
still, the inherent flaws of the pre-crisis global          One of the concepts for green recovery has been
economy would most likely have eventually led to            offered under the name of the Global Green New
a downfall. The treatments that were employed –             Deal (GGND) in a recent publication . GGND con-
unprecedented fiscal stimulus packages, first of            cept focuses on three broad objectives:
all, provide no protection from looming shocks.             - It should make a major contribution to reviving
Thus, the question of future sustainability has             the world economy, saving and creating jobs, and
gained critical importance.                                 protecting vulnerable groups;
"We believe that the only sure foundation for sus-          - It should promote sustainable and inclusive
tainable globalization and rising prosperity for all        growth and the achievement of the MDGs, in par-
is an open world economy based on market prin-              ticular ending extreme poverty by 2015;
ciples, effective regulation, and strong global in-         - In addition, it must reduce carbon dependency
stitutions," declares a statement by the G-20 .             and ecosystem degradation – key risks along the
Along with other pledges, it also refers to the need        path to a sustainable world economy.
to "build an inclusive, green, and sustainable re-          The GGND concept asserts that despite the un-
covery", and reaffirms the commitment to Millen-            precedented scale of fiscal stimulus packages in-
nium Development Goals, to combating climate                troduced in many countries, they still aim to
change, and "the transition towards clean, inno-            resurrect the old-style unsustainable "brown"
vative, resource-efficient, low carbon technologies         economy. GGND proposes active "greening" of
and infrastructure". All of these sound good - how-         fiscal stimulus packages, supported by necessary
ever, the blatant misallocation of large amounts of         changes in international and domestic policy ar-
resources in the recent past that led to the crisis         chitectures.
was the fault of the people and institutions which          In Georgia, crisis-triggered stimuli packages are
strictly followed the stimuli of the market. There-         a bit different from those in developed world. The
fore, if nothing changes and stimuli remain dis-            present program of the Government of Georgia
torted, there is no guarantee of sustainability.            (adopted by parliament in February 2009) places
The present disproportion between the three pil-            emphasis on "safeguarding against the world fi-
lars of sustainable development – economic, so-             nancial crisis" and defines three directions for the
cial, and environmental - is well known. This               2.2 billion GEL "economic stimulus package": 1.45
disproportion is manifested at both the global and          billion GEL (joint state-donor effort via the state
national levels, where economic growth is given             budget) for infrastructure projects; 0.5 billion GEL
excessive attention, often at the expense of social         of direct donor spending on projects; and 0.25 bil-
and environmental needs. If the future is going to          lion GEL of "consumer savings achieved through
be sustainable, this disproportion has to be ad-            easing the tax burden". The "greening" of these



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
public expenditures and donor support (also via             nomic Forum – WEF) with a different set of indica-
crisis aid pledged in the aftermath of the war with         tors shows the fragmentary nature of the gains.
Russia in 2008) can be used to the same lasting             Georgia occupies 90th place among 134 nations
effect. The Joint Needs Assessment for Georgia              when ranked for global competitiveness – the ul-
calls for "external support for core investments to         timate gauge of a country's attractiveness for po-
be undertaken largely by the public sector to sub-          tential investor. Another ranking ("Best Countries
stitute for private investment shortfalls and to ac-        for Business" 2009, from Forbes Magazine) also
celerate planned public investments so as to lay            upholds the notion of disparate achievements:
the foundations for the restoration of [sustained]          64th place out of 127 ranked countries by aggre-
economic growth as well as for the provision of             gated score, along with a ranking in the top 3rd
support to the banking system." These upcoming              rank according to the amount of "red tape". These
expenditures could be considered in the light of            scorings lead to the unsettling conclusion that –
GGND.                                                       in short – doing business in Georgia is simple but
In this paper – for obvious reasons – we concen-            unattractive. "Today's [global market] volatility un-
trate on the domestic policy issues. We suggest             derscores the importance of a competitiveness-
that:                                                       supporting economic environment that can help
- The Georgian economy will face increasing diffi-          national economies to weather these types of
culties in the long run if the country continues its        shocks in order to ensure solid economic perform-
business-as-usual approach in the new circum-               ance going into the future" . Therefore, sustain-
stances of the post-crisis world;                           ability becomes a concern from this standpoint as
- As is the case with most failures, the poor will          well.
bear a disproportionate burden;                             This effect is explainable. Narrowly defined eco-
- Alternatively, the country can achieve significant        nomic needs have been a primary driver for Geor-
improvements in sustainable development and                 gian      reforms;    social    and,    especially,
gain a certain competitive advantage while follow-          environmental issues were addressed based on
ing (at least the elements of) the GGND princi-             economic considerations. Naturally, this approach
ples.                                                       led to the predisposition against any issue per-
                                                            ceived as "barrier" to growth, missing the com-
Current situation                                           plexity of the subject. Notwithstanding the
                                                            willingness declared in the EU-Georgia Action
Georgia is naturally blessed with rich environmen-          Plan to promote sustainable development, "no
tal assets. Regrettably, for most of the 20th cen-          significant progress can be recorded in the inte-
tury Georgia was part of the centralized Soviet             gration of environmental considerations into other
state, which took little real interest in the environ-      policy sectors" so far.
ment. After regaining independence, the political           Another report of the WEF demonstrates the re-
and economic crisis that ensued and the absence             lationship between environmental and other indi-
of solid traditions of environmental management             cators important for investment decisions (in this
have worsened the situation in the sector.                  case, for the travel and tourism sectors). In the
During 2005-2009, the Georgian government initi-            Environmental Sustainability indicator (aggre-
ated radical reforms in several key sectors of the          gated), Georgia ranks 56th out of the 133 evalu-
economy. Reforms were long overdue: sheer in-               ated countries; however, Georgia performs below
efficiencies in governance almost granted Georgia           average in every environmental indicator except
the status of a failed state. The main aim of re-           CO2 emissions:
forms was to stimulate economic growth and pros-            - Stringency of environmental regulation - 70th;
perity via easing the burden on business and                - Enforcement of environmental regulation - 66th;
investments. Georgia has gained praise as a "sys-           -Sustainability of T&T industry development -
tematic reformer" and "catapulted" to 11th (out of          79th;
183) in the WB/IFC world ranking . Doing busi-              - Carbon dioxide emissions - 31st;
ness in Georgia became much easier indeed.                  - Particulate matter concentration - 85th;
However, a recent report (from the World Eco-               - Threatened species - 77th;



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
- Environmental treaty ratification - 67th.                 transparent and robust mechanisms for monitor-
In 2004, the analysis stated that it was "unlikely"         ing implementation and making adjustments;
that Georgia would achieve the Millennium Devel-            these are generally weak and not part of the pro-
opment Goal of reaching environmental sustain-              gram. The program's effect is limited also by the
ability by 2015. Despite the vast changes and               high level of personnel turnover in the Cabinet of
marked improvements over the past five years,               Ministers.
there is still not sufficient evidence to challenge         The link between such an umbrella program and
that conclusion.                                            sector and sub-sector strategies that are created
Achieving environmental as well as overall sus-             (with mixed success) by individual ministries is
tainability requires coordinated efforts from potent        weak. These narrow strategic documents are usu-
stakeholder groups. Key stakeholders capable of             ally initiated not as a part of the overall planning
influencing the situation include the government,           sequence, but as a limited effort based either on
donors, civil society, the private sector, mass-            a one-off request from outside the institution or on
media, financial sector and households (individual          the personal willingness of individual managers.
members of the general public).                             There is usually some consultation with other
                                                            stakeholders but no firm procedure. Such a docu-
Government                                                  ment rarely gains broad commitment; sometimes
                                                            it does not get to the stage of formal adoption
Due to the need for swift reforms, the govern-              even within the "mother" institution, due to the
ments' determination to act swiftly was more than           changed circumstances and motivations .
justified; yet this tactic has its risks. "The govern-      At present, the Georgian government program
ment neglected public participation and input, re-          "United Georgia without Poverty" (adopted by the
jecting attempts to question its policies by arguing        Parliament in February 2009) is based on the
that the development of an effective state required         strategic view "Georgia without Poverty" , first
deliberate and swift action" . Reliance on "pure"           adopted in 2007. Social issues remain a priority,
market forces led to the withdrawal and/or refrain          though they are mostly understood as the obliga-
of the government from regulating important areas           tion of the state to directly subsidize broad cate-
(transport, environment, food, construction, etc.).         gories of the socially disadvantaged. There is no
This approach dealt with existing problems piece-           mention of the environment at all, to say nothing
by-piece, with no perceptible regard to the con-            of "green economy".
cept of sustainable development.                            At the same time, positive trends exist in the en-
The most impressive gains were achieved in                  vironment sector. After the "rose revolution", the
areas that could be dealt with in a short time, by a        budget of government institutions dealing with the
few determined and effective steps; nevertheless,           environment has increased. The budget of the
to secure the accomplishments of reforms under-             Ministry of Environment Protection and Natural
taken, in future this progress has to be supple-            Resources in 2008 was almost 40 times higher in
mented with adequate attention to non-economic              nominal terms than the ministry's 2003 budget.
pillars as well.                                            Environmental law enforcement has substantially
The framework for long-term planning - which is             improved, corruption has diminished, and some of
necessary to ensure comprehensive approach                  the worst polluters have been disciplined. In-
crucial for sustainability - is fairly weak in Georgia.     creased financing of measures against environ-
The Law on Environmental Protection of 1996                 mental hazards like coastal erosion has directly
calls for the adoption (never implemented) of the           benefited poorer communities in several areas.
long-term Sustainable Development Strategy but,             On the other hand, frequent staff changes (espe-
curiously, considers it as an element of the "envi-         cially in the top offices, including ministers') and
ronment protection planning system", with the               "residual" political support have made it difficult to
Ministry of Environment in charge of drafting.              consolidate success stories and transform them
The country development strategy is outlined in             into a stable and comprehensive practice.
the government program submitted to parliament
for adoption. There is no requirement to adopt



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
Private Sector                                              the focus of SMEs on short-term economic gains.
                                                            Nevertheless, alongside the dismal overall envi-
The attitude of private sector entities towards en-         ronmental performance of SMEs, there are many
vironment varies considerably depending on the              immediate opportunities for them to engage in
size and origin of the enterprise, and is influenced        win-win activities yielding both economic and en-
by the particular business sector. "Private actors,         vironmental gains. Existing experience indicates
particularly large companies, gradually integrate           that – if correctly approached – SMEs respond
environmental matters in their strategies, but              with enthusiasm to the win-win project proposals,
reaching small businesses remains a challenge" .            financial interest being the major driver.
Multinational corporations operating in Georgia
are better equipped than domestic ones in this re-          International Donors
gard. Industry knows about the environment more
than agriculture or banks.                                  The majority of cooperation with foreign partners
Most of the differences mentioned above can be              on environmental matters has been associated
explained easily by the level of regulatory enforce-        with aid. The structure of this support is driven by
ment applied in Georgia to businesses and – to a            the agendas of both the donor and the beneficiary,
considerably lesser extent – by incentives like             the environment not being top priority; still, many
image and product positioning. Government con-              environmental projects were carried out, and sev-
trol on big enterprises is tighter; multinational cor-      eral are ongoing and planned.
porations care about their credibility as they are          The interest of the international donor community
closely watched by environmental NGOs and the               in the problems of environment in Georgia has
general public. However, such a state of affairs in-        achieved observable positive impact, and the low
dicates that in Georgia the environment is either           profile of the sector domestically has made this
disregarded (knowingly or not) by the private sec-          impact even more important. In late 1990's, for-
tor, or perceived as a liability. The latter applies to     eign assistance helped shape Georgian environ-
whole segment of small and medium enterprises               mental institutions (both governmental and NGOs)
(SMEs), which should "play a key role in driving            and establish their agenda through various stud-
sustainable economic growth and job creation                ies and capacity-building initiatives. Later, the
while contributing to the social, cultural and envi-        focus shifted towards pilot projects meant to
ronmental capital of nations" . SMEs employ                 demonstrate opportunities and provide possible
about 40% of the total workforce in Georgia and             blueprints for domestic institutions to follow.
represent the most populous but least affluent em-          Foreign governments - the USA, the EC, individ-
ployment area. Georgian SMEs appear to be                   ual EU members – Germany, the Netherlands,
missing out on a whole range of economic oppor-             Finland, Sweden, the UK, Denmark, as well as
tunities that modern environment protection tools           Norway, Switzerland, Japan and others - have
can provide.                                                been active through their foreign aid agencies,
The problems of SMEs in adopting environmen-                embassies and other government institutions. UN
tally sound and economically profitable practices           system organizations (UNDP, UNEP, UNIDO, UN
are the following: limited competence level and             ECE, WHO, FAO, IAEA), the World Bank group,
capacity; limited information about modern mana-            OECD, OSCE and NATO have provided expertise
gerial and technical solutions; fewer financial re-         and financing for a long list of projects .
sources to invest in these solutions; and less              Typically, international partnership-based projects
preoccupation about their image as a good envi-             are generated as a follow-up to political docu-
ronmental citizen than large enterprises. "The              ments (global and regional conventions, treaties,
shortages of resources, together with the lack of           bilateral agreements, memoranda) which provide
technical expertise and skills, clearly contribute to       the foundation for cooperation on the state and/or
the 'skeptical' attitude that SMEs show towards             institutional level. Project design is subject to
the potential benefits, cost savings and customer           stricter rules, the projects are well monitored, al-
rewards associated with environmental improve-              most never get underfunded or ceased, and –
ments" . Sometimes this is further aggravated by            compared to domestic initiatives – show better



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
awareness of interests of other stakeholders, e.g.,         whatever the stance, the search for "hidden" polit-
major groups. Initiatives like the European Neigh-          ical motives comes first. Information is often over-
borhood Policy Action Plan, which provides a de-            shadowed by heated polemics, and focus is easily
tailed framework for cooperation along with solid           overrun by emotions.
reporting obligations, prove more successful in             The factors mentioned above drive the agenda of
producing real outcome.                                     Georgian NGOs and – eventually –indeed impose
Critics say point to the fact that more time is             certain limitations on the power of civil society in
needed from idea to implementation, the inflexible          Georgia. Virtually no environmental NGOs can
setup that makes necessary corrections hard to              boast any noticeable influence on the government
introduce, excessive and rigid administrative               decision-making, or on the private sector (exclud-
arrangements, and – sometimes – attached                    ing – to some extent – multinationals). Successful
strings. Generally speaking, these points reflect a         NGOs have become "professional groups that are
trade-off between the approach of donors (which             part of the elite rather than a part of the larger so-
have established ways of doing things slowly but            ciety" . Poorer and remotely located NGOs expe-
securely) and beneficiaries (that are accustomed            rience severe pressures and are on the decline in
to rapid but not always predictable changes of di-          terms of both number and capacity, which de-
rection and a "we need it yesterday" attitude).             prives the already troubled communities of envi-
                                                            ronmental services even more.
Civil Society and NGOs
                                                            Media
For years civil society has played an active role in
Georgian environmental governance. Several en-              In established democracies, the media acts as an
vironmental NGOs in Georgia have achieved in-               intermediary between various stakeholders and
ternational recognition for their professional              the general public, thus playing an important role
accomplishments.                                            in raising public awareness and mobilizing public
Nevertheless, the real weight of the civil society          support for the environment. When successful,
does not match its potential, and trends are dis-           such mobilization can affect the outcome of elec-
turbing. In theory, NGOs could still assume a lead-         tions and alter a political landscape in favor of
ing role in environmental change (as they once did          more environmentally conscious politicians and
– during the Rose Revolution – in political change)         parties.
if it were about capability only, but too many fac-         Unfortunately, the Georgian media is far from ful-
tors put harsh limits to such a prospect.                   filling such a role. This failure relates to both ex-
Georgian NGOs have established links and part-              ternal and internal factors that only partly are
nerships with foreign governments, international            within the reach of mass-media itself. The vicious
organizations, and NGOs. Cooperation is less in-            cycle is difficult to break: low environmental
tensive with the national and local governments;            awareness of the public – low priority – low de-
cooperation with the private sector is rather rare.         mand for quality of information – low professional-
Such a situation is partly caused by the correlated         ism – low supply – low awareness. "Experts"
(or, for this reason, uncorrelated) interests with          called to express their opinions on certain envi-
those stakeholders; another simple reason is                ronmental issues in mass-media are more often
linked to finances – neither the government nor             than not biased at best and incompetent at worst.
the private sector are able and/or willing at this          Narrowly aimed media-campaigns advertising
stage to support NGO activities and services fi-            particular environmental topics (protected areas,
nancially. "Even the most experienced and sophis-           e.g.) can achieve some degree of success in get-
ticated NGOs are forced to shift their activities to        ting the message through but do not change the
areas where donor funding is still available" .             overall gloomy picture – the environmental con-
The overt politicization of Georgian society repre-         sciousness of media in Georgia is not a factor that
sents a permanent threat to the credibility, in-            can be counted on.
tegrity, and image of even most professional
environmental NGOs: whatever the subject, and



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
Financial/Banking Sector                                    Energy is one subject where the difference in be-
                                                            havior on the household level creates direct mon-
In market-based economies, the financial sector             etary implications. In 2007, total cash expenditure
has the special role of mobilizing resources and            on consumption of average urban household in
allocating them optimally. Following present mar-           Georgia was at the level of 407 GEL/month , out
ket opportunities, banks compete for the most lu-           of which 47.4 GEL (11.6 %) was spent on fuel and
crative investment options and in turn influence            energy (without transportation). Poorer house-
markets. This can prove disastrous even on the              holds could potentially benefit from tariff schemes
global scale if safety mechanisms fail (as hap-             offered by electric power distribution companies
pened with Lehman Brothers); at the same time,              but the pricing thresholds (100 and 300
in developing markets like Georgia relatively small         KW/Month) and, especially, the small pricing gap
but pointed financial intervention can create mar-          between them do not sufficiently encourage
ket stimuli with a chain reaction effect reaching           household energy efficiency measures (like buy-
wide groups of population.                                  ing more efficient lamps, e.g.) and the need for
At present, Georgian banks show virtually no in-            small initial investment is a big barrier.
terest in developing "green" portfolios on their            Companies that could develop local alternative
own. Initiatives (e.g., "Green Deposit" by the              energy schemes (small hydro, geothermal, bio,
Georgian Bank) are very rare, and do not utilize            wind, solar energy) with direct positive effect on
existing "green financing" opportunities. For in-           households encounter the same initial investment
stance, despite the fact that Georgia is entitled to        barrier. This is true even for potentially highly prof-
the use of the Clean Development Mechanism                  itable projects.
(CDM) of the Kyoto Protocol of the UN Framework             Poor households have benefited from recent in-
Convention on Climate Change (UNFCCC) and                   crease of Government social spending: Georgia's
could implement so-called unilateral projects (with         system of social transfers reaches 57.8 percent of
domestic financing) that can offer very attractive          the population and includes pensions, assistance
Internal Rate of Return (IRR) for quite small in-           to internally displaced persons (IDPs), targeted
vestments, there are no attempts from banks to              social assistance (TSA), and subsidized energy
team up with industries for developing such proj-           consumption provided to certain categories of the
ects. This can be explained by a plain lack of              population – pensioners, teachers, farmers, and
knowledge of "green investment" opportunities               so forth – on an ad hoc basis. More than 4 per-
and of subsequent capacity.                                 cent of GDP going to social transfers is lower than
However, in cases when a foreign donor/investor             in EU (about 20 %) but plays important role in
seeks Georgian banks' services for servicing                poorest households' income.
green projects, banks have shown interest; e.g.,
UNDP-KFW cooperation on small hydro projects,               Gaps and opportunities
or Caucasus Energy Efficiency Programme of
EBRD , have attracted Georgian banks' interest              As it was mentioned above, the Global Green New
because of financing opportunities.                         Deal is considered as a step towards the Green
                                                            Economy. The GGND analysis shows that sectors
Households                                                  that are particularly important in terms of their
                                                            economic, employment, and environmental bene-
Households can benefit significantly or, alterna-           fits and – most importantly – can deliver "quick
tively, pay an excessive price depending on their           wins" are energy efficient buildings, sustainable
practices relevant also for green economy objec-            energy, sustainable transport, sustainable agricul-
tives. Energy consumption, water consumption,               ture and freshwater. This analysis is broadly valid
waste generation and disposal represent areas               also for Georgia; nevertheless, modifications are
where households' behavior outlines good portion            necessary. After the GGND, we will review gaps
of overall national performance. Poor households            and opportunities in the following sectors:
usually pay a disproportionately high price in mon-
etary terms.                                                Energy Efficient Buildings



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
"Estimates show that approximately 40% of Geor-             etc.)
gia's energy consumption is used for heating and
lighting buildings" . "Georgia uses 400 – 500 per-          Sustainable Energy
cent more energy for heating per square meter of
floor space than the EU countries with the same             GGND refers to sustainable energy bearing in
climate" .                                                  mind – almost exclusively – renewable energy. Al-
While the problem is equally acute for residential,         though renewable energy is undisputedly impor-
office, and industrial buildings, the poorest house-        tant for Georgia, energy efficiency should also be
holds suffer disproportionately. Acknowledging              added while considering both the supply and de-
this aspect, the UNECE states, "Realistic stan-             mand sides of energy sustainability.
dards should be defined for the quality of social           Several studies conducted on renewable energy
housing. These standards should include floor               (hydro, geothermal, biomass, solar, wind) in Geor-
space, amenities, repair, maintenance, and en-              gia indicate that utilization of existing renewables'
ergy efficiency" . Health is an important dimension         potential can bring not only energy (annual poten-
of inequality: poorer households and communities            tial of renewable energy use in Georgia is evalu-
tend to use cheaper but unsafe fuel (e.g. firewood,         ated at 10-15 billion kWh or 1 million TOE –
associated with respiratory and other diseases),            almost 30% of current total energy consumption)
and aggravate the detrimental effect by cheap but           but also significant benefits to local stakeholders
wasteful appliances.                                        – small businesses, local communities . Social
Gaps:                                                       side-effects of renewables' use come from their
• The large share of homes with insulation that is          smaller-scale nature, which is easier to utilize at
old and outdated, or improperly installed leads to          the household and remote community level (e.g.,
wasteful use of energy, especially in winter;               biomass, solar, microhydropower).
• Absence of adequate legal requirements for                In general, energy and material intensity is an es-
newly constructed buildings, which guarantees fu-           pecially weak point of the Georgian economy. En-
ture inefficiency;                                          ergy intensity of GDP in Georgia is 4-5 times
• Inadequate public awareness, resulting in low             higher than in developed economies: 0.74 tons of
energy saving culture;                                      oil equivalent per 1,000 USD ; taking into consid-
• Low awareness in the private sector of savings'           eration the structure of the Georgian economy,
opportunities;                                              this is abnormally high and indicates both wasteful
• Inadequate tax and tariff incentives and financ-          technologies and poor housekeeping. Pilot proj-
ing framework discouraging private initiatives;             ects carried out with the assistance from UNDP,
• Low government interest in introducing incen-             USAID, EU, Norway and other donors suggest
tives.                                                      that energy efficiency and cleaner production ap-
Opportunities:                                              proaches may have significant potential in Geor-
• High potential for quick improvements – both in           gia, especially in terms of inclusive development.
individual cases and in aggregated terms ("low-             Donor programs in the field of practical application
hanging fruits");                                           of sustainable energy boast important success
• Positive social effect achieved at a low- or even         stories; still the reproduction of success is weak,
no-cost (possibly encouraging government inter-             as many barriers still exist. With important poten-
vention);                                                   tial benefits in many areas (energy independence,
• Possibility to tap good experience of specialized         trade balance, social equity, and environmental
local entities and professionals;                           improvements), sustainable energy should easily
• Significant donor interest;                               become the focus of government attention; this is
• Potential for supplementary financing of sizeable         not the case mainly because of the "selective
programs through international instruments;                 blindness" of the short-term-oriented planning
• Possibility to adjust appropriately existing financ-      framework. "Energy efficiency improvement is not
ing vehicles for state and donor expenditures on            perceived as a significant economic resource or
project implementation (at, e.g., Millennium Devel-         potential source of revenues" . Instead, the na-
opment Georgia , Municipal Development Fund ,               tional government puts emphasis on the develop-



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
ment of supply from renewables. It asserts that             programs through international instruments.
"most of the electric energy will be generated by
means of renewable resources (hydro-re-                     Sustainable Transport
sources)". Yet the focus is more on big hydro.
Plans for supplying natural gas to rural areas go           Although transport sustainability has many dimen-
some way towards replacing unsustainable/unre-              sions, GGND focuses on a few that are interesting
liable energy sources but does little for energy ef-        for both short- and long-term economic and sus-
ficiency and even less for renewable and – in light         tainability targets: energy efficiency, structural
of volatility of fossil fuels' market – looks like an       shift away from energy-intensive modes, inte-
interim measure for at best a couple of decades.            grated transport planning and demand manage-
One relatively simple measure with proven energy            ment, low carbon fuels and greater electrification
efficiency potential in foreign countries is daylight       of transportation (via new technologies – hybrid,
savings time (shift between winter and summer               fuel cell, etc.).
time). Introduced in Georgia in 1990s, it has not           The current Georgian reality is challenging. The
been in use for last years.                                 country is promoting herself as an advantageous
Gaps:                                                       transit route between Asia and Europe; however,
• Supply-side mentality, including that of the gov-         it is domestic (mostly passenger) transport that
ernment (too focused on supply expansion/diver-             creates most of the difficulties.
sification    at    the     expense    of    demand         Trends are sharp. The number of passenger cars
management);                                                has doubled since 2001; number of buses and
• Institutional weakness (no dedicated agency in            minibuses – tripled . Global trends suggest it is
government, no promoter);                                   fairly safe to forecast that (with no change in poli-
• Lack of modern technologies in the private sec-           cies) car ownership will again double in next ten
tor;                                                        years. The age structure of cars in Georgia is
• Low managerial culture and capacity in private            poor: only 10% of cars are aged less than five
sector enterprises;                                         years, with half of the car fleet being older than 10
• "Lack of awareness about economic benefits                years . The old fleet exerts higher pressure both in
from energy efficiency and renewable energy proj-           terms of consumption (wasteful engines) and dis-
ects at all levels: Government (national, regional          charges/emissions. 91 % of total emission of pol-
and local), private sector, general public" ;               lutants into air – 295,000 t in 2007 – come from
• Inadequate tax and tariff incentives;                     motor vehicles. Second-hand imported vehicles
• Limited availability of domestic loan financing           are scrapped earlier, and waste (incl. hazardous)
(also due to the low awareness of the local bank-           generated through this process ends up in the
ing sector);                                                Georgian environment.
• Limited outreach of existing programs to the              With most owners concentrated in urban centers
wider population.                                           (and Tbilisi dwarfing other towns), such an up-
Opportunities:                                              coming burden must be matched with proper
• High potential for quick improvements – both in           measures, or it can destroy the urban environ-
individual cases and in aggregated terms (a lot of          ment to the point of no return. Most overloaded
"low-hanging fruits");                                      neighborhood communities will "segregate", with
• Reduction in dependence on imported energy on             richer dwellers moving away, while poor ones will
the national level (attractive for government);             have to stay and experience harsh externalities
• Positive side effects on the micro level (attractive      with health and, eventually, economic conse-
for local governments and communities);                     quences.
• Existence of specialized local entities and pro-          The government took on transportation problems
fessionals with good experience;                            on two levels: national (streamlining taxes and
• Significant donor interest;                               charges, easing and abolishing technical checks,
• Pilot projects in several key areas, generating           investing in national highways and railways and
both technical and financing experience;                    local roads) and municipal (reforming public trans-
• Potential for supplementary financing of sizeable         portation systems, introducing parking schemes,



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
investing in municipal infrastructure). Most of             agricultural sector were on aggregate stagnant
these measures have brought real results, while             during 2003-2007, and remain much lower than
some remain controversial. Yet any achievements             average incomes in the economy."
cannot be upheld without considering the sustain-           The GGND approach to sustainable agriculture
ability factors mentioned at the beginning of this          concentrates on the need for more open global
section; the existing vision and policies built to          agricultural markets and reduction of subsidies
meet specific needs (e.g., "Georgian National               and tariff barriers in developed countries. Domes-
Road Safety Strategy" ) do not address long-term            tically, it advocates organic agriculture, which "of-
sustainability.                                             fers a real trade and poverty reduction opportunity
Gaps:                                                       for developing countries as 97 percent of the rev-
• Transport policy fragmented and not sufficiently          enues are generated in Europe and North America
coordinated with stakeholders;                              whereas more than 80 percent of the producers
• Rapidly increasing car ownership not matched              are in Africa, Asia and Latin America" . GGND also
with proactive integrated transport planning and            encourages investments in agricultural productiv-
demand management;                                          ity.
• Little attention to externalities like energy effi-       Looking at the structure of the Georgian agricul-
ciency, public health, environment;                         ture sector it is obvious that opportunities differ
• Insufficient monitoring and control of transport          substantially among different groups. Big compa-
emissions, fuel quality, technical conditions of ve-        nies and enterprises in food and beverage sector
hicles;                                                     can benefit from, on one hand, improving produc-
• Poor technical condition and old age of vehicles;         tivity through dedicated projects (cleaner produc-
• Low public awareness;                                     tion, environmental auditing, energy efficiency,
• Fiscal policy presently not encouraging sustain-          etc.) and, on other hand, improving their export
able transport.                                             potential by adhering to popular labeling and cer-
Opportunities:                                              tification schemes (ISO14000 series). Mid-size
• The sector is a priority for both the state and           producers could target productivity increase via
donors;                                                     individual and – especially – cooperative schemes
• Public transport upgrade is a priority at the mu-         and also seek specific niches e.g. organic farming
nicipal level;                                              . However, it is a segment of rural poor and ex-
• Significant international financing available for         tremely poor that cannot be so easily reached as
infrastructural projects ;                                  they rarely produce anything, owning – on aver-
• Pilot schemes exist, experience available;                age – 0.3 hectares of agricultural land, less than
• Fiscal incentives can be efficiently used for             one head of cattle and about five head of poultry
changes.                                                    per household . This segment must be reached
                                                            via enriching Targeted Social Assistance schemes
Agriculture                                                 with "green" components: sustainable housing,
                                                            more efficient appliances – e.g. wood stoves,
Agriculture is an important sector of the Georgian          micro-use of renewable energy.
economy in terms of its share in employment but             In general, GGND philosophy can play role in the
not so much anymore in terms of its share of GDP            agricultural sector, but other factors (extreme
(50 % in 1990 but just 17 % in real terms in 2007).         poverty, infrastructural and social deprivation) re-
Real agricultural output has been stagnant since            main more powerful in the short and medium term.
1997. "Poverty in Georgia continues to be deeply            Gaps:
entrenched in rural areas, accounting for 60 per-           • Strong dependence on climate zoning, weak in-
cent of the total number of poor. The main reasons          surance against extreme weather;
for this are: (a) narrowly based economic growth            • Low productivity – inefficient use of resources;
that happened outside of agriculture; (b) agricul-          • Unfavorable ownership structure – micro farms,
tural employment, which accounts for 55 percent             subsistence farming, little cooperation, resulting
of total employment, continues to be mostly of a            in limited capacity of low-income households to
self-subsistence nature; and (c) incomes in the             make long-term investments in human and physi-



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
cal capital;                                                has launched the Agricultural Support Project
• Low public awareness, underdeveloped domes-               under which community water supply and small-
tic demand for environmentally sound products;              scale irrigation schemes will be eligible invest-
• Lack of incentives for "greening" the sector, es-         ments along with others.
pecially for non-export-oriented producers.                 Gaps:
Opportunities:                                              • Legal environment: river basin management in-
• Existing large-scale schemes for Targeted Social          troduction declared a priority and water sector re-
Assistance could accommodate additional "green"             forms initiated, but details still unclear;
components;                                                 • Institutional environment: management reforms
• Increasing orientation of (still few) producers on        initiated, but not fully functional;
export encourages greening the image and prac-              • Significant share of facilities in a bad shape;
tices;                                                      • Wasteful patterns of consumption in all sectors;
• Ongoing infrastructure upgrade brings better              • Weak accountability, weak enforcement;
prospects to remote regions;                                • Alarming climate change-related scenarios for
• Rich natural potential for niche farming;                 several regions of Georgia
• Pilot schemes exist, experience available.                • Wastewater treatment inadequate, several
                                                            hotspots.
Freshwater                                                  Opportunities:
                                                            • Favorable natural conditions in many areas;
GGND encourages governments to invest in sus-               • Need for reform well recognized;
tainable freshwater systems - for developing                • Infrastructure investments ongoing;
countries, in particular - to increase agricultural in-     • Positive "domino effect";
vestment in infrastructure and reduce water trans-          • Grants and loans from IFIs and development
mission losses in irrigation canals and traditional         agencies possible.
water systems, and both developing and devel-
oped countries to improve storage and water qual-           The potential role of each stakeholder
ity. Water supply and sanitation projects in both
urban and rural areas can deliver immediate mul-            Government
tiple benefits and have great positive side-effects
on local areas.                                             "A common misconception is that there is a trade-
Well-known factors led to the extensive deteriora-          off between economic development and environ-
tion of both rural and urban water supply and san-          mental stewardship. This view is exacerbated at
itation services; since 1990 for 15 years these             times of economic difficulty" . This misconception
systems were critically underfunded and under-              is widespread in Georgia too: one of former envi-
maintained. Recent years have brought significant           ronment minister even said in interview (when still
progress: according to a WB assessment, access              in office) that environment protection could wait
to an improved water source has increased during            until the economy is sufficiently developed.
2000-2007 from 76 % of population to 99%.                   The popularity of this idea in the government can
The importance of the sector is recognized in               be attributed to overall skepticism towards "big
Georgia. The government is investing in the reha-           government", motivated equally by (selectively un-
bilitation of irrigation and amelioration systems. In       derstood, one could argue) theoretical views of
parallel, rural water governance is being restruc-          free market economists and the disastrous practi-
tured: these services are to be provided through            cal experience of Soviet centralization and the
four state-owned self-financing water manage-               inept state apparatus before the "rose revolution".
ment companies (LTDs). Several municipalities               Nevertheless, there is no evidence that more
have rehabilitated and improved water supply sys-           stringent national environmental policies bear ad-
tems, and more are planning to do so with both              verse consequences for trade, FDI flows or a
state budget transfers and international loan and           country's international competitiveness in general.
grant financing. For example., MCG is working on            "In fact, at the macroeconomic level, there is a
both rural and urban water supply projects ; IFAD           clear positive correlation between the interna-



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
tional competitiveness of countries and their envi-         Figure 1. Top Priorities for government investment
ronmental quality". Therefore, neglecting environ-          identified by Georgian households
mental externalities can backfire through creating          On the tactical level, the population does not feel
false incentives for capital and resource alloca-           that the government should focus on the environ-
tion, thus weakening chances to achieve eco-                ment (see figure 1). "It remains a persistent chal-
nomic targets. The government has to realize and            lenge for environmental policymakers to ensure
address this link.                                          that environmental protection measures are worth
The government should also recognize another                having from an overall societal point of view, and
risk associated with above – the so-called "time            that these environmental policies and programs
consistency" problem, which is well-known to the            are cost-effective – that they achieve a given tar-
economists . It is clear that in the long run Georgia       get at the lowest possible cost".
will have to accede to certain environmental poli-          Taking into consideration the overall reluctance of
cies close to that of the developed world (e.g., on         the government to pursue "purely" environmental
climate change). The longer the commitment to               approaches, in the short-term the best option is to
these policies is weak and the information about            combine GGND ideas with the existing plans of
their nature and extent unclear, the more suspi-            the government through enacting relatively minor
cion there will be about the long-term stability and        adjustments. Fortunately, there are few sub-sec-
credibility of the governments' "environmental bur-         tors that hold marked potential for rapid win-win
den-free" policy. Again, foreign investments are at         improvements. They should be reinforced institu-
a stake. To avoid this trap, the stability of policy        tionally and supported financially by the govern-
must be ensured through putting forward compre-             ment with the aim of removing barriers for more
hensive strategies to which not only the govern-            private investments.
ment but also parliament will express firm                  Priority should be given to non-controversial
commitment.                                                 measures with noticeable social and economic ef-
On the strategic level, government should con-              fects and quick payback. These measures can be
sider the adoption of the National Strategy of Sus-         financed also through the partial overhaul of sub-
tainable Development with clear targets and the             sidies that are in place even now: e.g., energy
status of Law (possibly, even Organic Law). This            subsidies distributed on an ad hoc basis to certain
must be backed with a new, workable institutional           categories of the population, aimed at helping
framework, as the present setup is hopeless. Sup-           households cope with the cost of energy. In 2007,
port to priority sub-sectors should also be institu-        Georgia spent GEL 79 million (almost 0.5 percent
tionalized through the adoption of relevant new             of GDP) on energy subsidies .
laws, as support from the governments' program              Existing national financing vehicles and programs
is limited by the term of a particular cabinet.             (MDF, MCG, TSA) can also be used with minimum
                                                            adjustment. Some of them already have good ex-
                                                            perience of cooperation with stakeholders and
                                                            substantial outreach. Some existing municipal
                                                            programs (e.g., "Tbilisi Corps") could easily ab-
                                                            sorb additional responsibilities for government-
                                                            subsidized household-level projects.
                                                            Some of the most pressing concerns can be ad-
                                                            dressed by adopting standards, both obligatory
                                                            and voluntary (e.g., for the construction sector, or
                                                            the home appliance market). While inherently un-
                                                            popular, this method can be easily justified by sim-
                                                            ple calculations of associated monetary and
                                                            strategic benefits.
                                                            Taxes and charges represent yet another effective
                                                            instrument in the governments' toolkit; nonethe-
                                                            less, under present circumstances it is not realis-



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
tic to expect the sophisticated application of this         manner to avoid regulatory pressures, and overly
instrument for environmental purposes. In any               secured loans that impose considerable additional
case, limited modernization is possible; e.g., up-          costs on SMEs" . Consequently, addressing these
dated excise tax on imported vehicles could lead            shortcomings could influence SMEs towards more
to a more favorable age structure of such imports.          environment-friendly behavior. However, SMEs
At the same time, it is necessary to avoid the              are rather passive as a stakeholder group, and
usual temptation of applying would-be environ-              will need help from other stakeholders. Lack of
mental taxes for maximizing fiscal revenues. Fis-           business culture can be partly compensated by
cally neutral modernizations would have better              making external consultancy available at no/low
behavioral effects.                                         cost (NGOs and donors); cheap loans can moti-
One aspect where the present situation cannot               vate changes and remove initial investment barri-
continue forever is the application of the Aarhus           ers for win-win projects (donors through local
Convention. The government must eventually as-              banks, government programs through local banks,
sess in an unprejudiced way the level of its com-           local banks' own "green" portfolios for bankable
pliance with the Convention's principles and act            projects).
accordingly. However, prompt solutions do not               To some extent, financing and consultancy is al-
seem likely.                                                ready available through existing projects. Lack of
The government can increase the efficiency of               awareness of existing opportunities seems to be a
measures via partnerships with other stakehold-             major barrier at this moment for big business and
ers. Specialized NGOs can provide know-how and              SMEs alike.
local reach, and enhance credibility. Earmarked             One potentially interesting type of business not
expenditures in the state budget (via the budgets           yet developed in Georgia is a service business
of relevant ministries) on competitive grant pro-           that offers assistance to private end-users in utiliz-
grams for NGOs could be considered as a less                ing existing opportunities and shares financial
costly alternative to direct intervention. Bilateral        risks in exchange for a share of profits and sav-
donors and IFIs are usually ready for cost-sharing          ings achieved. Such service companies also act
of well-designed projects and can make advanced             as intermediates between the private sector and
consultancy available.                                      local banks, exploiting very effective business
                                                            schemes with highly profitable IRR. These include
Private Sector                                              the so-called Energy Service Companies
                                                            (ESCOs) "invest primarily in CHP (combined heat
By their type and ambitions, there are typically two        and power technologies), in industry, in fuel sub-
ways how private sector can engage "green"                  stitution, and in small hydropower" .
growth.                                                     Business associations (with noticeable exceptions
Introduction of environment management systems              of a few that have efficiently utilized outside sup-
(EMSs) and subsequent certification is not only             port and have found a successful niche like or-
desirable but also necessary for export-oriented            ganic farming) are in general not powerful or not
big businesses. Big enterprises can use (with the           interested enough to act as a mediator between
help of experts and NGOs) environmental assess-             individual businesses and other stakeholders.
ment tools like cleaner production and/or energy            Their time is still to come.
efficiency audits to identify and sort out the bottle-
necks in productivity with the aim to maximize              International Donors
profits and enhance their image at once. Big busi-
ness can play an active role in this process.               Donors and IFIs can continue working on environ-
Small and medium-sized businesses represent a               mental problems on two levels.
great social factor because of the large number             On the strategy level, cooperation with the gov-
and low average income of those employed.                   ernment should continue for the establishment of
"Generally, SMEs in Georgia focus on immediate              cooperation basis that would focus on common
profits. This has several reasons, including an im-         priorities, therefore inviting Georgia to address
mature business culture, operating in an informal           global problems as well as to use tested methods



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
in domestic policy. Cooperation frameworks must             the benefits of cooperation vs. confrontation.
be reinforced with independent monitoring                   Stable funding remains a problem for Georgian
schemes that would encourage implementation.                NGOs, especially provincial ones. Some countries
The EU-Georgia ENP Action Plan (however lack-               have established state budget lines and ear-
ing concrete targets) is a reasonably good exam-            marked funds that support NGOs; this is not likely
ple at this stage.                                          to happen in Georgia in the foreseeable future.
On the tactical level, a gradual shift of focus from        Other mechanisms of sustainable funding are
pure aid projects to those that have the effect of          worth consideration – e.g., donor-created trust
multiplication and removing barriers should con-            funds with clear rules and predictable turnover.
tinue , using, where possible, market- and profit-
oriented       cooperation     instead       of    a        Media
donor-beneficiary-type relationship. Revolving
funds and loans administered by local institutions          For the purposes of this paper, the media is a
can both achieve immediate targets and set local            passive stakeholder group. A few dedicated indi-
stakeholders on a stable footing. Teaming up with           viduals cannot change this status. Massive effort
government is desirable – in many cases, govern-            is needed to advance this stakeholder group to
ment-owned institutional schemes can success-               the active category, and this cannot be done in the
fully channel donor financing; teaming up with              short term.
local actors (NGOs, banks, private sector) is vital.        Media services will be very valuable to the suc-
Donor funding should link criteria of success to            cess of individual strategies; still it is unrealistic to
the final result – sustainable effect on the society        expect it to act as an independent and competent
as a whole. Criteria like the number of trained in-         advocate of "green" ways. For now, by and large
dividuals tell nothing about the effectiveness of           the media can successfully serve as a (mostly un-
the investment if most of those trained never have          thinking) messenger for others.
the chance to use their new skills.
Individual donors have their own agendas. More              Financial/Banking Sector
effort should be put towards encouraging con-
certed actions involving several donors and/or ex-          Georgian banks should look into the opportunities
isting financial mechanisms (e.g. CDM), thus                of developing "green" portfolios. Existing joint
joining resources and avoiding duplication. This is         projects with international financing demonstrate
not easy; but the few examples that exist are still         the potential profitability of particular loan
encouraging.                                                schemes for green purposes, especially with the
                                                            grant-based components also financed by inter-
Civil Society and NGOs                                      national partners.
                                                            Potentially attractive sectors for domestic banks
Some NGOs become well-trained and competent                 are: unilateral CDM projects, cleaner production,
think-tanks, and/or consultancy service providers.          and energy efficiency (both industrial and house-
NGOs are best positioned to connect with multiple           hold). Setting dedicated revolving funds seems
stakeholder groups. At the same time, civil society         one way to utilize growing niches for green invest-
enjoys less influence on the situation than it used         ments.
to.                                                         Several types of partnership can be considered.
To bridge this gap, civil society should seek more          Teaming up with donors and IFIs is a tested way.
involvement in programs and projects with multi-            The same can be done together with foreign
ple partners (donors and government) trying to              banks that have green portfolios in place. Local
focus on practical implementation. Dialogue with            NGOs could offer ready projects for quick invest-
the government is necessary to outline the sectors          ment, along with corresponding expertise and out-
where effective cooperation is possible. In some            reach to target groups. "Green" loans for local
cases, NGOs could act on behalf of the govern-              companies for developing community-wide proj-
ment to raise awareness, create public consensus            ects, e.g. supplying geothermal energy to house-
on certain issues, etc. Both sides need to realize          holds, could offer good profit. Banks can



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
participate as partners also in government-subsi-           infrastructure development, social aid, etc., as de-
dized schemes with broad coverage, offering their           scribed in the program "United Georgia without
own crediting resources for financing complemen-            Poverty", and that donor assistance will also go
tary components with guaranteed return.                     ahead as planned. Therefore, the recommenda-
To step into these areas, banks need to develop             tions below dwell on, and can be implemented in
internal capacity, creating their own expertise. In         a way fully compatible with, these plans.
the near future it is likely that banks will start com-     Key stakeholders are mentioned first; where part-
peting for profitable green niches (the way they            nerships are relevant, several stakeholders re-
are now competing for opportunities to channel in-          sponsible for carrying out these actions are
ternational investments in these areas). The first          mentioned.
responders will have the best chances to add
valuable components to their core business and –            Legislative measures
no less importantly – enhance their image domes-
tically and internationally.                                Real steps must be taken to create a National
                                                            Sustainable Development Strategy;
Households                                                  Government; consultation with other stakeholders

Georgian households' consumption of energy and              Development and adoption of law(s) on energy ef-
water and generation of wastes demonstrates un-             ficiency and renewable energy must be speeded
sustainable patterns that not only harm the envi-           up;
ronment eventually but also consume a significant           Government; consultation with Donors, NGOs,
part of the household budget that could be easily           Private Sector
be saved. These potential savings are consider-
able for the average household, - even more so              Energy efficiency national strategy (incl. quantified
for poor ones. Associated positive side effects e.g.        targets) should be developed and embedded into
on health, food security and comfort, are impor-            the economic development plans of the govern-
tant to grasp the extent of achievable benefits.            ment;
However, it is other stakeholders that have to tow          Government; consultation with other stakeholders
this passive group towards changes. Government
intervention through social aid schemes men-                Comprehensive urban transport strategy/policy
tioned in above sections holds the most promising           framework outlining the various measures to be
prospects. NGOs and donors can join efforts to              taken at the local level should be developed;
identify target groups and reach them via tailored          Government; Municipalities; consultation with
programs and information campaigns. In many                 Donors, NGOs, Private Sector
cases, micro-financing opportunities can be of-
fered by local banks, possibly utilizing existing           Electricity tariff methodology modifications and
NGO expertise.                                              measures to promote energy efficiency (including
                                                            the economic feasibility of introducing seasonal
Recommendations                                             and daytime tariffs) and renewable energy
                                                            sources should be developed by the energy regu-
The recommendations below are based on the re-              lator;
sults of extensive studies and lessons learnt from          Government, in consultation with other stakehold-
past and ongoing projects cited throughout the              ers
paper. The least controversial recommendations
are selected based on the feasibility of short term         Excise tax on imported vehicles should be modi-
implementation or at least initiation. Most of those        fied (preferably in a fiscally neutral way) to en-
draw on GGND as a first step to broader "green              courage favorable changes in age structure and
economy".                                                   characteristics of car fleet;
It is assumed that the government will continue             Government
successful implementation of its present plans of



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
Standards for the construction sector should be             to their portfolios, along with existing activities like
reviewed and adopted with the aim of including              repairing roofs and elevators. This experience can
energy efficiency considerations;                           be replicated in other regions;
Government; Municipalities; Construction Busi-              Government, Municipalities
ness; consultation with Donors, NGOs
                                                            Government agencies should allocate state
Labeling requirements for appliances should be              budget financing for awareness and information
introduced to make energy efficiency information            campaigns, increasing their effectiveness also via
available;                                                  outsourcing to relevant NGOs (primarily, special-
Government; Private Sector – on voluntary basis.            ized organizations);
                                                            Government, NGOs, Donors
The costs and benefits of the re-introduction of
daylight savings time in Georgia should be con-             Local community-related components should be
sidered; if positive, the measure should be put be-         considered as integral to large-scale projects of
fore the parliament.                                        environment protection and conservation. For in-
Government                                                  stance, the creation of protected areas should be
                                                            coupled with measures in buffer zones that would
Institutional measures                                      address local water and energy supply, energy ef-
                                                            ficiency, clean energy and poverty alleviation;
Follow the implementation of relevant measures              Donors, Government, Local Governments.
outlined in the EU-Georgia ENP Action Plan;
Government, Donors, NGOs                                    Multi-sector task forces must be created to identify
                                                            opportunities for establishing "green portfolios" by
An energy efficiency authority (promoter, not reg-          Georgian banks;
ulator) should be created, possibly within the Min-         Banks, NGOs, Private Sector, Government
istry of Energy, with adequate power and
resources (some analogy with the Water Supply               Financial measures
Regional Development Agency of the Ministry of
Regional Development and Infrastructure);                   Reinforce existing joint programs with donor/IFI fi-
Government, Donors, NGOs                                    nanced soft loans (earmarked for energy effi-
                                                            ciency, small hydro, cleaner production, etc.) with
Existing development programs and social aid                associated or separate powerful information and
schemes (like "Cheap Credit") should consider the           consultancy campaigns to remove capacity barri-
introduction of cheap loans (e.g., for improve-             ers for smaller potential consumers;
ments of SME resource efficiency) and subsidiza-            Banks, Donors, Government, Media, NGOs
tion practices aimed at sustainable micro-level
energy savings (e.g. weatherization of homes and            Include cleaner production & EE grants/loans in
community buildings, installation of efficient wood-        financing/refinancing schemes for SMEs like
stoves and heating/lighting appliances at no/low            Georgia Regional Development Fund (GRDF) of
cost, installation of renewable energy micro-de-            the Millennium Challenge Georgia, or MDFG of
vices, etc.) using established vehicles, comple-            Ministry of Regional Development and Infrastruc-
menting and even replacing one-off aid like the             ture;
direct distribution of fuel;                                Government, Private Sector, Donors
Donors, NGOs
                                                            Extend joint programs mentioned above and/or
Established municipal programs (e.g., "Tbilisi              devise new ones with households as a target
Corps") could add state and/or donor co-financing           group;
of energy-efficient improvements in apartment               Government, Donors, NGOs
buildings (incl. energy efficient buildings, commu-
nal/district heating, solar, and geothermal energy)         Reach out to industrial and service sector (and, to



    Published with financial support of the United Nations Development Program and the Government of Belgium
      The views expressed in this publication are those of the authors and do not necessarily represent those of
                                             the United Nations or UNDP.
some extent, agribusiness) SMEs with the propos-              formance.
als for cleaner production and energy efficiency              Marked progress in several areas is highly praised
audits, offering financing of identified measures             by competent international institutions; however,
via soft loans;                                               achieving the MDGs remains challenging, and
Banks, Donors, NGOs, Private Sector                           commitment to sustainable development in long
                                                              run is still weak.
A few project ideas                                           The ongoing global financial crisis demonstrates
                                                              how the risks associated with pursuing short-term
Information and awareness campaigns are                       goals motivated by imperfect incentives can lead
needed to raise public support and interest of tar-           to gross misallocation of resources. The Global
get groups;                                                   Green New Deal (GGND) asserts that the present
Donors, NGOs, Government, Mass-media                          moment offers unique opportunity to use unprece-
                                                              dented economy stimulus packages in a manner
Pilot projects with simple setup and quantifiable             that would reinforce sustainability and provide
benefits must be identified and carried out, e.g.:            protection against future shocks. GGND also
                                                              maintains that continuing with the business-as-
Large-scale subsidized bulb replacement (energy-              usual approach will not eliminate misleading in-
efficient bulbs) for poorest households;                      centives, bringing future investments under the
Donors, NGOs                                                  same risks of misallocation.
                                                              Georgia is no exclusion in terms of government
Energy efficiency program in all government-                  response to the crisis. The 2.2 billion GEL "econ-
owned buildings including at least moving from in-            omy stimulus package" is included in the program
candescent to fluorescent lighting;                           of the government of Georgia "United Georgia
Government                                                    without Poverty" adopted in February 2009. 1.45
                                                              billion GEL (joint state-donor effort via the state
etc.                                                          budget) is allocated for infrastructure projects, and
                                                              0.5 billion GEL will be spent by donors directly.
Clean Development Mechanism opportunities                     The challenge of the present moment lies in
should be pursued for energy efficiency and re-               "using the pledged donor resources with a view of
newable energy projects, and unilateral CDM proj-             the longer-term agenda focused on building Geor-
ects should be encouraged;                                    gia's economic competitiveness" . This paper
Government, Private Sector                                    aims to offer some ideas towards utilizing the re-
                                                              sources of the stimulus package for increasing
Promote application of EMS in selected big enter-             sustainability of growth and strengthening interna-
prises (mostly export-oriented), employing coop-              tional competitiveness in a longer term. It is
eration of business with specialized NGOs;                    demonstrated that:
Private Sector, Government, NGOs                              • Global and national trends contain real risks for
                                                              the Georgian economy in the long run if new chal-
Actively seek certification of agricultural producers         lenges remain unaddressed;
through international schemes, using NGO capac-               • The country can use elements of the GGND in
ity where possible.                                           short term and – more distant prospect – of Green
Private Sector, Government, NGOs                              Economy to compensate for drawbacks that lead
                                                              to decreased competitive advantage, thus achiev-
Summary                                                       ing multiple targets;
                                                              • The poor can benefit significantly from targeted
Radical reforms implemented in Georgia for last               actions in both the short and long term; alterna-
five years have brought tangible results. Yet there           tively they do, and will, bear disproportionate bur-
is some misbalance as most of the reforms have                den;
targeted economic objectives. This misbalance is              • The synergy is achievable. At the initial stage,
reflected in various rankings of Georgia's' per-              there are a lot of low-hanging fruits. The existing



       Published with financial support of the United Nations Development Program and the Government of Belgium
        The views expressed in this publication are those of the authors and do not necessarily represent those of
                                               the United Nations or UNDP.
plans of the government can easily accommodate
relatively minor adjustments that can trigger fur-
ther positive effects;
• There is still the pressing need for major stake-
holders to recognize the risks and opportunities
offered by present moment and reach agreement
on a long-term vision.




                                                                                 We cannot solve problems
                                                                         by using the same kind of thinking
                                                                           we used when we created them .
                                                                                            Albert Einstein



    Published with financial support of the United Nations Development Program and the Government of Belgium
     The views expressed in this publication are those of the authors and do not necessarily represent those of
                                            the United Nations or UNDP.

				
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