Analytical Report on Green Economy Instruments

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

Europe Aid/135512/DH/SER/BY

"Technical Assistance to Support the Development of Green Economy in Belarus"

Contract № ENPI/2014/350 -889

Component A. Development of knowledge and competences of Belarusian authorities in the context of the green economy

Analytical report on Green economy instruments

September 2015

"Technical Assistance to Support the Development of Green Economy in Belarus"

ENPI/2014/350889

ANALYTICAL REPORT

Project title: "Technical Assistance to Support the Development of Green Economy in Belarus"

Project number: ЕNPI/2014/350-889

Country: Belarus

Address: Hulla & Co Human Dynamics KG 13 Lothringer Strasse 16 A-1030 Wien Austria

Tel. number: T: +359 2 935 99 80

Fax number: F : +359 2 935 99 70

Date of report: September 2015

Authors of report: Claude Rouam, SNKE

This project is implemented by a Consortium led by Hulla and Co. Human Dynamics KG

Disclaimer. The content of this report does not reflect the official opinion of the European Union. Responsibility for the information and views expressed lies entirely with the author(s).

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Contents

LIST OF ABBREVIATIONS ...... 4 EXECUTIVE SUMMARY...... 6 INTRODUCTION ...... 8 1 REGULATIONS, THE EXAMPLE OF REACH ...... 9 2. SUSTAINABLE INFRASTRUCTURES; THE EXAMPLE OF SMART CITIES ...... 14 3. TAX INSTRUMENTS (INDIRECT TAXATION) ...... 23 4. PRICING POLICIES (WATER/ENERGY) ...... 29 5. PHASING OUT OF ENVIRONMENTALLY HARMFUL SUBSIDIES ...... 37 6. VOLUNTARY AGREEMENTS INVOLVING INDUSTRY ...... 42 7. VOLUNTARY AGREEMENTS INVOLVING LOCAL AUTHORITIES ...... 48 8. ACCOMPANYING MEASURES ...... 52 9. COOPERATION WITH NGOS AND BUSINESS COMMUNITY ...... 55 10. RECOMMENDATIONS ………………………………………………………………………………………………………………. 61

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report LIST OF ABBREVIATIONS

ACEA European Automobile Manufacturers Association CBD Convention on Biological Diversity CSDPA Czech Soap and Detergents Products Association ECHA European Chemicals Agency EEA European Economic Area EEA European Environment Agency EFTA European Free Trade Agreement EHS Environmentally Harmful Subsidy EIA Environmental Impact Assessment EMAS European Eco-Management and Audit Scheme ETS Emissions Trading System EU European Union EVA Environmental Voluntary Agreement FIP Feed-in-Premium FIT Feed-in-Tariff GDP Gross Domestic Product GE Green Economy GHG Green House Gas GMO Genetically Modified Organism ICT Information and Communication Technology IEEP Institute for European Environmental Policy IPPC Integrated Pollution Prevention and Control JAMA Japanese Automobile Manufacturers Association KAMA Korean Automobile Manufacturers Association MNREP Ministry of Natural Resources and Environmental Protection NGO Non-Governmental Organisation OECD Organisation of Economic Co-operation and Development POPs Persistent Organic Pollutants PPP Public Private Partnership PV Photovoltaic PVC Polyvinyl Chloride REACH Registration Evaluation Authorisation and Restriction of Chemicals SCCI Smart Cities and Communities Initiative

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report SDSs Safety Data Sheets SEA Strategic Environmental Assessment SVHC Substance of Very High Concern UN United Nations UNCED United Nations Conference on Environment and Development UNECE United Nations Economic Commission for Europe UNEP United Nations Environment Programme USA United States of America VAT Value Added Tax VCM Vinyl Chloride Monomer WFD Water Framework Directive

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report EXECUTIVE SUMMARY

The current report, as agreed with the Ministry of National Resources and Environmental Protection (MNREP), is based on an analysis of the implementation in the EU of a number of instruments contributing to the development of a Green Economy. The fundamental issue behind this analysis is to deduct from the EU experience what instruments could best be used in Belarus given its commitment to promote Green Economy. It was agreed that this report would not deal with several instruments which are used in the EU and its Member States , but which are dealt with under other pieces of work which are part of the Technical Assistance to Support the Development of Green Economy in Belarus : this is the case , for instance , of Green Public Pocurement , Organic farming or Ecolabelling. The MNREP has defined the items to be covered by this report, namely the REACH Regulation, Sustainable Infrastructure such as Smart Cities , Tax Policy (indirect taxation), Pricing Policies (Water and Energy), Phasing out of Environmentally Harmful Subsidies, Voluntary Agreements involving Industrial Sectors, Voluntary Schemes involving Local Authorities, Accompanying Measures (Capacity Building and Communication) and Cooperation with NGOs and the Business Community. The rationale behind this list of topics is that on the one hand the EU and its Member States have experience in using these tools, and on the other one they could potentially inspire policy decisions to be made by Belarus when considering how to promote Green Economy on its own territory. Some experiences implemented in the EU can be qualified as successful. Others have been more difficult or have not yet obtained the expected results. In all cases, conclusions can be drawn about conditions to be met in order to optimise the efficiency of each tool used to increase sustainability. REACH is a legislative tool, an EU Regulation, aiming at the limitation of risks posed by chemicals on the environment and human health. No other instrument could have replaced this legislation which had to be adopted after long discussions with stakeholders in order to find a balance between environmental protection and economic interests. Applied to some 8000 chemical substances (between 2007/2013), REACH is considered as an important contribution to GE in the EU. The reasons of its success include not only its careful preparation with stakeholders, but also the creation of a specific agency in charge of its implementation, ECHA. This example shows that in a domain such as chemical safety, legislation remains a necessary tool, a conclusion which is certainly relevant for Belarus as well. Sustainable infrastructure mainly relates to investments contributing to air quality , water management, waste management, flood prevention, sustainable mobility and more. Given that about 80% of people are living in cities, the issue of sustainable infrastructure is closely linked to urban systems, and the concept of Smart Cities emerged as an other important contribution to GE. In the EU, even though legislation deals abundantly with several aspects of urban sustainability, an interesting online toolkit (called Reference Framework for Sustainable Cities) has been developed to help cities to promote sustainable urban development, mainly in the sector of transport, as well as energy. Another tool (Smart Cities Partnership) facilitates cooperation between stakeholders (public authorities, research centers , NGOs) to promote the sustainable infrastructure of to-morrow. Even though funding of such infrastructure remain a major challenge, such investment are profitable in the long term and many cities compete to improve their environmental footprint. Methodologies developed in the EU , as well as award schemes for sustainable cities may contribute in Belarus to the changes towards GE. Funding may however remain a serious obstacle. Tax instruments have been advocated for years in the EU and beyond. This is indeed an attractive approach to propose tax reforms which would impose taxes on pollution instead of production factors.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report This process has taken place in the EU and is still on going , with a revenue of environmental taxes reaching 2.5% of GDP and 6.3% of the total revenues of taxes and social contributions. Most of these taxes are linked to the energy and transport sectors.The extent to which ‘green taxation ‘ contribute to GE in the EU may still seem modest. However, a move towards GE should necessarily include a move towards green taxation, given for instance the efficiency of this instrument for the reduction of

CO2 emissions. Any country ready to use green taxation should give careful consideration to economic impacts of such tax reforms in particular for energy intensive industries. Pricing instruments has been used in the EU mainly for water and energy. Water pricing derives in the EU from the Water Framework Directive and refers to cost recovery. Its implementation remains uneven in the EU territory. Since water scarcity is not in Belarus a priority issue, the contribution of water pricing to GE may be less significant than in EU Southern countries. Things are different for energy pricing where EU experience shows the efficiency of instruments such as feed-in-tariff and feed-in-premium. This could be an interesting tool for Belarus if its move towards GE includes the objective to promote renewable energy, preferably in the frame of an energy package (with measures to promote energy savings and energy efficiency). Phasing out of Environmentally Harmful Subsidies has also been advocated for long in the EU and beyond. Its implementation is however difficult since an inventory of EHS is a complex task , and since resistance amongst stakeholders benefitting from EHS is usually strong. This is however a necessary tool to move towards GE, since it is at the same time well founded both on environmental and economic grounds. Here again a methodology is available if Belarus wants to use this tool, which may also have positive impacts on the government budget. Environmental Voluntary Agreements involving industrial sectors are sometimes presented as an alternative or a complement to legislation. These interesting tools are mainly recommended for oligopolistic sectors, ready to commit to ambitious environmental targets, and if a good monitoring system is in place. Industry may prefer such voluntary commitments and the public authorities may also appreciate this approach which has limited budgetary costs. Voluntary schemes involving local authorities are developing rapidly in the EU , but in Belarus as well with the participation of about 10 cities to the Covenant of Mayors. Such initiatives reflect local commitment to GE, have limited budgetary impact and contribute to the promotion of innovative solutions to urban sustainability through exchange of experiences. Belarus could consider extending cities participation to such networks. Finally, accompanying measures and cooperation with NGOs and the business community are systematically used in the EU to ensure a greater ‘sense of ownership’ of all stakeholders concerned by sustainability issues. These measures include capacity building, information campaign and recognition of the role of stakeholders at various stages of the decision making process. These measures, largely related to good governance, have usually a reasonable cost and can contribute significantly to behavioural changes which are part of a switch to GE. The implementation of the Aarhus convention in Belarus goes in the same direction.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report INTRODUCTION

Belarus commitment to promote Green Economy directly leads to the question of the most cost effective instruments which could be used to reach this target. A broad range of measures are indeed available in order to promote Green Economy, but they have pros and cons and their implementation is sometimes complex. In a study carried out on behalf of the European Commission ‘The role of market-based instruments in achieving a resource efficient economy’1, a screening revealed the existence of some 110 market based instruments worldwide linked to Environmental policy. Most of them are relevant to promote Green Economy and most of them (3/4) were found in EU countries. The instrument types were also analysed, showing that the majority of instruments (85 out of 110) were price based, i.e. taxes or subsidies on products, processes or resources. Other instruments (such as Eco-labelling or Eco- certification) were much less prevalent. Given this heterogeneous situation, it seems relevant to examine more carefully in the light of experience the various instruments which may contribute to a switch towards Green Economy in Belarus. Environmental policy, in the EU but beyond the EU as well, could for long be described as a ‘command and control’ approach focussed on ‘end of pipe’ solutions to acute environmental challenges. This is no longer the case, since prevention of environmental problems is now high on the agenda, and the issue of the optimal policy mix is a permanent concern for policy makers. The analystical report is part of Activity A 2.4 “Draft legislation related to ecological compatibility of goods and services; principles of establishing environmental requirements to products, including rules and standards of packaging, labelling and re-use; principles to assess the effectiveness of technologies”. This activity will assist Belarus in preparation of regulatory acts on instruction of green economy instruments in Belarus. As discussed and agreed with the Beneficiary – the Ministry of Natural Resources and Environmental Protection (MNREP), the current report will cover the following components: 1. An example of EU Environmental legislation, the REACH Regulation 2. Sustainable infrastructures, in particular Smart Cities, including funding aspects 3. Tax policy (indirect taxation), with relevant examples from 3 EU countries 4. Pricing policies (water/energy) 5. Phasing out of harmful subsidies (industry/energy) 6. ‘Voluntary agreements’ involving industrial sectors (such as cars, plastics, detergents) 7. Voluntary schemes involving local authorities 8. Accompanying measures (capacity building, communication) 9. Cooperation with NGOs and the Business Community

1 http://ec.europa.eu/environment/enveco/taxation/pdf/role_marketbased.pdf 8

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 1 REGULATIONS, THE EXAMPLE OF REACH

Binding legislations are instruments of paramount importance with regard to promotion of Green Economy (GE). In many situations, there is no alternative to regulation because market forces are not sufficient to ensure that right decisions (for instance related to investments or technological choices) are taken in due time, or because price mechanisms ignore both positive and negative externalities. Public authorities have therefore the responsibility to establish the most suitable legal framework for the development of GE, with several challenges such as stability/predictability of this legal framework. Even though a typology of legislations impacting Green Economy would exceed the limits of the current report, it should be clarified that regulations will influence GE:  when they directly create legal obligations related to environmental objectives: legislation related to water management, air quality, soil , marine environment, nature protection, waste management, industrial emissions, chemicals, GMOs, climate change mitigation and adaptation, environmental impact assessment;  when they define how market instruments could contribute to GE ( for instance in the EU , initiatives related to Ecolabelling , EMAS, green public procurement the EU Emissions Trading System are based on legislation):  when sectoral policies (agriculture , forestry , transports, energy, health, tax policy, trade policy, …) integrate binding environmental objectives;  when they inhibit change and undermine progress towards GE, as those allowing environmentally harmful subsidies, be it in favour of fossil fuels or non-sustainable agricultural practices.

The example of the EU confirms that there is no sustainable development or Green Economy without a fairly robust regulatory framework with satisfactory implementation and enforcement. In the field of environment, about 300 pieces of legislation are implemented. These binding provisions constitute a common legislation throughout the entire EU territory, but EU Member States have the possibility to adopt national measures as long as they do not contradict EU rules or principles (national measures, in particular, should not distort trade within the EU market). National legislation is also necessary to transpose EU Directives, in particular Framework Directives (such as the Water Framework Directive) that have a more general character.

An illustration of the need for legislation in order to promote GE can be found in the field of chemicals with the REACH Regulation (EU Regulations, contrary to EU Directives, are directly applicable in the entire EU territory without transposition at national level).

REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) is an EU Regulation (EC 1907/2006) which entered into force on 1st June 2007.

REACH is a key element of the EU's commitment towards the implementation plan adopted at the 2002 World Summit on sustainable development which aims to ensure that, by 2020, chemicals are produced and used in ways that lead to minimisation of significant adverse effects on human health and the environment. This confirms the relevance of REACH in a Green Economy perspective.

Its objective is to improve the protection of human health and the environment from the risks that can be posed by chemicals, while enhancing the competitiveness of the EU chemicals industry. It also promotes alternative methods for the hazard assessment of substances in order to reduce the number of tests on animals.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

REACH applies to all chemical substances; not only those used in industrial processes but also in our day-to-day lives, for example in cleaning products, paints, as well as in articles such as clothes, furniture and electrical appliances. Therefore, the regulation has an impact on most companies across the EU and companies exporting to the EU market. Manufacturers and importers are required to gather information on the properties of their chemical substances, which will allow their safe handling, and to register the information in a central database in the European Chemicals Agency (ECHA) located in Helsinki. This obligation applies to companies for each substance manufactured or imported in quantities of 1 ton or more per year per company (legal entity).

Important to note that manufacturers established outside of the European Economic Area (EEA)/EU do not have direct obligations under REACH as the EU importer needs to comply with the obligations. Non-EU companies exporting substances to the EU can (but are not obliged to) appoint an "only representative" to fulfil the obligations of importers.

The “only representative” under REACH

A non-EU manufacturer as those in Republic of Belarus, may find it more convenient/efficient to get its substances pre-registered and registered in the EU through an only representative, in accordance with Article 8 of the REACH Regulation. An only representative is a natural or legal person established in the EU, appointed by a non-EU manufacturer by mutual agreement. As an only representative, this natural or legal person would fulfil the obligations of companies importing a substance on its own, in mixtures or in articles. It thereby alleviates the regulatory obligations resting on importers. Non-EU manufacturers may also want to choose this possibility if they consider that communication of information needed by the importers would require the disclosure of confidential business information.It will be the task of the only representative to comply with all the obligations with which the importers of your products would have to comply. This includes submitting a pre-registration and a registration dossier for the substance imported into the EU to the European Chemicals Agency (ECHA) before the relevant deadlines expire. It will also be the task of the only representative to keep the information available and update on i) the quantities imported and ii) the importers covered by the appointment, as well as to iii) supply the latest update of the safety data sheet. The only representative must therefore have a sufficient background in the practical handling of substances and the information related to them

Source: ECHA

ECHA is the central point in the REACH system: it manages the databases necessary to operate the system, co-ordinates the in-depth evaluation of suspicious chemicals and is building up a public database in which consumers and professionals can find hazard information.

REACH places the burden of proof on companies. To comply with the regulation, companies must identify and manage the risks linked to the substances they manufacture and market in the EU. They have to demonstrate to ECHA how the substance can be safely used, and they must communicate the risk management measures to the users.

The Regulation also calls for the progressive substitution of the most dangerous chemicals (referred to as SVHCs, "substances of very high concern") when suitable alternatives have been identified.

A number of studies were carried out at the European Commission request to assess the impact of the REACH Regulation 5 years after its entry into force, such as the study written by the Centre for Strategy and Evaluation Services on the Functioning of the European Chemical Market after the introduction of REACH (see box below).

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Centre for Strategy and Evaluation services study (2012)

Description

A comprehensive assessment on how the REACH Regulation changed the dynamics on the chemicals market. The assessment takes a look into the perspective of all categories of market players and review what has changed from their perspective. The study addresses issues such as reputation improvement, barriers for entering market, competition rules, common market rules, costs for compliance, administrative burden, workability, consumer choice, relocation of production, etc.

Summary of Findings

Relevance

- The REACH Regulation is relevant in enhancing the competitiveness of the EU chemical industry and for the development of a harmonised market for chemicals. However, an important part of the potential benefits still remains to materialise while there is scope for reducing costs without a detrimental effect on achieving the objectives of the Regulation. - REACH is clearly relevant to the development of a level playing field and a harmonised market. However, differences among Member States in market surveillance and enforcement of the Regulation and in the interpretation of the Regulations - including the notification requirements for SVHCs in articles - do not serve this objective.

Costs of compliance with REACH regulation

-The costs of compliance with REACH are sizeable and, in the short term, they appear to have some impact on the profitability of firms and the competitiveness of certain sectors in relation to their access to non-EU markets. The negative impacts are expected to be reduced in the future as experience builds up and as third countries also introduce certain registration requirements for chemicals. - Based on the data collected the total cost for all firms involved in registration to the end of the first registration period is estimated at around €2.1billion. The typical cost of registration cost per substance by one firm has been about €70,000. ECHA fees, costs for required data through testing, studies or letters of access and human resources were the three key cost drivers. The costs represent about 1% of firms’ total annual turnover. - Additional costs arise from the information exchange requirements and the handling of Safety Data Sheets and affect all firms in the chemicals supply chain. The main problem at this stage is the absence of a standardized format of SDSs that makes development and extraction of information problematic. In addition, limited awareness of the requirements among many downstream users makes information exchange a difficult process for all actors involved.

Impacts on chemicals market and industry

- It is still too early to identify long term impacts of REACH on the firms’ financial position. The general rule that applies is that firms active in basic chemicals and metals that are treated as commodities absorb the costs. In the specialty chemicals markets firms have greater capacity to pass costs down the supply chain. - REACH costs and the introduction of substances in the candidate list has led to the withdrawal of some chemical substances. While this differs in certain sectors, the general picture is that this is not a widespread phenomenon and that there are only limited cases where this has become problematic for the access of firms to critical raw materials. On the other hand, there are indications that REACH leads to a reduction in the number of suppliers of certain substances increasing concentration in some chemicals markets. The scale of this effect is so far rather limited. - On the basis of the limited information available, the overall conclusion is that REACH has not had a sizeable impact on the prices of final consumer products. - There is no supportive evidence as to the effect of REACH on consumer confidence or the development of new substances and creation new business opportunities at this stage. It is probably too early for a proper assessment. However, there is some evidence that REACH contributes to the strengthening of communication along the chemicals supply chain even though this has yet to materialise.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report The European Commission then adopted in February 2013 a Report reviewing the first 5 years of implementation of the REACH Regulation and giving an overview of the impact of this Regulation.In 2013, Companies had registered more than 30 000 files with the European Chemicals Agency describing the uses and properties of about 8000 chemical substances manufactured or placed on the market. According to a Eurobarometer survey, 61% of EU considered chemicals are safer in 2013 than 10 years ago. The review concludes that while some adjustments are needed, no major overhaul is required. Its main findings are:  The report makes recommendations to improve REACH implementation. These include improving the quality of registration dossiers, enhancing the use of safety data sheets as a central risk management tool, and addressing issues related to cost sharing within Substance Information Exchange Forums  The report recommends reducing the financial and administrative burden on Small and Medium Size Enterprises (SMEs) in order to ensure the proportionality of legislation and to assist them to fulfil all their REACH obligations.  There are no major overlaps with other EU legislation.  Considerable efforts to develop alternative methods to animal testing have been made and will continue: since 2007, the Commission has made available € 330 million to fund research in this area.  Enforcement could be improved. As this is the responsibility of the Member States, the report recommends that Member States reinforce coordination amongst them. Although the report identifies a need for some adjustments to the legislation, the Commission wants to ensure legislative stability and predictability for European businesses. No changes to REACH's main terms are proposed at present. ECHA has concluded cooperation agreements with peer agencies of several third countries (Australia, Canada, Japan, USA), and is involved in awareness raising activities with other interested countries, priority being given to the authorities in countries that are revising their chemicals legislation. It is worth mentioning that most activities of ECHA have international relevance. Around the globe, users can benefit from the extensive information available on the ECHA website, especially from the dissemination of information on chemicals.

Conclusions . REACH is a good illustration of a regulation contributing to GE through environmental and health benefits, taking also into account competitiveness and innovation concerns; . No market instrument would have been suitable to replace such a legislative tool which will mainly bring long term beneficial effects, beyond the usual market horizon; . Within the first 5 years, REACH procedures applied to more than 8000 chemicals; . The implementation of REACH is linked to the implementation of other pieces of the EU environmental legislation (Regulation on Classification Labelling and Packaging, Biocidal Products Regulation …) and International Conventions (Stockholm Convention/POPs, Rotterdam Convention …); . REACH applies to the EEA market (EU + Norway + Iceland + Liechtenstein) and therefore to manufacturers and importers from third countries in a non-discriminatory way;

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Importance for Belarus

What can be concluded for Belarus? Generally speaking, legislative instruments such as REACH can bring an important contribution to switch to GE if there are loopholes in the current legislation (chemical in this case), if market instruments cannot tackle this issue and provided that appropriate implementation instruments are put in place (as illustrated by the creation of ECHA). In the more specific case of chemicals, Belarus may consider carrying out a gap analysis of its current legislation and decide whether environment or public health considerations would justify going farther, taking into account the significant corresponding cost for public authorities and for industry.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 2. SUSTAINABLE INFRASTRUCTURES; THE EXAMPLE OF SMART CITIES

In the absence of a universally accepted definition of sustainable infrastructure, it could be agreed that this concept refers to anything built or used in a way that contributes to the overall sustainability of a country. Energy, waste, water or transport infrastructures may have a very different impact on human health and environment, and therefore be more or less sustainable. How to measure infrastructure sustainability is not an easy task, and sustainability indicators for infrastructure should cover in a life-cycle perspective all potential effects: even from an environmental point of view (more narrow than sustainable development), this should include energy consumption, water consumption, air emissions, impact on soil, impact on climate change, impact on landscape and cultural heritage, impact on public health etc. It could be argued that the very purpose of Environmental Impact Assessment legislations (cf EIA and SEA Directive in the EU, Espoo Convention in the UNECE context, Safeguards for the World Bank) are linked to understanding whether these projects or plans are or not sustainable. These assessments are indeed more complex when instead of an individual project such as a dam or an airport, what is at stake is the sustainability of a transport system, or of a city where so many aspects must be taken into account. Analysts consider transport as a key component of sustainability and a repeated objective has been in many countries to decouple GDP growth and transport growth. The EU admits that its transport system is currently not sustainable, and in many respects moving away from sustainability rather than towards. The European Commission's White Paper on Transport 2 was therefore designed to guide future policy developments in the transport sector over the next decade and in accordance with the long-term EU objective to reduce GHG emissions by 80–95% by 2050. This White Paper calls for a reduction of CO2 from transport of at least 60% by 2050 from 1990 levels. It envisages the target being met by a combination of new technology and more efficient use of existing technology.

The challenge of reducing C02 emissions from transports will require fundamental transitions in the European transport sector according to the EEA:

One of these transitions is the shift to alternative fuel vehicles. However, too few alternative fuel vehicles (electric, plug-in hybrid and hydrogen vehicles) are currently being sold. Consumers are reluctant to purchase these vehicles, and manufacturers are deterred from investing further in them. The European Commission has recently submitted a proposal to significantly develop the infrastructure for alternative fuels as a way of addressing the problem of low uptake of vehicles and lack of infrastructure. As well as delivering clear environmental benefits (reducing average CO2 emissions and reducing air pollutant emissions etc.), the uptake of new technologies will also reduce Europe's dependency on oil.

However, changes in the transport sector — such as renewing an entire country's fleet of vehicles — require time to take effect. Delivery of benefits from an uptake of new vehicle technologies also depends on developments in other sectors, such as clean electricity production to cope with increasing demand (while complying with the Emissions Trading System (ETS) agreements). Moreover, alternative fuel vehicles will not on their own solve other existing problems such as congestion levels,

2 WHITE PAPER ‘Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system’SEC(2011) 359 final, 2011 14

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report accidents and road safety, or noise levels. For this reason, additional fundamental changes in the way Europe transports passengers and goods are needed.

These additional changes include avoiding the use of transportation where possible; shifting necessary transport from environmentally harmful modes to more environmentally friendly modes; and improving the efficiency of all modes of transport. It is essential for the public to accept the need for these changes. Public acceptance is critical to overcoming the two main barriers for implementation of these changes: lack of political will and lack of funding.

The development of a sustainable transport system is of major importance for environmental policy and climate change mitigation. Building new infrastructure is part of the solution and can be reached by investing in transport modes environmentally friendly (preference for railways and waterways compared to road or air transport). Other aspects include reducing the volume of transport flows, and developing public transport. Changes in behaviours are highly dependent on infrastructure made available to companies or individuals as confirmed in the case of urban infrastructure. Sustainable/Smart Cities Since the mid-1970s, EU environment policy has been guided by action programmes defining priority objectives to be achieved over a period of years. The European Commission is currently implementing its 7th Environment Action Programme (2013/2020). One of its 9 priority objectives is to help cities become more sustainable. EU is densely populated and 80 % of its citizens are likely to live in or near a city by 2020. Most cities face a common set of core environmental problems, including air quality concerns, high levels of noise, traffic congestion, GHG emissions, biodiversity loss and degradation, water scarcity, floods and storms, diminishing green areas, contaminated sites, brownfields and inappropriate waste and energy management. No surprise, therefore, if the implementation of EU environmental legislation is of paramount importance for urban environment: Drinking Water directive, Urban Waste Water directive, Clean Air for Europe (CAFE) directive, Industrial Emissions directive (ex IPPC), Waste Framework directive, Noise directive, Natura 2000 directives, Impact Assessment directives and more. The EU policy for urban environment goes far beyond legislative measures (see also section 7 of this report on Voluntary schemes involving local authorities, such as Covenant of Mayors). An interesting example in this respect is the Reference Framework for Sustainable Cities. In May 2007, the EU Ministers responsible for urban development signed the “Leipzig Charter on Sustainable European Cities” with the aim of improving policy-making on integrated urban development, with a particular focus on deprived neighbourhoods. In November 2008, in Marseille, the EU Ministers called for the implementation of the charter for the cities and with the cities. This recognised the implications of climate and environmental change for cities and the need for adaptation measures. They agreed that a practical tool was needed to translate the common sustainability goals and the recommendations in the Leipzig Charter into practice. The Reference Framework for European Sustainable Cities (RFSC) is an online toolkit designed to help cities promote and enhance their work on integrated sustainable urban development. It is available free of charge to all EEA/ accession countries and offers practical support in integrating sustainability principles into local policies and actions. The toolkit was developed after a test period involving 66 cities from 23 countries. This work has identified 25 objectives for sustainable cities (see box below). 9

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

Check list of the objectives that define the European sustainable city 1 - Reinforce the economic attractiveness of the city/region/territory Provide training and assistance to staff of local administration and other partners to develop and improve relevant competences and skills e.g. service orientation Highlight and enhance the strong points of your city Promote cooperation with businesses and research institutes to generate, disseminate and apply knowledge and skills 2 - Develop the local economy through knowledge and skills provision Identify potential and complementary opportunities for business and non-profit purposes Create and maintain good relations with both the business and non-profit sector and ensure the appropriate conditions and procedures exist to enable their smooth running and development 3 - Ensure city connectivity and the provision of efficient infrastructures Improve internal and external connectivity through the provision of high quality infrastructure, including efficient transport systems, high-speed internet etc., in order to facilitate production and the flow of people and goods. Provide flexible working conditions Facilitate access to finance and information 4 - Develop/promote/support appropriate sustainable local production and consumption of goods and services Improve the environmental and social impact of products and services Encourage citizens, public administrations, businesses, etc. to use local sustainable products Promote local production of goods and services, close to the users/consumers/citizens 5 - Meet the needs of the population in terms of employment types and access and jobs Support the creation of employment opportunities that meet people's needs e.g. flexible working conditions, and ensure fair access to these opportunities by tackling discrimination (racial, gender, cultural etc.) Ensure fair access to these opportunities through specific measures e.g. to tackle both long-term and youth unemployment - and also by tackling discrimination (racial, gender, cultural etc.) Improve the knowledge and skills of the local workforce by providing the necessary conditions for equal and easy access to education and training relevant to the local economy 6 - Maintain or develop a more diversified local economy Identify and address current problems, in particular issues that can have a reverse effect on sustainable local economic development Within the context of regional priorities, promote a healthy balance of economic activities and sectors within your city Support local economic actors to innovate and adapt to new sustainable opportunities 7 - Improve the quality and accessibility of public services for everyone Consider the right balance between the quality and the costs of public services Encourage proximity and accessibility to public services Encourage affordability of public services

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

Improve information on public services 8 - Ensure that everyone can benefit from a good level of education and training Promote an affordable education system accessible to everyone Promote high-quality schools and training centres for all Adapt schools and training centres to local needs for all Promote and provide life-long learning opportunities 9 - Promote good public health for everyone Guarantee equal access to good quality health services for everyone Ensure protection against health threats/risks Ensure information on health determinants (impact of environment, lifestyle, etc.) and stimulate prevention 10 - Ensure high-quality housing and neighbourhoods for everyone Encourage the redevelopment of existing housing and the construction of new housing where appropriate (avoid urban sprawl) Improve accessibility and affordability of good housing for all Ensure socially mixed communities and avoid segregation 11 - Promote social inclusion and access to opportunities for everyone Take steps to decrease the levels of poverty and social exclusion Strengthen and develop social capital i.e. features of social organization such as networks, groups and social trust that facilitate coordination and cooperation for mutual benefit Adapt welfare services in view of socio-demographic changes Adapt to existing, and anticipate future, social integration needs, including those of vulnerable groups Promote the integration of people with reduced mobility and disabilities Encourage participation of citizens in city life 12 - Promote cultural and leisure opportunities and ensure access for everyone Encourage and value cultural diversity Support and encourage cultural and artistic creation and exchange Ensure broad, affordable and equal access to culture for everyone Provide leisure and sports facilities 13 - Mitigate, and adapt to, the effects of climate change

Define territorial quantitative CO2 and energy reduction targets aligned with EU objectives Promote urban development that is more energy-efficient in all the stages of the energy-cycle: production, distribution, equipment, use/consumption Encourage the reduction of energy consumption for households, public and economic activities Improve energy efficiency in all fields (household, industry, agriculture, building etc.) Promote the development and use of renewable energy sources emitting less greenhouse gases Identify, measure and manage the territorial impacts of climate change

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

Consider the role of ecosystems (flora and fauna etc.) in helping the city adapt to climate change 14 - Protect and promote biodiversity Safeguard and encourage ecological corridors across the whole territory Maintain and improve the protection of fauna and flora species Preserve and increase the percentage of green and natural areas in the city - as well as protecting those areas dedicated to agriculture in and around the city 15 - Reduce pollution Reduce air pollution Reduce water pollution Reduce soil pollution Reduce all kind of nuisances (visual, noise, light etc.) Manage possible natural and technological disasters 16 - Preserve the quality and availability of natural resources Identify and improve the use of local material in order to reduce the impact of importing and using non-local materials Reduce the consumption of natural resources Avoid the production of waste and encourage the re-use and recycling of materials Promote efficient innovations and the use of renewable resources 17 - Preserve and promote the high quality and functionality of the built environment, public spaces and urban landscape Identify, preserve and promote the existing heritage according to the local and cultural context Prevent unplanned settlement and take steps to limit urban sprawl Promote and enhance the architectural quality of urban landscapes, public spaces and the built environment Create mixed-use and functional spaces and ensure the safety, security and easy accessibility of public spaces 18 - Develop an integrated vision for the sustainable development of your city Consult all relevant stakeholders in the creation of your integrated strategy Set out clear priorities and objectives in your integrated strategy Follow an integrated approach when setting up your sustainable urban development strategy Make the required preparations needed to identify problems/challenges in your city 19 - Pay special attention to deprived neighbourhood areas Ensure that any specific strategies for deprived neighbourhoods are integrated with the wider city strategy Ensure your policy/strategy/project includes targeted specific actions for deprived neighbourhood areas Ensure that the residents of deprived neighbourhood areas are involved in the design and implementation of your policy/strategy/project 20 - Organise the management structures of your city to achieve sustainable urban development

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

Organise your city administration to encourage working in an integrated way Organise or adapt your management structures to implement your policy/strategy/project Give a good example, by your city administration, in achieving/aiming at the sustainable urban development objectives that have been set Promote skills for good governance and leadership 21 - Take steps to ensure the financing of the integrated sustainable development of your city Use your capacity to create/allocate financial resources Encourage a flexible and innovative approach to finance, with an emphasis on sustainability 22 - Monitor and evaluate progress Prepare and regularly follow up the monitoring and evaluation of your policy/strategy/project Encourage the dissemination of evaluation results to ensure that lessons are learned 23 - Cooperate with other authorities from different levels Consult and/or co-ordinate with other authorities from different levels in your planning and decision-making processes Develop partnerships at local and regional level e.g. urban-rural or inter-municipal Develop partnerships at national level Develop partnerships at European and/or international level 24 - Promote active stakeholder and citizen participation Encourage active stakeholder and citizen participation and involvement in the different stages of the decision-making process and clarify participants' responsibilities Ensure public access to information regarding policies within the city 25 - Promote networking and exchange of knowledge Promote local capacity building through the transfer of knowledge and skills, especially in the voluntary sector and in community organisations

A critical look at this checklist could lead to the conclusion that it is overambitious and gives no indication of priorities between the 25 objectives described. However, the checklist is a framework and not a programme, and its merit is to show the diversity and sometimes the complexity of all elements to be taken into account in order to build a ‘smart urban system’. Objectives cover a variety of themes including: - economic aspects ( objectives 1, 2, 4, 6, 21 and 3 for innovation) - social components (objectives 5, 7, 8, 9, 10, 11, 12, 19) - environmental targets (objectives 13, 14, 15, 16, 17) - management and governance issues (objectives 18, 20, 22 , 23, 24, 25).

The Reference Framework is intended to offer guidance and support for improving decision-making and action on sustainability. It is not a panacea for all sustainability challenges. The aim is also to encourage local authorities to develop their own measures or actions, which best suit them and which are possibly not fully reflected in the Reference Framework.

RFSC also suggests a monitoring system based on 33 indicators.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report RFSC was well received by stakeholders and this network involves Barcelona, Bergamo, Berlin, Brno, Dortmund, Dublin, Glasgow, Helsinki, Katowice, Lisbon, Luxemburg, Paris, Valencia, Vienna and many more cities including much smaller ones. Another initiative related to a sustainable cities network will be presented infra under section 7.Sustainable infrastructure can contribute to building not only ‘sustainable cities’ but also ‘smart cities’. The smart city concept goes beyond the use of ICT (Information and communications technology) for better resource use and less emissions. It means smarter urban transport networks, upgraded water supply and waste disposal facilities, and more efficient ways to light and heat buildings. In this field, another example of non-legislative action developed in the EU is the Smart Cities and Communities Initiative (SCCI) launched in 2011. This scheme aims to boost the development of smart technologies in cities – by pooling research resources from energy, transport and ICT and concentrating them on a small number of demonstration projects which will be implemented in partnership with cities. In the first year (2012), € 81 mio were earmarked for this initiative, covering only two sectors: transport and energy. Demonstration projects financed under the scheme could be in either one of the two sectors - rather than the two combined. Starting from 2013, the budget has been increased from € 81 mio to € 365 mio, covering three areas instead of two: energy, transport and ICT. In addition, each and every demonstration project financed under the scheme must combine all the three sectors. Pooling the sources together also means using synergies. With this Smart Cities Partnership, the EU will help to establish strategic partnerships between those industries and European cities to develop and roll out the urban systems and infrastructures of tomorrow. In 2014, 370 commitments around smart city projects and solutions were submitted by more than 3 000 partners. The lead organisations come from 31 countries, and interestingly were public authorities in 36% of cases, business in 26%, and research institutions in 16% and NGOs in 6% of them.

In the light of these initiatives but also from a more theoretical view point, a key question is to determine what the right approach is in order to promote smart cities in a systematic manner. Limited capital investment remains a roadblock to implementing Smart Cities solutions.

Nevertheless, a good reason for acting is to take the measure of negative externalities in non- Sustainable urban systems. In a number of big cities (such as Cairo or Buenos Aires), it has been calculated that traffic congestion has a cost reaching between 2 and 4% of GDP. Recent research shows that the cost of poor air quality in European big cities has been underestimated for long, in particular as far as human health is concerned: between 6 and 9000 French city dwellers die prematurely each year due to air pollution, and that around one sixth of the total burden of death and disease among children can be attributed to environmental factors.

The funding of Smart Cities remains a challenge worldwide3. A study published by the European Commission4 concludes that to attract the necessary capital for investments, smart cities innovative solutions have to be found to: a) Reduce the real and perceived risks of investment; b) Attract long-term finance from specialised institutions (i.e. pension funds);

3 SEE FOR INSTANCE ABOUT INDIA ‘INVESTMENT CHALLENGE: SMART CITIES NEED SMART FUNDING OPTIONS’, GEORGE MATHEW THE FINANCIAL EXPRESS, 16 AUG 2015 4‘FINANCING MODELS FOR SMART CITIES’, Smart Cities Stakeholder Platform, November 2013 20

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report c) Develop project aggregation mechanisms to create bankable and sizeable investments with reduced transaction costs; d) Develop off balance sheet investment systems with private mechanisms (development of single purpose vehicles and PPPs)

JESSICA (Joint European Support for Sustainable Investment in City Areas) supports building renovation in Lithuania

In 2009, the Lithuanian government established a €227mio JESSICA holding fund, managed by the EIB, as a way to mobilise funds (€127mio from the European Regional Development Fund and €100 mio from national funding), aiming to also leverage €20-40mio from commercial banks to promote energy efficiency measures in multi-apartment buildings. In 2010, the first loan agreement was signed between the EIB and Šiaulių bankas, in which the latter commits to provide 20 year, low interest loans (3 per cent for the entire loan period) to homeowners for the total amount of €6 mio. The goal is to support the renovation of 1000 buildings between 2010 and 2015. By April 2011, approximately 100 projects and five project loan agreements (amounting to more than €1mio) had been approved. These projects are expected to positively contribute to achieving the EU’s 20 per cent target for energy efficiency as well as national refurbishment plans for 2020. After the refurbishment, it is estimated that the average energy savings for a single house will be approximately 50 per cent or 125 MWh a year. Some success factors behind the Lithuanian experience include: political support, significant demand for renovation of the existing housing stock, and the inability of national financial schemes to adequately respond to this issue, as well as the use of established national institutions such as the housing and urban development agency (HUDA) Source: ‘Mobilising private investment for climate change action in the EU: The role of new financial instruments’, Withana S. et alii, 2011)

The right strategy towards urban sustainability/smarter urban systems must however be defined on a case by case basis. Increased sustainability may for instance depend in one city primarily on waste management, in another one on mobility solutions, and in a third one on urban waste water treatment or noise reduction. Corresponding investments may also vary considerably, as well as funding strategies.

However, above mentioned examples show that success depend on political willingness, priority setting, involvement of all stakeholders and funding of necessary investments. Behavioural changes should be encouraged in areas such as preference for public transport, waste prevention, energy and water savings which can often be put in place with a limited cost.

Finally, it has been widely acknowledged throughout the EU that some official recognition of cities with high sustainability standards could contribute to awareness raising about benefits of smart cities. This is now done through the Green Capital Award and the Green Leaf Award. The European Green Capital Award is the result of an initiative taken by 15 European cities (Tallinn, Helsinki, Riga, Vilnius, Berlin, Warsaw, Madrid, Ljubljana, Prague, Vienna, Kiel, Kotka, Dartford, Tartu & Glasgow) and the Association of Estonian cities in May 2006 in Tallinn. Their green vision was translated into a joint Memorandum of Understanding establishing an award to recognise cities that are leading the way with environmentally friendly urban living. The initiative was launched by the European Commission in 2008. Does it make sense to reward cities which are making efforts to improve the urban environment and move towards healthier and sustainable living areas? Progress is its own reward, but the satisfaction involved in winning a European award spurs cities to invest in further efforts and boosts awareness within the city as well as in other cities. The award enables cities to inspire each other and share examples of good practices in situ.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report The overarching message that the award scheme aims to communicate to the local level is that EU citizens have a right to live in healthy urban areas. Cities should therefore strive to improve the quality of life of their citizens and reduce their impact on the global environment. European Green Capital Award The European Green Capital Award (EGCA) rewards local efforts to improve the environment, the economy and the quality of life in cities. Each year the EGCA is given to a city leading the way in environmentally friendly urban living and which can act as a role model to other cities. The European Commission has already selected the following cities as European Green Capitals: Stockholm, 2010; Hamburg, 2011; Vitoria-Gasteiz, 2012; Nantes, 2013; Copenhagen, 2014; Bristol, 2015, and Ljubljana, 2016

Open to smaller cities the European Green Leaf is presented on an annual basis by the European Commission in conjunction with the European Green Capital Award from 2015.

European Green Leaf The European Green Leaf (EGL) is a new competition aimed at cities, with between 50,000 and 100,000 inhabitants, to recognise their achievements in green growth. The recognition is given to a city that demonstrates a good environmental record & green growth commitment; actively seeks to develop citizen’s environmental awareness; and can act as a “green ambassador” to encourage other cities. The European Green Leaf will be awarded on an annual basis by the European Commission in conjunction with the European Green Capital Award from 2015 onwards as a stamp of approval to Smaller Cities, Growing Greener!

The Spanish city of Mollet del Vallès and the Portuguese city of Torres Vedras are the winners of the inaugural European Green Leaf (2015).

Conclusions . No Sustainable transports/No Smart cities = no Green Economy! . Legislation tackles most of urban environmental problems: air quality, greenhouse gases emissions, waste management, water availability, noise, nature protection etc.” . Methodological support can be useful for cities willing to get more sustainable/ ‘smarter’ and ready to share experience (RFSC example); . EU or national funding for demonstration projects has proved useful (SCCI) since innovation is key to cope with the complexity of urban issues; . Investments are required to modify current unsustainable trends in cities, but they will contribute to considerable cost reductions/avoidance; . Awards for smart cities have attracted a lot of attention in the EU and contribute to awareness raising.

Importance for Belarus

What can be concluded for Belarus ? Cities are essential in the development of GE and several major environmental challenges can best be solved through urban systems. The EU experience provides methodology and (national) awards could provide visibility and incentive to cities willing to become Smart Cities. Investments related to sustainable transport are necessary but largely in place for instance in Minsk , others may be needed for Information and Communication Technology. However, behavioural changes of households (for instance energy savings) can also contribute to GE at a limited cost and success stories in the EU could be duplicated at national level in Belarus.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 3. TAX INSTRUMENTS (INDIRECT TAXATION)

Environmental taxation has taken an increasing importance in the EU and other OECD countries. There is indeed a general agreement to consider that environmental taxation is an efficient way to address market failures and to deal with negative externalities of a number of economic activities. This is also a way to encourage producers and consumers to adapt their behaviours, to lower their environmental footprint and to contribute to Green Economy.

The possibility to use environmental taxation in order to reach Environmental Policy objectives appears in EU legislation such as the Water Framework Directive, or the Packaging and Packaging Waste Directive, and contributes to the Polluter Pays Principle.

Environmental taxation has become an item on the agenda of most EU Member States in particular in the light of climate change mitigation, focussing on energy consumption and greenhouse gases emissions. However, indirect taxation remains potentially a tool to modify behaviours influencing a wider range of environmental challenges.

Why taxes may help ‘Taxes on pollution provide clear incentives to polluters to reduce emissions and seek out cleaner alternatives. By placing a direct cost on environmental damage, taxes increase the incentive for firms to reduce such damage in order to reduce their costs and increase their profits. Compared to other policy instruments such as regulations that simply set emission limits or prescribe the use of certain technologies, environmental taxation encourages both the lowest cost abatement across polluters and provides incentives for abatement at each unit of pollution. Taxes also tend to be highly transparent, allowing citizens to clearly see if individual sectors or pollution sources are being favoured over others’. Source: ‘Taxation, Innovation and the Environment: A Policy Brief’, OECD, 2011

Taxation specialists consider that a key challenge for environmental taxation is to put in place an efficient system, well targeted, proportionate with the environmental damage at stake, and consistent with other components of the general tax system in the country.

How to do it?

Environmental tax bases should be targeted to the pollutant or polluting behaviour, with few (if any) exceptions. The scope of an environmental tax should ideally be as broad as the scope of the environmental damage. The tax rate should be commensurate with the environmental damage. The tax must be credible and its rate predictable in order to motivate environmental improvements. Environmental tax revenues can assist fiscal consolidation or help to reduce other taxes. Distributional impacts can, and generally should, be addressed through other policy instruments. Competitiveness concerns need to be carefully assessed; coordination and transitional relief can be effective responses. Clear communication is critical to public acceptance of environmental taxation. Environmental taxes may need to be combined with other policy instruments to address certain issues. Source: ‘Environmental Taxation. A Guide for Policy Makers’, OECD, 2011

In practice, on the basis of data provided by EUROSTAT, it appears that environmental taxation is applied for a relatively limited number of sectors or activities, out of which the (financially) more important are fossil fuels and motor vehicles. Statistics often present 3 types of environmental taxation, related to energy, transports and resources/pollution. Environmental taxation includes also water abstraction, landfill and incineration taxes, pesticides taxes or differentiated VAT rates (for instance on the basis of energy efficiency). 23

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report The 2 tables below (Source: EUROSTAT) give a good synthesis of environmental taxation in the EU in 2013. The total revenue from environmental taxes in the EU-28 in 2013 was € 331 billion, corresponding to 2.5 % of GDP and to 6.3 % of the total revenues derived from all taxes and social contributions (Table 1). From 2006 to 2013, the total environmental tax revenue in the EU increased by 1.6 % per year (at current prices) on average. In 2013, the level of environmental tax revenues was some € 35.5 billion higher than in 2006. However, from 2008 onwards the financial and economic crisis caused a reduction in economic activity in the EU, leading to lower tax receipts in 2008 and 2009. In 2010, environmental tax revenues returned to an upward path. While EU-28 environmental tax revenues increased in value since 2009, the relation of these taxes to GDP and to the total revenue from all taxes and social contributions followed a different pattern. From 2006 to 2008, the ratio of EU-28 environmental tax revenue to GDP remained stable, moving from 2.4 % to 2.3 % since environmental tax revenues rose at a slower pace than overall economic growth. In 2009, the ratio increased again due to a decrease of GDP which was more pronounced than the one for environmental tax revenue. After 2009, the environmental tax revenues relative to GDP remained quite stable, around 2.4 %. Environmental tax revenues as a share of total revenue from taxes and social contributions decreased from 6.4 % to 6.0 % between 2006 and 2008. After a recovery in 2009, the ratio remained close to 6.3 %. When comparing the level of environmental taxation across European countries, differences should be analysed with caution. For instance, low revenues from environmental taxes could signal relatively low environmental tax rates, or could result from high tax rates that have had the effect of changing behavioural patterns of consumption of the related products or activities. On the other hand, higher levels of environmental tax revenue could be due to low tax rates that incentivize non-residents to purchase taxed products across a border (case for petrol or diesel). Energy taxes represent the biggest share of environmental taxation in the EU, ranging from 50% (Malta) to more than 90% in countries such as Lithuania or Luxemburg, with an EU average close to 75% (Table 2). Transport taxes represent less than 25% on average, in spite of higher percentages in countries such as Denmark, Malta, Ireland, or Belgium.

Table 1 : Total environmental tax revenue, 2013 (¹) (%)

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Table 2: Environmental taxes by tax category, 2013 (¹) (% of total environmental taxes)

An interesting study5 about environmental taxation in Northern Europe, has been published in 2014 by researchers from Vilnius. They consider that ‘In the Baltic countries, the most effective measure to increase efficiency and protect the natural resources is the implementation of environmental taxes’. Since all EU countries must comply with EU directives, common patterns of environmental taxation can therefore be found throughout the EU territory such as taxation aiming at the implementation of the Energy Efficiency Directive6, the EU Energy taxation Directive7 and more generally EU policy related to Climate Change. However, significant differences can be identified between environmental taxes in this group of countries. It is partly due to national environmental policy and partly due to tax reforms implemented in countries such as Sweden, Denmark and Germany. It may also be due in some cases to more ambitious goals related to reductions in energy use. Even though a detailed analysis of national environmental taxation system would exceed by large the limits of our work, it is proposed in the current paper to look more closely at some characteristics of green taxation in 3 EU countries. The selected countries are Germany, because it is the biggest economy in the EU, Denmark since taxation in general is particularly important in this country, and Poland, because of its characteristics different from the two other examples (as far as green taxation is concerned) and its geographic situation near Belarus. Germany introduced its basic environmental tax reform between 1999 and 20038, increasing taxes on mineral oil for fuel (diesel and gasoline) by more than 15 Cents per litre compared with 1998, and creating an energy tax (reaching 2, 05 Cents per kwh); taxes on mineral oil for light heating oil, for natural gas, and for liquid gas also increased, and heavy fuel for heat and electricity production were increased up to 25 € per ton. It should be noticed that this reform did not extend to brown and hard coal this energy tax. More recently, the German government adopted in 2008 a German Strategy for Adaptation to Climate Change (DAS ) and a Climate Action Programme 2020 (Cabinet Decision of 3 December 2014), confirming that climate change mitigation is a key driver for indirect taxation policy

5 Environmental Taxes in Northern Europe. The Recent Evolution and Current Status in the Baltic Countries Dovilė Kurtinaitytė-Venediktovienė, Paulo Pereira, Gediminas Černiauskas 6 Official Journal of the European Union, L 315, 14 November 2012 7 Official Journal of the European Union, L 283/51, 31 October 2003 8 Survey of resource efficiency policies in EEA member and cooperating countries. Country profile Germany. EEA, 2011

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report According to the data from the European Commission, in Germany environmental taxes were firmly enlarged in the 1999- 2003 period as a result of the environmental tax reform (from a pre-reform level of 2.1% of GDP to 2.7% in 2003). In the following years, their revenue decreased again to 2.3% of GDP (in 2011), which was slightly below the EU average (2.4%). Positive growing trends are based on some changes of environmental policies made in the EU by national governments during the period till 2013. In the 2002-2011 period, the value of total environmental taxes was € 555. 331 mio. Recently, Germany has introduced a tax on nuclear fuel and a duty on airline tickets for planes leaving from domestic airports. It should be noticed, as confirmed by Table 1, that environmental tax revenue in Germany is very similar to the EU average. Its structure (Table 2.) gives more importance to energy taxation and less to transport and pollution/resources.

The positive impacts on the environmental tax reform in Germany The results show that the ecological tax reform achieves the double objective aimed for: a simultaneous reduction in CO2 emissions and improvement of the employment. During the 5 phases of the ecological tax reform implementation, the economy’s activity as measured using the Gross Domestic Product (GDP) increased up to nearly half a percent point in comparison with the reference scenario without ecological tax reform; subsequently, it gradually returns to the reference level.

The reduction in CO2 emissions when compared to the reference situation amounts to approximately half a percent point during the first year, and develops to a reduction of approximately 2,4 percent or 20 million tons in the year 2003, the point in time up to which tax rates for fuel and electricity increased. After 2003 the emissions continue to decrease gradually, even though from then on no further increases in the taxing of energy were realised. In the year 2010, the reduction in CO2 emissions achieved is around 3 percent; this corresponds approximately to 24 million tonnes of CO2 . When compared with a scenario with no ecological tax reform, the employment situation with the reform is consistently better. The largest effect on employment occurred in 2003, consisting in approximately 250.000 additional jobs. The GDP, whose rate of change is the growth indicator for the completeeconomy, shows a higher level due to the ecological tax reform. After the freezing of theecological tax rates in 2003, it shows a long-term trend towards the reference level. The clearly positive effects on GDP and employment can be attributed to the investments related to energy cost reduction which were carried out in the early stages of the ecological tax reform. Later on, the reduction of salary-related costs – generated through the use of the tax revenues for decreasing pension contributions – gains in importance. This causes a replacement of the production factors capital and energy by the factor work. Source: ‘Effects of Germany’s Ecological Tax Reforms on the Environment, Employment and Technological Innovation’, ECOLOGIC, 2005

Denmark is described by the Institute for Economic and Fiscal Studies as ‘the world most heavily taxed country’. The total tax burden reached 48.5% of the GDP in 2012. Consumption taxes are particularly heavy with a uniform VAT rate of 25%. Even more than Germany, Denmark is a country with a high level of environmental taxation9. The use of economic instruments increased following a first tax reform in 1994. The importance of green taxation was confirmed in the next tax reform of 2009 (known as the Spring Package 2.0) as part of a taxation system aiming also at a reduction of income and labour taxes. The Danish environmental tax system remains having the highest level in the EU with environmental taxes reaching 4.1% of GDP in 2011, slightly below the medium of the period 2000- 2007. The tax system has again been modified in June 2011 (Act 625) and in 2012 (Energy agreement in March, Act 1395 in December). In spite of the lively debate in Denmark about taxation, and the

9 Survey of resource efficiency policies in EEA member and cooperating countries. Country profile Denmark .EEA, 2011 26

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report various changes introduced on a nearly yearly basis, some interesting characteristics of the Danish system can be singled out: a major driver of the energy policy is a target of 100% of renewable energy by 2050 ; a security of supply tax was introduced in 2012 on all fuels, implemented first for fossil fuels; a tax on electricity was also introduced in order to finance renewable energies; taxes on motor vehicles are an important component of the tax system (in particular car registration tax and annual circulation tax increased by 9% in 2012/13); in addition, a broad range of other taxes collected are related to environmentally harmful materials and products (waste, packaging , waste , chemicals) but their global importance remain limited compared with energy and transport taxes. Criticisms have been expressed about changes introduced in a tax system considered as versatile by some experts. Other criticisms focussed on the efficiency of a number of measures such as the tax on NOx emissions (with a dramatic increase from € 0, 67 to €3.35 in 2012) which impact is extremely limited in a country where most NOx particles originate from neighbouring countries, and for which transport benefits from an exemption. Another question is whether the incentive effect of green taxation is or not altered Poland is a country where the ratio of environmental taxation to GDP peaked in 2006-2007 to 2.7% and then remained at 2.6% during 2008 and 2011, a figure very similar to the medium value in the EU. The most remarkable characteristic of the Polish situation is that energy generates more than 85% of the total revenue of environmental taxes10. Taxation of petrol and diesel represent 88% of energy excise revenue, to be compared with electricity (8%), liquefied petroleum gas (3%) and heavy fuel oil (1%). Recently, excise taxes on coal (2012) and natural gas (2013) were introduced in spite of a number of exemptions. Conversely, non-fuel taxes on transport have much less importance in Poland than in other EU countries. Experts consider that there is a lack of environmental consideration in car taxation: no explicit vehicle tax linked to CO2 emissions, no recurrent tax on car ownership, a one-off tax levied on the sale or import of passenger vehicles is the largest source of revenue amongst transport taxes. Another element of transport taxation was introduced in 2011 with an electronic road toll system for vehicles of more than 3.5 tonnes (differentiated on the basis of Euro emissions standards). Tolls also exist on specific sections of the motorway/road Polish network. Taxes (or fees) on pollution and resources are also of minor importance compared with energy based taxation. They apply to CO2 emissions for industrial sectors not covered by the EU Emission Trading System, air pollution, water abstraction and pollution, landfilling and more recently on radioactive waste. Analysts generally consider that the level of taxes and fees of this complex system is not sufficient to reduce significantly negative externalities at stake. Nevertheless some of the amounts collected are usefully spent for ecological purposes via the National Fund for Environmental Protection and Water Management, and its regional branches.

Conclusions

. Environmental taxation is generally considered as a useful instrument contributing to sustainable development and switch to Green Economy; . Environmental taxation reform has been an item on the agenda of most EU countries over the last 25 years; . However, in the EU, environmental taxes remain a limited part of the revenue of total taxes and social contributions (6.3%), reaching in average about 2. 4% of GDP; . The structure of environmental taxes vary between EU countries but taxes on energy largely prevail, and are in average 3 times bigger than taxes on transport; . Since other taxes on pollution and resources represent only a few percentage points, their impact is necessarily marginal; . Germany put in place an Environmental Tax Reform from the 1999 onwards, taking into account both environmental and economic objectives; the main difference between EU average and Germany is the particular importance of energy taxes in this country;

10 Environmental Performance Review. Poland. OECD, 2015 27

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report . The main specificities of the tax system in Denmark is a high level of taxes in general and of environmental taxation in particular, targeting transport to a much higher extent than the EU average; . In Poland, even though no global environmental tax reform was decided, the importance of environmental taxes are not very different from the EU average; energy taxes have a relative importance even higher than in Germany; . The ecological impact of environmental taxation is extremely uneasy to assess; the German example shows however positive impacts both for the environment and the economy.

Importance for Belarus As in most EU countries , many reasons can be found in Belarus to review its current tax structure in order to increase tax on pollution and resource consumption, and reduce taxes which are related to production or wages. Tax reform should therefore be on Belarus agenda as part of its commitment to GE, as a progressive process. However if EU practice was followed, green taxation would remain marginal and would mainly impact energy and transport. Another critical issue is that tax reform may be more difficult when budgetary constraints are implemented.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 4. PRICING POLICIES (WATER/ENERGY)

Environmental policies often refer to the Polluter Pays Principle. This could mean that in the case of water and energy, pricing should reflect not only market conditions but non market costs as well (externalities). In reality pricing policies are more complex since they reflect a wider range of policy concerns, including impacts on competitiveness and employment, or more generally on economic activities.

Background of water pricing in the EU: the usual drivers of water policy are to ensure supply of water with the quantity and the quality expected, as well as to ensure long term objectives such as fight against water scarcity.

In the EU, the main principles and objectives of water policy and management are included in the WFD, Water Framework Directive (Directive 2000/60/EC). This Directive stipulates that Member States should ensure that water-pricing policies provide adequate incentives for users to use water resources efficiently, in line with its environmental objectives.

Member States are invited to take into account the principle of recovery of the costs, having regard to environmental, social and economic effects, as well as the geographic and climatic conditions of the regions affected. It must be underlined that the WFD does not impose to Member States that water pricing reflects full cost recovery (in such a case, operation and maintenance costs, capital costs, opportunity costs, resource costs, social costs, environmental damage costs and long run marginal costs should be considered 11).

At the request of the European Commission, a study12was carried out in order to assess how water management was implemented in the EU. This study reveals inter alia important variations in the level of cost recovery throughout the EU, with highest level of financial cost recovery in non –water stressed Member States. It even appears that one third of the Member States has no tariff for individual abstractions of farmers/irrigators. Lack of appropriate metering needed for volumetric pricing may also be an obstacle to water pricing. Incentive pricing, a concept complementary to cost recovery, is also difficult to implement for several reasons such as the limited share of water prices in overall production costs. Finally, it should be kept in mind, as shown in the Table 3 below, that water price impacts agriculture, manufacturing industry and the energy sector much more than households’ consumption. Water pricing is therefore perceived first as a competitiveness issue, even though this situation may evolve in the context of climate change and increased as water scarcity (as experienced for instance in Spain).

11 See EEB ‘Water Pricing in the EU: A Review ‘, Eva Roth ,2001 12 ‘ The role of water pricing and water allocation in delivering sustainable water use in Europe’, ARCADIS, 2012 29

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Table 3: World water use by sector (2000/2050)

Source: OECD, Environmental outlook baseline, 2007

A question of importance is whether water pricing can succeed or not in reducing water consumption13. Economists consider generally that water consumption is rather inelastic to price variations. However, the EEA singled out an interesting example for household water consumption in Hungary: in new Member States (from Eastern Europe), water prices were heavily subsidized before 1990. During their transition towards market economy and their accession process to the EU, prices increased very significantly, resulting in lower water use. In Hungary, for example, water prices increased 15-fold after subsidies were removed, which led to a reduction in water use during the 1990s of about 50%.

13 Water policy is much wider than Water pricing. For instance, Irish authorities report that 40% of their water supply is lost on leakage. 30

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Table 4: Household water use and price of water in Hungary (Hungarian Forint HUF)

Source : EEA Similarly, in Czech Republic daily water consumption fell from 171 to 116 liters per head between 1989 and 1996 when increased charges were introduced in 1993 to cover operating costs. Water pricing has to cope with a dilemma: on the one hand it can contribute to a more sustainable use of this resource; on the other one, if prices are increased a decision has to be taken about targeting households and/or economic entities. Domestic consumption is a minor part of total consumption and increasing prices for households will have a limited impact in environmental terms. Increasing water prices for economic activities may have a bigger impact on water consumption for agriculture (with likely impact also on its competitiveness and on the structure its production) whereas price elasticity for industry and energy will probably be very low. Even though the Water framework Directive expects all Member States to take into account the principle of cost recovery when deciding about water pricing, the results in practice are very heterogeneous, in spite of a general trend towards higher water prices in real terms throughout Europe (e.g. domestic sector). Most countries use tariffs with fixed and volumetric components.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

Table 5: Water prices across selected cities (per 1000 litres)

The average price of water across many European Cities varies from €0.40 up to €5.75 per 1,000 litres, with an EU average at 1,91 €. Source: Global Water Intelligence Annual Tariff Survey, September 2011.

A good illustration of diverging pricing methods in the EU is given by the Global Water Intelligence Report for domestic water charges14 in 65 selected cities:  Dublin, Cork and Belfast do not charge for water;  Glasgow has a decreasing price structure, the more water you use the less you pay per litre (like a bulk buying discount);  20 cities (mainly located in Greece, Spain, Portugal and Italy) have increasing pricing, so the more you use the more you pay per litre (in general less than the EU average);  the remaining 44 cities (Germany, France and UK) have linear charging schemes, so you pay the same price per litre (in general more than the EU average) regardless of how much you are using. Even more surprising, the report reveals strong divergences within the same country, for instance in Sweden where domestic consumers in Malmo pay €1.03 while those in Gothenburg pay €4.19 per 1000 litres. It is therefore quite clear that in spite of water scarcity in some EU countries and in spite of threats linked to climate change, water pricing has not yet been used on a wide scale to ensure sustainable use of water throughout the EU. Background of energy pricing in the EU: EU is facing rising energy demand, volatile prices, some disruptions to supply and needs to reduce the environmental impact of its energy sector. EU energy policy has therefore 3 main goals: security of supply, competitiveness and sustainability. One important tool for the EU energy policy15 is its current Energy Taxation Directive. Unfortunately analysts agree to conclude that it is outdated in that it does not address the EU’s higher ambitions in

14 ‘Domestic Water Charges in Europe’,Global Water Intelligence,2011 15 Putting a price on greenhouse gases is of paramount importance for climate-change policy but is not dealt with in this report 32

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report energy and climate change policies, and its current scope is incoherent with that of the EU Emission Trading System (ETS) which is biggest international scheme for the trading of greenhouse gas emission allowances. The European Commission has tabled a proposal for a revised Directed which has not been adopted yet16.

What changes will the new proposal bring forward?

Taxes on energy would be split into 2 components: one based on CO2 content and the other based on energy content.

CO2 : A single minimum rate for CO2 emissions (20 €/t CO2) would be introduced for all sectors not covered by the EU ETS. This would provide a carbon price for these sectors of the economy, namely households, transport, smaller businesses and agriculture that are outside the EU ETS. Renewable energy sources would not be subject to this CO2 element. ENERGY: Minimum tax rates for energy would be based on the energy content of a fuel (€/GJ) rather than the volume. This means that a fuel will be taxed on the basis of the amount of energy that it generates, and greater energy efficiency will automatically be rewarded. The energy component of the tax will help to remove current distortions for competing energy sources (e.g. petrol and diesel) and will make taxation fairer for consumers because energy content is more important than volume when it comes to energy consumption. One GJ would be taxed in the same way, regardless of the product producing it.

Both CO2 and energy content elements would be combined to produce the overall rate at which a product is taxed. Member States will be free to set their own rates above the EU minima, and design their own structure for these taxes: for instance, they could decide to only increase the energy-content tax element above the minima and not the CO2 element or the other way round). However, the same rates and structure must then be applied to all fuels used for the same purpose (motor fuels or other fuels). Long transitional periods for the full alignment of taxation of the energy content, until 2023, will leave time for industry to adapt to the new taxation structure.

What is the scope of the proposal? The energy element of the tax would apply to all fuel used for transport and heating. Non-fuel related uses of energy products will remain outside the scope of energy taxation as is currently the case (e.g. in metallurgical processes).

The CO2 element of the tax will complement the emission trading system by applying to sectors that remain outside (transport, households, agriculture and small industries). In this way, all emissions from industrial installations will be subject to one CO2 price signal.

The revised Directive would favour renewable energy sources and encourage the consumption of energy sources emitting less CO2, putting an end to a situation where the most polluting energy sources are, paradoxically, the least taxed and biofuels are amongst heavily taxed energy sources. Since these tax measures are pending, a key question is whether the pricing policy can nevertheless ensure the development and the promotion of renewable energies. Renewable energy can be produced from a wide variety of sources including wind, solar, hydro, tidal, geothermal, and biomass. By using more renewables to meet its energy needs, the EU lowers its dependence on imported fossil fuels and makes its energy production more sustainable. The renewable energy industry also drives technological innovation and employment across Europe. A dramatic increase of production capacity and consumption of renewable energy took place from the late 90s onwards as illustrated by the box below.

16 Tax issues must be agreed unanimously by the 28 EU Member States 33

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Source: Energy policy: Push renewables to spur carbon pricing, G. Wagner et alii, Nature ,2 /9/15 Experts consider that 3 main instruments17 are at the origin of the development of renewable energy in the EU: - Feed-in tariff (FITs): under such a scheme the generator of renewable energy is guaranteed to receive a fixed price per kWh generated or fed into the electricity grid. This tariff covers both the electricity price and the additional support; the level of tariff is set independently of electricity market prices - Feed-in Premium (FIPs) these schemes are similar to FIT, but provide premium payments (e.g. €/MWh) on top of market prices for electricity. Under this scheme, renewable energy

17Renewable Energy tariff-based mechanisms, IRENA, Policy Advice and Capacity Building, November 2012 34

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report generators have two sources of income: one from selling power directly on the electricity market and one from the feed-in premium. - - Auction: Auction schemes are different from FIT or FIP in that only selected generators benefit from the support tariff or premium, and the level of the tariff or premium is based on the prices indicated by the project developers in their offers during the auction process.

FITs have emerged as a particularly effective way of promoting the renewable industry. The technologies that have benefited most from these tariffs are wind and solar power. FITs are being used to promote renewable energy in countries such as Germany, France, Italy, UK, Austria, Netherlands and more. Some Member States, such as Italy or UK, are utilizing both quota obligations and FITs to develop their renewable energy sector.

The examples of Spain and Italy illustrates how FITs and FIPs could contribute to changing the energy mix in the recent years (Germany could have been another example)

Spain put in place a strong policy support from the government thru feed-in-tariffs (FITs) which enabled the growth of the solar photovoltaic market in this country. The Spanish solar photovoltaic market grew at a dramatic pace with the cumulative installed capacity increasing by more than over 300% during the period 2005-2008. In Italy, policy support from the government has been a major driver of the country’s solar photovoltaic market, and has resulted in rapid growth in the number of installations. The introduction of FIPs programs for solar photovoltaic brought rapid growth to the Italian market. However, in Spain and Italy as well, these programs were recently suspended due to budgetary reasons. The European Commission has therefore considered necessary to provide guidance18 to Member States in order to facilitate the implementation of support schemes benefitting to the renewable energy sector.

Guidance for renewables support schemes (summary) The EU adopted guidance for EU countries when designing and reforming renewable energy support schemes. This guidance suggests that: financial support for renewables should be limited to what is necessary and should aim to make renewables competitive in the market support schemes should be flexible and respond to falling production costs. As technologies mature, schemes should be gradually removed. For instance, feed in tariffs should be replaced by feed in premiums and other support instruments that incentivise producers to respond to market developments unannounced or retroactive changes to support schemes should be avoided as they undermine investor confidence and prevent future investment EU countries should take advantage of the renewable energy potential in other countries via cooperation mechanisms. This would keep costs low for consumers and boost investor confidence. Source: European Commission

18‘European Commission guidance for the design of renewables support schemes’,COMMISSION STAFF WORKING DOCUMENT, November 2013

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report A remaining question is whether high energy prices are required in order to limit energy consumption and switch to a Green Economy model Broadly speaking, and depending on exchange rates movements, EU industry pays 3 to 4 times higher gas prices than its competitors in the US, India or Russia. EU industrial electricity prices (before taking account of tax exemptions applicable to energy intensive industries) are more than twice those in the US and Russia, 20% higher than China's but 20% lower than those in Japan (lower US and Russian gas prices have helped bring down their electricity prices). These comparisons probably have a limited significance. A Green Economy model depends on energy consumption per head, on energy efficiency, on energy savings and on the proportion of renewables in the energy mix. The price of energy seems therefore to be one element of a bigger ’Energy package’ and not an environmental performance indicator. Conclusions . In theory, either costs recovery or incentive pricing could be extensively used to favour water savings and long term preservation of this resource; . Given the limited share of domestic consumption, an efficient water pricing policy should target economic activities, in particular agriculture, but also industry and energy sectors; . Effects of price increase depends on price elasticity and this probably makes of agriculture the most vulnerable sector; . The example of water prices in EU cities shows that many other factors interfere with environmental concerns; . Energy price in the EU is part of the EU energy policy designed up to 2050; . The current EU Energy taxation directive is not sufficient for ensuring the development of renewable energies . Renewables have been promoted over more than 10 years thanks to FITs and FIPs . Energy pricing can contribute to Green Economy preferably as part of an Energy package in view of reaching the best possible energy mix

Importance for Belarus

Water pricing, for instance through cost recovery, could certainly be part of Belarus approach to promote GE , but since water scarcity is not a major national concern (contrary to EU countries such as Spain, Greece or Southern Italy), this could hardly be considered as a priority. Energy pricing has more relevance both to promote energy savings and switch towards a wider use of renewable energy. Temporary feed-in-tariffs and feed-in premiums could be efficient tools for these purposes.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 5. PHASING OUT OF ENVIRONMENTALLY HARMFUL SUBSIDIES

The call for the phasing out of environmentally harmful subsidies (EHS) is unanimous within international organisations such as EU, OECD, World Bank, or UN (see in particular the Johannesburg summit in 2002). It also seems a common sense issue, when considering a switch to Green Economy, to phase out environmentally harmful subsidies. The first step is to identify them19. This can be done by establishing a list, something which has been done for instance by the Institute for European Environmental Policy (IEEP) and other experts:  Subsidies to non-renewable energies (out of which nuclear, coal, lignite, fossil fuel-based electricity production)  Subsidies to non-sustainable transports (out of which road and aviation)  Subsidies to energy intensive or water intensive industries  Subsidies for natural resources through non full cost recovery and where resource costs are not taken into account properly (notably water).

It could be argued that this kind of list is necessarily too narrow and should be extended for instance to all subsidies benefiting to companies which do not use environmentally friendly technologies and processes. It could also be argued that any subsidy could become environmentally harmful depending on the location of the subsidised project (for instance near a protected area, or if it creates damages in an urban environment). Experts underline that subsidies – including EHS – can take many different forms beyond grants. According to IEEP, they include: • Direct transfers of funds (e.g. coal mining subsidies); • Potential direct transfers of funds (e.g. limited liability for nuclear accidents and oil spills); • Provision of goods or services including specific infrastructure (e.g. a road servicing a single mine or factory); • Provision of general infrastructure (e.g. a highway); • Income or price support (e.g. price premiums for electricity from waste incineration); • Foregone government revenues from tax credits, exemptions and rebates (e.g. from excise duty for fuels, favourable tax treatment of company cars); • Preferential market access, regulatory support mechanisms and selective exemptions from government standards (e.g. feed-in tariffs); • Implicit income transfers from the lack of full cost pricing (e.g. under-pricing leading to incomplete coverage of drinking water costs, charging for road infrastructure); • Lack of full resource pricing (e.g. absence of charges or fees on rock extraction), and • Non-internalisation of externalities (e.g. damage to ecosystems from bottom trawling and dredging). Another approach has been developed by OECD which has tabled a methodology based on 3 tools, a ‘quick scan’, a ‘checklist’ and an ‘integrated assessment framework’ as summarised in the box below.

19 The current report deliberately ignores subsidies to agriculture and fisheries in spite of their high importance both from a financial and environmental viewpoint. 37

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

Tools for the identification of environmental harmful subsidies Three tools have been developed by the OECD to allow the identification and assessment of EHS (Valsecchi et al., 2009): ‘Quick scan’: the quick scan (OECD, 1998) inter alia shows that there is no direct linkage between the amount of and nature of support and the environmental impact; ‘Checklist’: the ‘quick scan’ approach was developed further with the ‘checklist’ (OECD, 2005) which enables governments to assess whether, given the circumstances, removal of a subsidy will benefit the environment; ‘Integrated assessment framework’: the ‘integrated assessment framework’ (OECD, 2007) includes a sustainability perspective and ensures that social and economic tradeoffs are included in the assessment. This Chapter provides a brief overview of the aims and structure of the three OECD tools. In summary, the main strengths of the OECD tools are the following, i.e. they: Are effective initial screening tools; Avoid the resource intensiveness / rigidities of general equilibrium models or cost benefit analysis; Can be applied at different levels of detail; Identify and un-bundle linkages; Highlight areas where further detailed empirical analysis is required; Prioritise EHS reform on the basis of benefits of removal; Are applicable to all sectors and to all subsidy types. The ‘quick scan’ is useful for the identification of subsidies following the classification provided and allows an understanding of their impacts on the environment, however it requires modelling. The ‘checklist’ is an efficient approach to identify whether subsidy removal is likely to benefit the environment and could be applied on its own, however it ignores potential synergies between impacts in the social and economic areas. The ‘integrated assessment’ provides a wealth of additional information and takes the assessment further into considering alternative policies, cost-effectiveness and possible scenarios of reform, thereby creating a stronger basis for embarking on any reform process. Likewise, the EEA has developed several sectoral sets of indicators that support the assessment of the link between subsidies and the environment. The indicators listed below provide the framework to assess the environmental performance of each sector, which thereby supports the task of identifying and assessing EHS. Current reporting frameworks include indicators for the agricultural, transport and energy sectors.

In spite of the important work done on methodology for years, the phasing out of EHS remains fragmented, limited and disappointing. Transparency is very insufficient, no comprehensive inventory has been made, and only estimates can be established, mainly based on work carried out at international level. However, the figures available are sufficient to conclude that EHS are not a minor or marginal phenomenon, and amounts at stake are very high.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Taking the example of subsidies for fossil fuels IEEP experts conclude: ‘The value of budgetary support and tax expenditures for fossil fuel production and consumption in 24 OECD countries is estimated to be approx. between € 34 billion and €56 billion per year during 2005-2011. According to the latest figures from the World Watch Institute, the total value of global fossil fuel subsidies in 2012 is estimated to be approx. between € 605 and € 780 billion. In comparison, total subsidies for renewable energy stood in 2010 at approx. € 50 billion’20.

Rationale for phasing out EHS: The ‘triple dividend’ The expression ‘triple dividend’, used for the first time in Pearce (1991), explains how eliminating or reducing a subsidy that has a negative impact on the environment might have three kinds of associated gains: Eliminating or reducing such a subsidy would result in environmental gains (first dividend); Following the consequent reduction in the amount of public resources associated with the subsidy, the distortion in the tax system is also expected to decrease. This should generate a welfare improvement (second dividend); The tax cut so achieved would bring further welfare gains in the future by allowing a better allocation of resources in the economy (third dividend).

Source: IEEP Some EU Member States have devoted energy and efforts in order to progress in view of phasing out EHS. Two examples are detailed below. The first example relates to Germany where interesting results are available, first of all for transparency. According to a study21 published in 2010, nearly €42 billion of state aid were provided at the expense of the environment in Germany (2006). The transport sector - especially because of the tax exemptions for aviation - ranks first with €19.6 billion (exemption of kerosene from energy tax, energy tax reduction for diesel fuel, distance-based income tax reductions for commuters), followed by energy with €11.6 billion (free allocation for CO2 emissions trading allowances, coal subsidies) and the construction and housing sector (home ownership grant) with over €10 billion. Moreover, authors explain that in some cases it has not been possible to quantify the environmentally harmful component of the subsidies, for example in the field of regional assistance, which means that the total volume estimated only indicates a lower limit. This study also proposes a method for controlling EHS thru 3 different steps: • Subsidy screening (to identify all explicit and implicit subsidies which may be harmful to the environment and set priorities for further analysis of the elements of the subsidy) • Subsidy assessment (in-depth analysis of subsidies which are potentially harmful to the environment - both with regard to their environmental impacts and with regard to the question of whether their main purpose is still up to date and whether the relevant subsidy achieves this purpose efficiently)

20 ‘STUDY SUPPORTING THE PHASING OUT OF ENVIRONMENTALLY HARMFUL SUBSIDIES’, IEEP, October 2012 21 ‘Environmentally harmful subsidies in Germany’, Federal Environment Agency, 2010 39

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

• Subsidy steering ( proposals for the abolition or reform of environmentally harmful subsidies and thereby paving the way for political decisions in the interests of an effective, efficient and environmentally sound subsidy policy. The second example relates to the Netherlands where another relevant study22 on EHS was published in 2011. In this country EHS amounted to a total of between € 5 and 10 billion (specifically found in the energy, transport and agriculture sectors), a number coherent with the results of the German study given the difference in size of these two economies. Authors explain that a more precise number is difficult to derive, as this strongly depends on varying criteria and methods of calculation. An interesting aspect of the study is to differentiate amongst EHS those which could be phased out nationally (e.g. tax rebates on commuter transportation by private and company vehicles, Lower tariffs for energy used in greenhouse horticulture and those for which phasing out in the EU context would be more effective (e.g. VAT exemption for air tickets, exemptions on excise duty and VAT on shipping).

Opportunities for phasing out of EHS in the EU forestry sector Forestry European forests are important for the preservation of European biodiversity. Although forestry policy falls within the responsibility of Member States, the EU has adopted certain measures in this area such as inter alia the EU Forest Action Plan (FAP), a Regulation laying down the obligations of operators who place timber and timber products on the market, and provides funding for forest- environment measures and for the protection of Natura 2000 forest areas. The EU also has a commitment to halt biodiversity loss and the degradation of ecosystem services in Europe by 2020. Certain subsidies to the forestry sector reduce the probability of reaching this target. For example, previous subsidies to improve forestry on peat land in Finland aimed at increasing the economic yields of forestry, could lead to significant impacts on biodiversity and ecosystem services due to associated peatland drainage. This subsidy has subsequently been reformed. Support for reforestation and afforestation in France through exemption from property land taxes on non-built land may favour the establishment of plantations in biodiversity-rich lands such as wetlands. The Water Framework Directive, Habitats Directive and Birds Directive at the European level and commitments under the Convention of Biological Diversity (CBD) provide a favourable environment for wetland protection and could be used as further justification for reform of such subsidies.

Source: ‘STUDY SUPPORTING THE PHASING OUT OF ENVIRONMENTALLY HARMFUL SUBSIDIES‘, IEEP, October 2012 In spite of clear intentions to eliminate EHS with the reasoning that they have a negative impact on environment (sometimes on public health as well) and on public finances, phasing out of these subsidies does not take place at the expected speed and with the expected magnitude. Referring to an ‘addiction to subsidies’, some experts23 have identified three types of obstacles (economic/social, political and institutional) that hamper the removal of EHS:  economic/social barriers are the result of rent-seeking behaviour and of high adjustment costs. The subsidisation of an activity often induces the beneficiary to increase its production and its investment in order to maximize its benefit, making him dependent on this subsidy. The removal of the subsidy may then have important adjustment costs. Moreover, the

22 PBL Note ‘ Environmentally harmful subsidies’ Eric Drissen et alii, 2011 23‘ Public subsidies and policy failures: how subsidies distort the natural environment, equity and trade, and how to reform them’, Cees Van Beers and André De Moor, 2001 , ‘Obstacles to phasing out environmentally harmful subsidies and how they can be overcome’ Sirini Withana, IEEP, 2013 40

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report removal of subsidies might also have –at least in the short term-negative effects on international competitiveness and on employment, and create social concerns  political barriers arise in particular when rent-seeking behaviour leads to the consolidation of lobbies, with a culture of ‘entitlement, that will oppose or delay reforms. A subsidy reform makes visible the losers (the beneficiaries), but does not clearly identify all the potential winners and positive externalities;  institutional and governance barriers are often linked to governments attempts to get political support from the lobbying groups trying to earmark ‘their’ subsidies; another governance difficulty is due to lack of transparency, and poor awareness of long term effects of EHS. However, many countries are currently confronted with budgetary constraints and high public deficits. Taking also into account the advantages of shifting the tax burden from welfare-negative taxes (e.g. on labour or consumption) to welfare-positive taxes (e.g. on pollution), a window of opportunity may exist for jointly phasing out EHS and alleviating overburdened budgets. Experts tend to consider that removal of EHS should be part of a more general review of tax and other economic incentives. Conclusions . Identification of EHS is a difficult task but appropriate methodologies are available; . A serious lack of transparency makes statistics on EHS fragmented and disappointing; . The amount of EHS can be estimated to €42 billion in a country such as Germany, and between € 5 and 10 billion in a country such as Netherlands; . Amongst sectors benefitting from EHS transport and energy rank very high; . Many obstacles (economic, political and institutional) keep on delaying the phasing out of EHS; . The budgetary situation of many countries should hopefully facilitate a reform of tax systems including EHS.

Importance for Belarus

The phasing out of environmentally harmful subsidies could be based on a national survey and inventory inspired by international methodologies. The following steps would be to decide which subsidies should be targeted and which timing would be most appropriate for their phasing out. These measures can positively contribute to improving public accounts, but resistance can be expected in Belarus as in other countries from the social groups currently benefitting from EHS.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 6. VOLUNTARY AGREEMENTS INVOLVING INDUSTRY

There is no standard definition24 of ‘environmental agreements‘, which are also known as ‘voluntary agreements’, ‘negotiated agreements’ or ‘covenants’. Environmental voluntary agreements (EVAs) are generally presented as an alternative or a complement to traditional policy instruments, in particular to legislation. They could also be a way to implement legislation. They are usually considered as ‘soft policy instruments’. Preparation, drafting, adoption, implementation and enforcement of binding legislation (Regulations or Directives at the EU level) are definitely time-consuming. EVAs, resulting from a co-operation process rather than confrontation, maybe more efficient thanks to easier implementation and greater sense of ownership by stakeholders. They could in this way ensure that environmental policy targets are reached with better cost effectiveness. At the same time, for economic operators a threat of regulation may be the overriding reason for initiating and entering an EVA. The European Commission prepared guidelines (1996) on the effective use of Environmental Agreements and a Communication in 200225. Guidelines aimed to increase the transparency and credibility of such agreements - in particular through publication of the agreements, the setting of clear targets, and reliable monitoring. The golden age of EVAs at EU level was probably at the end of the 90s. However, this instrument is broadly used amongst EU Member states (by 1996 more than 300 EVAs had been concluded at the national level in the EU) but in an uneven way, reflecting different approaches of partnership between public authorities and industry. Countries such as Germany or Netherlands seem to be those who have developed most widely the use of EVAs. In Nordic countries26, Denmark and Sweden are clearly the frontrunners. A short typology The Communication of 2002, highlights the potential cost-effectiveness and flexibility as the main positive aspects of voluntary agreements. It states that industry's willingness to act proactively should be strongly encouraged and supported. Three possible types of agreements at EU level are identified:

 Own-initiative: Industry's takes an initiative in an area where the European Commission has no intention to propose legislation. The agreement can nevertheless be endorsed by the Commission through a formal recognition.  Self-regulation: Industry might react in a field where there may potentially be future legislation. The agreement can be acknowledged by a Commission Recommendation, and additional monitoring obligations can be added by a Decision of the European Parliament (see

below the agreements with the car industry to reduce CO2 emissions). The only sanction existing is the threat of future legislation.  Co-regulation: If the Commission believes an area needs legislation, it can chose to use a stricter form of environment agreement, where the Council and the European Parliament set the targets and monitoring requirements, while the industry decides what measures to take and how.

24 ‘Environmental agreements. Environmental Effectiveness’, EEA, 1997 25 Communication from the Commission on Environmental Agreements at Community Level within the Framework of the Action Plan on the "Simplification and Improvement of the Regulatory Environment, COM(2002) 412 final, 17 July 2002 26 ‘Voluntary Agreements and Environmental Labelling in the Nordic Countries’ Bjørn Bauer and Rikke Fischer-Bogason, 2011 42

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report In addition to the form of the agreement, there are also other aspects that should be considered when concluding an agreement:  Agreements should aim at a high level of environmental protection, and they must set ambitious targets beyond "business as usual".  The agreements should comply with EU internal market and competition rules.  Trade aspects should be considered when concluding agreements.  The Aarhus convention should be applied (Information should be made available on the negotiations and public participation in decision making should be ensured)  Appropriate monitoring and reporting systems should be in place.

The good use of EVAs Where? When? EAs are most suitable for: • pro-active industries or businesses • small number of partners or high organisation level of signatory partners • production of goods (i.e. industry) • sectors which have matured and face limited competition (i.e. where there are few opportunities for 'free riders') • environmental problems of limited scale (national and regional environmental problems) • limited number of sources of pollution • long-term targets (early signal). How? Implementation is more effective when: • clear targets are set prior to the agreement • the agreement specifies the baseline against which improvements will be measured • the agreement specifies reliable and clear monitoring and reporting mechanisms • technical solutions are available in order to reach the agreed target • the costs of complying with the EA are limited and are relatively similar for all members of the target group • third parties are involved in the design and application of EAs. Source: Adapted from EEA This report will present a few examples of EVAs with different characteristics: • The C02 EVA with the car industry (ACEA, JAMA, KAMA)

In 1998-99, to control greenhouse gas (GHG) emissions from the car sector, the European Commission signed voluntary agreements with the automotive industry to reduce its CO2 emissions.

Three agreements were signed in 1998-99, with the following associations representing about 90% of vehicle sales on the EU market:

 ACEA—European Automobile Manufacturers Association  JAMA—Japanese Automobile Manufacturers Association  KAMA—Korean Automobile Manufacturers Association

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

The agreements defined fleet-average CO2 emission targets from new cars sold in the EU, to be reached collectively by the members of each association. Carbon dioxide was the only gas covered by the agreements.

In March 1998, ACEA and the European Commission signed an agreement with the following targets:

 CO2 emission target of 140 g/km to be reached by 2008 (this target represented a 25% reduction from the 1995 level of 186 g/km);

 Possibility to extend the agreement to 120 g CO2/km by 2012;

 Intermediate target range of 165-170 g CO2/km by 2003;  Individual ACEA members to introduce models of 120 g CO2/km or less by 2000.

The limits applied to the collective ACEA members’ fleet of new passenger cars produced or imported into the EU (figures were slightly different for JAMA and KAMA). The Commission and the automobile industry will jointly monitor the commitments of the latter.

The emission targets were to be met through technological progress leading to increased fuel economy. The European Commission estimated that the compliant fleet of passenger cars in 2008/09 would consume on average about 5.8 l gasoline/100 km or 5.25 l diesel/100 km.

CO2 Reduction from Passenger Vehicles under ACEA Agreement

Source: Diesel Net

In spite of the significant CO2 emission reductions achieved in the initial years and a 5% drop recorded in 2009 (partly due to economic recession), none of the 3 associations was able to reach the 140 g/km target by 2008/09:

ACEA : 145, 1 JAMA : 142,6 KAMA : 141,8

27 In 2009, the voluntary agreements were replaced by mandatory CO2 emission regulations from new passenger vehicles.

There are nevertheless positive aspects in the implementation of this EVA:

27 Regulation 443/2009/EC 44

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

 reduced CO2 emissions, with obvious net benefits for the environment, and for consumers (experts concluded there would be net end-users benefit per year of €587,9 mio28);  technological progress;  common approach followed simultaneously by ACEA, JAMA and KAMA;  incentive for consumers to buy fuel-efficient cars. This leads to very strong interactions with consumer oriented policies like eco-taxes (e.g. Germany) or subsidies for energy efficient cars (e.g. The Netherlands). NGOs (WWF, European Environmental Bureau) expressed criticisms about this initiative, referring inter alia to lack of ambition, lengthy negotiations (the negotiation process was probably not much shorter than the process of a regulation would have been), lack of transparency of the process and absence of any explicit burden sharing between companies. The Czech voluntary agreement on laundry detergents Phosphates, which are used in powdered detergents to soften hard water, can contribute to a number of environmental problems (eutrophication, quality of surface waters, decrease of biodiversity). The EU had no single legislation regarding phosphates in laundry detergents until 2004. Ten years before, in the Czech Republic, the 5 main companies of this sector (covering 90% of the Czech market), through their association CSPDA (Czech Soap and Detergent Products Association) put in place a voluntary agreement on the gradual reduction of phosphates in laundry detergents to 5.5%, the promotion of compact detergents (considered as more environment friendly) and a corresponding information of the public. Interestingly, this agreement signed in 1995 (and then amended in 1998 and 2001) took the form of a contract involving CSPDA and the Ministry of Environment , as well as two NGOs (‘Rosa’ and ‘Veronika’) and the Chemical and Technology College (Prague) participating to monitoring activities Figures29 show that between 1994 and 2003, phosphates released from laundry detergents in Czech Republic decreased from 11 600 t/y to 5065 t/y. However, CSPDA lost a significant market share at the end of this period with one important company becoming a “free rider” and leaving the association. CSPDA member companies then offered on the market compact, phosphate-free, as well as phosphate containing detergents. In the year 2003, 36.6% of the overall amount of detergents produced by the Association members sold were phosphate-free laundry detergents. Since the 1st of January 2005 members of the Association do not sell laundry detergents containing phosphates. Most analysts consider that this Czech EVA had globally a positive impact, and is an interesting example because of its timing (before the first attempts to regulate this issue at EU level30), its functioning (monitoring involving NGOs and Academics) and the significant results obtained. In the absence of legislation, this example confirms that good results can be obtained thanks to companies able to anticipate changes necessary for the sake of the environment.

It should be noted, however, that even in a clearly oligopolistic market, the main difficulty in the implementation of this EVA was the emergence of a free- rider.The EU PVC industry voluntary commitment Often criticised by environmentalists for its impact on waste flows (and its contribution in particular to marine pollution), the Plastic industry is well aware in the EU of the need to improve its public image and its environmental record.

28 ‘EVALUATION OF THE ACEA AGREEMENT’, Daniel Bongardt and Kristina Kebeck, ECOFYS , 2006 29See ‘RECOMMENDATIONS FOR THE REDUCTION OF PHOSPHORUS IN DETERGENTS’UNDP/GEF, November 2006 and ‘Review of voluntary approaches in the EU: Feasibility study on demonstration of voluntary approaches for industrial environmental management in China’, Dalkmann et alli, Wuppertal Institute for Climate, Environment and Energy, 2005

30The European Commission published in November 2010 a draft Regulation in order to uniformly limit phosphorous containing compounds in laundry detergents to 0.5 percent of weight as of January 2013. 45

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Vinyl 2010 was the first Voluntary Commitment of the PVC Industry launched in 2000. It shaped a 10- year programme to move the PVC industry towards sustainability by focusing on:

• Minimising the environmental impact of production • Promoting the responsible use of additives • Supporting collection and recycling schemes • Encouraging a dialogue amongst all the industry's stakeholders

Building on the experience of Vinyl 2010, the European PVC industry is committed to setting new sustainability targets for the future. VinylPlus (2011/2020) is presented as a voluntary sustainable development programme of the European PVC industry. It aims at creating a long-term sustainability framework for the entire PVC value chain. The Voluntary Commitment signed by 4 business associations and a number of representatives from different PVC converting sectors. Five key challenges have been identified for PVC.

1 “controlled-loop management” of PVC targets are:  800 000 tonnes/year of PVC recycled by 2020 (out of which 100 000 tonnes/year of difficult- to-recycle PVC thanks to innovative technology)  Exact definitions and reporting concept available (by end 2011)  Commitment to address the issue of legacy additives (yearly status report) 2 “Organochlorine Emissions” targets are:  Discussion with external stakeholders on organochlorine emissions (2012)  Adopt a plan to deal with stakeholders concerns on organochlorine emissions by end 2012  Compliance with the PVC Resin Industry Production Charters (first quarter of 2012)  Risk assessment for the transportation of major raw materials (VCM in particular) by end 2013  Targeting a zero accident rate for Vinyl Chloride Monomer release during transportation 3 “Responsible use of additives”  Lead replacement by end 2015 in EU 27  Robust criteria to be developed for the sustainable use of additives (end 2012)  Validation of these criteria in conjunction with the downstream value chain (2014) 4 “Sustainable energy and climate stability” targets are:  Energy efficiency Task Force (EETF) to be established (end 2011)  PVC resin producers to reduce their specific energy consumption (targeting 20% by 2020)  Define targets for specific energy reduction for converters by end 2012  EETF to recommend suitable environmental footprint measurement (end 2014)  Renewable Materials Task Force (RMTF) to be established by (end 1st quarter 2012)  RMTF ‘status report by end 2012 5 “Sustainability awareness” targets include:

 VinylPlus web portal to go online in summer 2011.  A public, and independently audited, VinylPlus Progress Report will be published annually and proactively promoted to key stakeholders. The first edition will be published in 2012.  VinylPlus will increase the number of participants by 20%, compared with 2010 by end 2013.  VinylPlus sustainability principles will actively be promoted to the markets outside the EU-28.  A review of progress towards the globalisation of the approach will be undertaken by end 2015.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report The last Progress Report (2015) published interesting results such as  481,018 tonnes of PVC waste recycled in 2014, VinylPlus continues to progress toward its 2020 recycling targets.  Over the 2007-2014 period, use of lead-based stabilisers decreased by 86,228 tonnes (-86%) in the EU-28.  The Task Force developed a new methodology to evaluate the use of substances utilised as additives in PVC products from the perspective of sustainable development  In 2014, 10.2% decrease (average) in the energy used per tonne of PVC (2007-2008 baseline), in line with the target of a 20% reduction by 2020.

Even though the degree of ambition of this voluntary commitment could be debated, this seems in any case a clearly positive step of the EU PVC industry towards Green Economy. The EU voluntary agreement on mercury storage Mercury and its compounds (such as methylmercury) are highly toxic to humans, animals and ecosystems, as recognised internationally31. The EU adopted in 2008 a Regulation banning all exports of mercury with effect from March 201132. This legislation also called for mercury that is no longer used in the chlor-alkali industry or produced in other major industrial activities to be safely stored. EuroChlor (a business association representing chlor-alkali producers in the EU and EFTA countries) has agreed to go beyond the requirements of the legislation. Thanks to the EVA, surplus mercury (several thousand tonnes of mercury are at stake) is removed from decommissioned chlorine plants, transported in approved steel containers and preferably stored in deep underground salt mines where there is no humidity nor possibility of corrosion. This EVA was the first one to be acknowledged by the European Commission in December 2008. Conclusions . EVAs can bring a positive contribution to Green Economy . Their level of ambition must be checked carefully . EVAs are better fit for sectors with relatively few large producers than in fragmented industries . Industries willing to improve their image are better candidates for EVAs . Combination with other instruments (including legislation) has to be considered . The example of the car industry shows that involving third countries is the right approach . The example of the laundry detergents (Czech Republic) confirms that legislation may be appropriate if free riders emerge . The example of mercury shows that EVAs may contribute to legislation implementation.

Importance for Belarus EVAs have nearly no cost for public authorities and can be used preferably in oligopolistic sectors currently responsible for levels of pollution considered as contrary to environment or health policies. This instrument can usually be put in place more rapidly than legislation, and can bring good results if objectives are ambitious enough and if monitoring is implemented by public authorities. It could be interesting for Belarus to list sectors and environmental objectives were EVAs could contribute to GE.

31 See in particular the Minamata Convention,2013 32 REGULATION 1102/2008/EC on the banning of exports of metallic mercury and certain mercury compounds and mixtures and the safe storage of metallic mercury, 22 October 2008

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 7. VOLUNTARY AGREEMENTS INVOLVING LOCAL AUTHORITIES

Voluntary initiatives are not exclusively implemented by companies. Cities, or more generally local authorities, can and do contribute to Green Economy by taking voluntary commitments in a variety of domains such as CO2 emissions, renewable energy, waste management and more. The current section will present two voluntary initiatives taken by local authorities. Local authorities have a major responsibility in dealing with mobility issues. It is proposed to refer briefly in this report to the CIVITAS programme. CIVITAS is an EU platform for the exchange of ideas and experiences among decision makers, technical experts and practitioners. CIVITAS projects are based on partnerships involving "lead" and "learning" cities which have already invested effort in urban mobility planning. The cities collaborate closely in implementing similar measures under different conditions. CIVITAS has repeatedly demonstrated how the success of measures is very dependent on securing political support and especially the full engagement of citizens – leading to a sense of shared ownership and civic pride. Currently more than 200 cities across 31 countries (beyond the EU, such as Israel, Serbia or Switzerland) regularly share knowledge, solutions and results within the CIVITAS Forum Network. By signing a non-binding voluntary agreement known as the CIVITAS Declaration, any European city can join this community and benefit from the accumulated know-how and experience of other participants. Study tours and targeted trainings, among other events, encourage face-to-face interactions. CIVITAS cities take an integrated and participatory approach that addresses all modes and aspects of transportation in urban environments. Each city implements a set of mobility solutions to address their particular local priorities and issues. The activities form an integral part of a city’s long term mobility planning. The following building blocks of the CIVITAS Initiative provide a planning framework, guarantee political involvement and establish strategic partnerships:  Clean fuels and vehicles help reduce local air pollution, particulate matter, greenhouse gas emissions and noise. CIVITAS cities test biodiesel, biogas, and compressed natural gas vehicles, as well as hybrid and e-vehicles;  Collective passenger transport must offer an accessible service that is a fast, comfortable, safe and convenient alternative to a private car;  Demand management strategies such as access restrictions, road pricing, parking policies, marketing campaigns and corporate mobility plans contribute to reducing traffic and pollution;  Mobility management helps create a new mobility culture through activities such as marketing, communication, education and information campaigns;  Safety and security must be ensured for urban travellers, especially cyclists, pedestrians and other vulnerable groups;  Car-independent lifestyles can be fostered through modern information technologies, safe and secure infrastructure, bike rentals, car-pooling, car-sharing;  Urban freight logistics should be managed to minimise the negative impacts on people’s lives. CIVITAS cities encourage the use of cleaner freight vehicles and innovative goods distribution;  Transport telematics systems offer opportunities to help passengers make informed choices and render urban transport faster and more efficient;  Sustainable Urban Mobility Plans offer a fully-fledged approach to sustainable plans in order to contribute to long term mobility planning. The CIVITAS MIMOSA initiative shows how in practice an international cooperation can be profitable for all cities involved (a similar approach could also take place at national level).

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report CIVITAS MIMOSA is an innovative collaboration among the cities of Bologna (Italy), Funchal (Portugal), Gdansk (Poland), Tallinn (Estonia), and Utrecht (Netherlands). MIMOSA is short for motto of the project: “Making Innovation in MObility and Sustainable Actions”. The five MIMOSA cities joined forces to “learn how to move better, to live in better cities”. The MIMOSA cities are rather diverse in their physical, climatic and cultural conditions that come with a geographic spread from the Baltic north-east to the far Atlantic south-west. They had however a common concern about urban transport. The MIMOSA cities’ priorities were to improve the quality of life and stimulate healthier lifestyles, improve environmental conditions, reduce congestion, increase energy efficiency, security and safety. All this is to be attained without compromising but ideally improving the mobility of citizens. CIVITAS MIMOSA cities discovered that they suffer from different problems related to similar measures, or they found that other cities have already found solutions on similar problems. Issues of particular importance were sustainable mobility, the promotion of cleaner vehicles and fuels, attracting new passengers to public transport modes, reducing congestion through access restrictions, road and parking management, and promoting more energy-efficient and sustainable car usage, such as car sharing. Innovative telematics systems were installed to improve safety and security conditions, and technological solutions were sought to optimise passenger and goods traffic management. Communication with citizens and involvement of the whole community was a central pillar of the project. Cutting-edge marketing, communication and information tools to reach and involve citizens, schools, companies and institutions formed an essential part of the work in the MIMOSA cities. Innovation has to be considered against the social, economic and geographic context of the city. Gdansk and Tallinn have inherited command-led economic systems where the customer was often the last to be considered. Both cities have shown significant desire to reverse this and increase communication and liaison with citizens. Funchal was isolated and did not have a mind-set oriented towards change. CIVITAS MIMOSA provided the platform for new thinking. Bologna and Utrecht have different challenges borne of their already advanced stages of development where innovation and problem-solving were arguably even more difficult. The whole project was inspired by the concept of integration. The integration theme created joint discussion platforms for the evaluation of impacts, the awareness raising and communication campaigns and the policy assessment. Another integration level relates to the synergies created by the measures. The five cities invested quite some time in identifying the areas where they expected to give and receive know-how. This exercise produced interesting results, such as actual joint development of projects. For example Utrecht and Bologna worked together on the measures concerning city-freight and low-emission zones, where Utrecht developed an integrated traffic management system. This offered an opportunity for the cities of Utrecht, Funchal and Bologna to exchange experiences and know-how, to investigate the best alternatives, work out technical necessities, and monitor the results of cleaner buses on air-quality. The Covenant of Mayors After the adoption, in 2008, of the EU Climate and Energy Package, the European Commission launched the Covenant of Mayors to endorse and support the efforts deployed by local authorities implementing sustainable energy policies. Indeed, local governments are key players for climate change mitigation, all the more so when considering that 80% of energy consumption and CO2 emissions is associated with urban activity. The Covenant of Mayors has been portrayed by European institutions as an exceptional model of multi-level governance. In order to translate their political commitment into concrete measures and projects, Covenant signatories notably undertake to prepare a Baseline Emission Inventory and submit, within the year following their signature, a Sustainable Energy Action Plan outlining the key actions they plan to undertake.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Beyond energy savings, the results of signatories’ actions are manifold: creation of skilled and stable jobs, not subject to delocalisation; healthier environment and quality of life; enhanced economic competitiveness and greater energy independence. These actions serve as examples for others to follow, notably through referring to the “Benchmarks of Excellence”, a database of best practices submitted by Covenant signatories. The Catalogue of Sustainable Energy Action Plans is another such unique source of inspiration, as it shows at a glance the ambitious objectives set by other signatories and the key measures they have identified to reach them. An increasing number of municipalities are showing the political will to sign up to the Covenant. However they do not always have the financial and technical resources to live up to their commitments. Support is provided at various levels by public administrations and networks which are in a position to assist signatories.

Covenant of Mayors progress in Polotsk, Belarus The Belarusian city of Polotsk is the first in the country to have joined the Covenant of Mayors and a lot has already happened since the signature in September 2011. LED street lights were installed in the main avenue of the city in June 2012 as part of a pilot phase launched in the framework of the international conference “From the Energy Efficient Building to the Energy Efficient City!” held on in Polotsk. On this occasion, which was the closing event of the SURE project, aimed at introducing and consolidating the Covenant of Mayors in the ENPI region, Polotsk shared its experience with counterparts from Belarus, Ukraine, Moldova, Georgia, Armenia, and Azerbaijan. As a result, two Belarusian cities, Novogrudok and Oshmyany, have expressed interest in joining the Covenant of Mayors community. That same week, the city also organised a series of innovative awareness-raising activities, including a bike tour under the slogan “Let’s make our Polotsk a green city!”, the award of a discount and free energy efficient light bulb to everyone buying a class A household appliance in major Polotsk department stores, lessons on energy saving in school summer camps, open door days at city plants, an exhibition of energy efficient equipment and so forth. These activities were held as part of Polotsk’s participation in the 2012 EU Sustainable Energy Week. It is quite encouraging to note that 10 cities in Belarus, following the commitment taken by Polotsk, are taking part in this initiative, several of them having already submitted their action plan.

CITIES POPULATION SIGNATURE STAGE

SCITIESC Population n Statu

Ashmyany, BY 31,872 8 May 2012

Chavusy, BY 10,692 13 Mar 2014

Ivie, BY 7,986 30 Dec 2014

Kobryn, BY 52,489 28 Nov 2014

Molodechno, BY 141,521 14 May 2014

Novogrudok, BY 30,700 25 Jan 2013

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report

Polotsk, BY 82,800 23 Sep 2011

Pukhovichi district, BY 66,700 11 Jul 2014

Rogachev, BY 59,700 20 Apr 2012

Braslav, BY 29,000 5 Feb 2014

3 stages = signature / action plan submitted / results monitored

Conclusions Local authorities may contribute to Green Economy thru voluntary initiatives, sharing responsibilities with the government and other stakeholders; International cooperation between local authorities, on a voluntary basis, can provide new solutions to environmental challenges thanks to exchange of experience or development of joint projects; Mobility deserves priority attention and the CIVITAS network shows how ‘lead’ and ‘learning ‘ cities can cooperate including when their geographical or climatic conditions differ considerably (MIMOSA initiative); Local actors have an important role to play in the field of energy policy and the Covenant of Mayors illustrate how a network can help.

Importance for Belarus What can be concluded for Belarus ? The involvement of several Belarussian cities in the Covenant of Mayors confirm interest at the local level for voluntary efforts to be part of an international network of green cities. A bigger number of Belarussian participant cities could contribute to GE through improved performance related to mobility , energy consumption , CO2 emissions and more. This approach has a limited budgetary cost and can be related to the development of smart cities , and more generally to GE priorities in Belarus.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 8. ACCOMPANYING MEASURES

Accompanying measures are needed whatever is the policy mix selected to promote sustainability. Out of them, capacity building and communication are of paramount importance. Capacity building, according to a UN definition: “Encompasses the country’s human, scientific, technological, organizational, institutional and resource capabilities. A fundamental goal of capacity building is to enhance the ability to evaluate and address the crucial questions related to policy choices and modes of implementation among development options, based on an understanding of environment potentials and limits and of needs perceived by the people of the country concerned”. Agenda 21’s definition (Chapter 37, UNCED, 1992.) In other words, capacity building is a necessary component of any effort to switch to Green Economy and can be described as a long-term, continuing process, in which all stakeholders participate. The reasons why permanent capacity building is required are:  the need to implement a knowledge- based policy, and in the field of environment and of the links between environment and health, knowledge is developing very rapidly (e.g. endocrine disrupters, or work carried out under REACH as presented above);  technologies are changing and are key in some sectors for switching to Green Economy (e.g. hydrogen cars, or work carried out to generalise phosphate free detergents as referred to above);  progress towards GE means involvement of larger groups of stakeholders than those already convinced of the benefits of environmental protection , in order to modify their behaviour (e.g. selective waste collection or development of car-pooling like in the CIVITAS initiative referred to above);  as a key challenge of GE is integration of environmental concerns in all other government policies; examples above have evidenced the role of energy or transport policies in GE, the same could be said for agriculture, industry, forestry , (fisheries where appropriate) and more where sustainability may well require in-depth changes which should be clearly explained and understood. The European Commission has traditionally contributed to capacity building benefitting to Neighbouring countries. Two brief examples can be mentioned:  the network of Regional Environment Centers (RECs) has contributed for years to capacity building efforts in Eastern Europe, be it the main REC of Szentendre (Hungary), or others working with Caucasus countries, Moldova, Russia and Central Asia; many workshops, seminars and publications illustrate initiatives developed over years33.  in the context of ENP with its Southern Neighbours, the EU has initiated an initiative on the depollution of the Mediterranean Sea called H2020 including a programme of capacity building and environmental (2009 – 2014) especially with respect to promoting environmental integration and mainstreaming into other sectoral policies. The number of individuals targeted by this initiative was 3500 in total (between 200/300 per beneficiary country).

33 e.g. “Capacity development needs for the implementation of the UNECE SEA Protocol: sub-regional overview of Armenia, Belarus, Georgia, Republic of Moldova and Ukraine” July 2006 , or “Building Capacity for Transboundary Water Resources Management of the Zapadnaya Dvina River Basin”- a project implemented in Belarus jointly with the Dutch consultancy “Ameco” and Belarus civil organizations, 2005/2007 52

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Communication and Awareness raising It is widely recognised that communication and awareness raising are necessary to facilitate the development of Green Economy. The message to be delivered is basically that changes are necessary to take into account long term issues (for instance the cost of Climate change, the need to mitigate and to adapt), externalities ignored by market forces (such as public health impact of air quality, or risks associated to biodiversity loss). A recent survey34 was published by the European Commission (EUROBAROMETER) about EU citizen’s information in the field of environment. Respondents were then given a list of 14 environmental issues, and asked to pick the main five about which they particularly lack information.

The impact on health of chemicals used in everyday products is the issue on which most people (39%) would like more information – something justifying efforts developed by ECHA under the REACH regulation (see above).

Other top concerns were soil degradation (29%), the depletion of natural resources (28%), the spread of harmful non-native plants and animals (28%), water pollution (28%), agricultural pollution (28%) and air pollution (27%). The issues mentioned least as top-five priorities were noise pollution (17%), our consumption habits (15%) and urban problems (15%). Only 4% of people say spontaneously that they lack information about none of these issue. The remaining question is how awareness raising campaigns should be designed, without ignoring that understanding sustainability should begin at school35 In the same EUROBAROMETER survey, respondents were asked to identify their 3 main sources of information about the environment. Television news remains the main source of information about the environment (65% ), Social media (11%) and the Internet(35%) are jointly the second most important information source (46%). 37% of people cite newspapers, and films and documentaries on television (30%) as one of their main information sources, while 23% mention the radio. Relatively few people say that their main sources of information include conversations with relatives (13%), magazines (12%), publications and brochures (9%), books (6%), or events (3%). Conclusions . Accompanying measures are necessary to ensure social acceptance of the behavioural changes required by GE; . Capacity building is needed on a permanent basis for most stakeholders in the light of knowledge progress, technological evolution, and integration of environmental concerns in all activities; . In the EU, more environmental information is expected by most citizens, for instance on chemicals, soil degradation and depletion of natural resources.

34 ‘Attitudes of European citizens towards the environment’, SPECIAL EUROBAROMETER 416, September 2014

35 Agenda 21 states that “education is critical for promoting sustainable development and improving the capacity of the people to address environment and development issues” Public Environmental Awareness and Education, UNEP, 2007 53

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Importance for Belarus

What can be concluded for Belarus ? As in EU countries and their other Neighbours, GE cannot be considered in Belarus as an ordinary change which could be successful without accompanying measures. A capacity building plan and information campaigns about the long term benefits of GE would certainly facilitate and accelerate changes towards GE. This could be done in parallel with efforts to promote voluntary agreements by economic actors and local authorities.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 9. COOPERATION WITH NGOS AND BUSINESS COMMUNITY

NGOs are considered in the EU as important stakeholders in view of developing and implementing sustainability goals. Before the European Commission proposes a new initiative (legislative or initiative defining future policies), it assesses the need for EU action and the potential economic, social and environmental impacts of alternative policy options in an impact assessment : this include a stakeholders consultation in which NGOs are invited to participate. For the implementation of environmental and/or climate policy, they participate in preparatory work and expert groups and conduct research or studies, for instance to feedback and help shape European policies. Many examples could be taken in areas such as Nature protection, Water policy, Marine environment, Environmental Impact assessment or Climate change. The EU is moreover a party to the Aarhus Convention36 which entitles the public - individuals and NGOs - to participate in environmental decision-making. This means in particular that the European Commission has to inform them in time of relevant proposals, so that they can submit their comments which need to be taken into consideration.

Belarus: engaging with civil society The Clearing House, an EU initiative implemented by the Office for Democratic Belarus, encourages networking and exchange of best practices among civil society in Belarus. It trains local NGOs on how to apply for EU grants, and provides individual consultations for small NGOs with limited capacity. It also facilitates projects implementers’ meetings in Brussels. Since 2011, 87 civil society organisations and grass-root initiatives have received counselling support on the availability of funding instruments and the preparation of application forms; 747 representatives of civil society organisations receive regular information on various funding opportunities. The EuropeAid report outlines the achievements of the partnership between the EU and the Neighbourhood in the past 7 years. It covers the general aspects of support to the Neighbourhood partnership, refers to the regional effort, includes a country-by-country breakdown and offers many examples of activities undertaken on the ground. ‘Building relations with Belarus: a look back on priorities, activities and achievement under the ENPI (2007-2013)’ Source: EU Neighbourhood info centre 21 Oct 2014 Finally, a number of environmental NGOs benefit each year of EU funding through LIFE; LIFE37 is the EU’s financial instrument for the environment and climate action. These operating grants shall support certain operational and administrative costs of non-profit making entities which pursue an aim of general Union interest, and are primarily active in the field of environment or climate action and are involved in the development, implementation and enforcement of Union policy and legislation. The number of NGOs funded each year varies depending on the quality of the applications, the amounts applied for and the total budget available. Environmental NGOs competing for LIFE funding

36 CONVENTION ON ACCESS TO INFORMATION, PUBLIC PARTICIPATION IN DECISION-MAKING AND ACCESS TO JUSTICE IN ENVIRONMENTAL MATTERS, June 1998 37 LIFE Regulation (EC) No 1293/2013 55

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report must be non-profit making, independent and active at a European level with activities and members in at least three EU Member States. In 2015, the European Commission has selected 24 NGOs to receive operating grants (for €9 mio funding) from a total of 66 proposals. These NGOs focus on a wide range of fields from nature and biodiversity conservation, sustainable development, climate change mitigation and adaptation, renewable energy, pesticide reduction, environmental governance, environmental education and awareness and more. Business community As well as the other stakeholders, companies are entitled to express their views and to participate in the development and the implementation of the EU environmental policy, in a way similar to NGOs. Some environmental policies are of course of paramount importance for industry, this is the case of the REACH Regulation for instance, but a long list could be made from Eco-labeling to Integrated Product Policy or Industrial Emissions. Partnership with industry is not new in the EU. There is a growing understanding in the business community that natural resources must be used in a sustainable fashion, and there is a new sense of urgency in biodiversity conservation. It has become increasingly widely accepted that governments and policy makers alone cannot tackle the biodiversity crisis, and an example of cooperation with industry can be found in the field of biodiversity: the European Business and Biodiversity (B@B) Platform provides an EU level forum for sustained and strategic dialogue about the links between business and biodiversity. The B@B Platform also helps to coordinate and to raise awareness of innovative national and international initiatives, and showcase business best practices Another important aspect is that a switch to Green Economy can in itself create business opportunities and job creations. In the EU today, there are already over 4 million people working for eco-industries. And taking the example of the waste sector alone, implementing existing EU legislation by 2020 will create over 400,000 new jobs and an increase in the annual turnover of the waste sector by over € 4.2 billion. Implementing higher recycling targets would create another 200,000 additional jobs in Europe according to EU Commissioner for Environment K. Vella (June 2015).

Conclusions . Switching to Green Economy is the not the exclusive responsibility of governments and policy makers; . In line with the Aarhus Convention, the EU involve NGOs at the various stages of its policies, from design to implementation; . EU funding of NGOS reached € 9 Mio in 2015 thru the LIFE programme; . Industry is also a partner for shaping and implementing environmental policies and could get significant new business opportunities thanks to GE.

Importance for Belarus

What can be concluded for Belarus ? Better acceptance of changes needed when switching to GE can be facilitated by cooperation with representatives of the civil society, therefore implementation of the Aarhus convention can be understood as part of this move towards GE; similarly, cooperation with the business community is necessary in particular to find technological solutions to the GE challenges and transform constraints into business opportunities, using also the highly developed scientific knowledge of the country.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report 10 RECOMMENDATIONS On the basis of the analysis presented above, reflecting experiences of the EU and some of its Member States, some conclusions can be drawn about the policy mix and the instruments which could best promote Green Economyin Belarus. The REACH example confirms that a sound legal instrument is appropriate in order to obtain from industry more transparency and a better knowledge of the environment and health impacts of chemical substances. No market instrument, no incentive could bring the same results as this Regulation. However, the efficiency of legally binding instruments is directly linked to the legislative quality of legal texts and how they are prepared. REACH is the result of time-consuming preparatory discussions with Industry in order to avoid unrealistic objectives and timing, or obligations with disproportionate costs. It should also be noted that the implementation of a legislation as ambitious and complex as REACH has been given to a newly created agency, ECHA with a yearly budget of €215 Mio and about 600 collaborators. Social acceptance of a legally binding text is also a factor which does influence how it is implemented, and therefore its efficiency. Sustainable infrastructures (which for instance already exist in Minsk) are often necessary to comply with legal obligations established by environmental and climate policies. Transport infrastructure are of particular importance to facilitate a switch towards sustainability, better air quality, less traffic congestion and lower CO2 emissions. Since about 80% of the population lives in cities, smart cities are a cornerstone of sustainability in most countries. EU Experiences made by frontrunner cities show that smart cities mean investments related to energy efficiency, sustainable mobility and development of Information and Communication Technologies. If methodologies for smart urban systems has been elaborated by various networks and are available, the main challenge is financing of investments where ‘return on investment’ is elimination of negative externalities and medium/long term benefits (public health for instance). International financial institutions have a role to play in this respect and Belarus may wish to explore such possibilities. Environmental tax reform, strongly recommended by OECD for years, has taken place in many EU countries as an illustration of the Polluter Pays Principle. However, environmental taxes correspond in the EU to only 6.3% of the total revenue of taxes and social contributions, or 2.4% of GDP, with limited differences between Member States. The main focus of environmental taxation is by far Energy (3/4), followed by Transport (about 1/4), other sectors being of negligible importance. The efficiency of environmental taxation has been evidenced (for instance for CO2 emissions in Germany) but apparently less in countries where the general taxation level is high, or where environmental taxation suffers loopholes. Fine-tuning is in any case necessary to avoid negative impacts of energy/transport taxation on other economic operators. Pricing policies of water and energy are also derived from a Polluter Pays Principle approach. As far as water is concerned, cost recovery is required by the Water Framework directive but its implementation in practice is quite heterogeneous throughout the EU territory. For economic operators (with a possible exception for agriculture), water is a small part of production costs and demand is usually inelastic when its price increases. For households, water prices vary considerably from one city to another. Difficult to conclude therefore that water pricing is currently in the EU an important instrument in favour of sustainability. Energy pricing has generated much stronger debate, pricing policy being linked to energy taxation. The debate focused on promotion of renewable energy thru feed-in tariffs and feed-in premiums which have produced good results in several EU countries. Experience shows that support schemes should aim at making renewables competitive, should be flexible and gradually removed when technologies are mature or market conditions are sufficient. Progress in this direction could certainly be envisaged in Belarus.

"Technical Assistance to Support the Development of Green Economy in Belarus" Analytical Report Environmentally harmful subsidies (EHS) can in theory be identified in the light of experts opinion and agreed methodologies at international level (OECD for instance). Even though the rationale for phasing out EHS is quite robust and amounts at stake quite high, a number of obstacles hamper EHS’ removal, first of all lack of transparency and poor political willingness (possibly due to the fact that in case of EHS phasing out, losers are much easier to identify than winners). Besides agriculture, transport and energy seem again sectors benefitting most from EHS. Current constraints on public finance might create a window of opportunity for a possible breakthrough and Belarus could also consider this approach as a significant contribution to GE; Environmental Voluntary Agreements (EVAs) involving industry can be either an alternative to legislation or a way to implement it. Experiences show that voluntary agreements are more relevant for oligopolistic industries (in order to reduce the risk of free-riders), and that their efficiency depends on the acceptance by industry of clear and ambitious targets (in order to avoid hidden ‘business as usual’ attitudes). The monitoring and control of EVAs implementation is a major condition of their credibility, and involvement of public authorities is highly recommended (with the threat of binding legislation in case of failure). This tool could have a good cost efficiency ratio and could be part of the GE strategy in Belarus. Voluntary agreements involving local authorities are mainly networks where proactive cities (or other local authorities) can exchange information, experiences and good practices on issues such as sustainable mobility, waste management, energy savings, climate change mitigation and adaptation or clean technologies. Results obtained through these covenants are difficult to quantify, but most participants benefit from learning effects, and can find cost efficient solutions inspired by success stories of other members of their network. Such initiatives have a limited cost and mainly depend on political willingness at local level. Encouraging initiatives are already in place in Belarussian cities and could be developed more systematically. Whatever policy instruments are chosen to switch to Green Economy, accompanying measures are necessary. They relate to capacity building (to be understood as a permanent process for all stakeholders), to awareness raising amongst the population (to modify consumers ‘habits when appropriate), to NGOs involvement (as prescribed by the Aarhus Convention) and to cooperation with the Business Community (for which GE is an opportunity). This analysis has singled out the pros and cons of several instruments which may be part of a ‘Green Economy’ toolkit. No magic stick to get there, since each instrument – in practice if not in theory - has a number of strong and weak points. A striking conclusion is nevertheless that the transport and energy sectors are of paramount importance, whether it is envisaged to promote sustainable infrastructure, to use tax instruments, to implement pricing policies, to remove environmentally harmful subsidy or to use voluntary agreements. Since the right instruments can only be identified in view of the objectives to be reached, objectives related to transport and energy policies are certainly key in the process of identifying the right policy mix to adopt in Belarus.