2Nd Multi Conference, 18-19 January 2001

2nd MULTI-conference 4th session: Governance

Conference Paper 2nd Multi Conference, 18-19 January 2001

January 2001, ver. 1

Project no. 130517 / 730 Making a difference: The performance of multilateral development systems in environment and governance

Gaudenz B. Assenza The Fridtjof Nansen Institute, Norway

Copyright  Gaudenz Assenza 2001

ANALYZING THE PERFORMANCE OF THE MULTILATERAL SYSTEM IN GLOBAL ENVIRONMENTAL GOVERNANCE Methodology and Case Study

Vettre, 18-19 January 2001 2nd MULTI-conference 4th session: Governance

Abstract

This paper is a background document for a forthcoming book on “The Performance of the Multilateral System in Global Environmental Governance: The Case of Promoting Energy Efficiency in Central and Eastern Europe”. The book examines the performance of the multilateral system in addressing global environmental problems through technology-based solutions. The empirical focus is on energy efficiency activities undertaken by multilateral institutions (MIs). The study analyzes the effectiveness of MIs as project developers, financiers, intermediaries, advisors, information providers, and catalysts for private sector financing. The main emphasis of the paper is on methodological issues in performance research. However, a case study is included to illustrate the type of empirical material that the research is founded upon.

Vettre, 18-19 January 2001 2nd MULTI-conference 4th session: Governance

Table of Contents

1. Introduction...... 0

Nature of the paper...... 0 Topic...... 0 Empirical focus...... 0 Need...... 0 Objectives...... 0 Questions...... 0 Structure...... 0

2. Context...... 0

Energy efficiency and climate change...... 0 The emerging climate regime...... 0 The role of multilateral institutions...... 0 Drivers and barriers...... 0 Outlook...... 0

3. Methodology...... 0

Issues in performance research...... 0 The ‘systemic’ focus...... 0 Performance evaluation: Variables and measurement...... 0

4. The causal model...... 0

Structure of causal model...... 0 Logic of causal model...... 0

5. Case study: The Poland Efficient Lighting Project (draft) ...... 0

6. Case study bibliography...... 0

7. Project bibliography...... 0

Vettre, 18-19 January 2001 1. Introduction

NATURE OF THE PAPER

This report is a background paper for the study The Performance of the Multilateral System in Global Environmental Governance: The Case of Promoting Energy Efficiency in Central and Eastern Europe. (In what follows, the acronym EECEE and the terms ‘study’, ‘research’, or ‘research project’ is used interchangeably.) The main emphasis of the paper is on methodological issues in performance research.1 However, a case study is included to illustrate the type of empirical material that the research is founded upon.

The EECEE project examines the performance of the multilateral system in addressing global environmental problems through technology-based solutions. The empirical focus is on assessing the performance of multilateral institutions (MIs) in promoting energy efficiency in Central and Eastern Europe. This region offers vast opportunities for efficiency improvements and has attracted growing interest from MIs.

The core concept is performance. The study analyzes the performance of MIs in different capacities: as project developers, financiers, intermediaries, information providers, advisors, and catalysts for private sector financing. The performance of MIs in terms of promoting energy efficiency can be measured in terms of multiple criteria. Probably the most important benchmark, however, is the extent to which MIs have contributed to the commercialization of energy efficiency technologies. Commercialization is the key benchmark because it is causally and positively related to the benefits associated with energy efficiency such as financial savings,

1 This paper discusses two types of issues: First, it discusses issues that will be elaborated in greater detail and with empirical evidence in the forthcoming book. Second, the paper discusses issues which are important for methodological, theoretical, or conceptual reasons, but which cannot be dealt with at length in the book to ensure readability. environmental gains, health benefits, and energy security. The faster the commercialization, the greater will be these benefits.

The commercialization process makes energy efficiency technologies increasingly self-sustaining in the marketplace and reduces the need for subsidies and other forms of support. When full commercialization is achieved, the benefits associated with energy efficiency will come at no cost to governments and taxpayers. At the same time, consumers and firms who invest wisely in energy efficiency benefit from negative cost (profit).2

In a future research project, it would be worthwhile to compare the commercialization processes of environmental technologies with other technologies (e.g., technologies relating to the Internet, biotechnology, mobile telephony, and other sectors). Although from a technological point of view, these sectors have little in common, lessons might be learned by comparing different technologies: For example, what were the reasons for commercialization successes and failures? What conditions were helping or hindering the commercialization process? Which policy instruments have proven cost-effective and politically feasible in accelerating the commercialization process? We still know too little about why some technologies have succeeded while others have failed; and we know too little about what to do in terms of supporting laggard technologies in the marketplace.

EMPIRICAL FOCUS

In 1998, when the original application to the Research Council of Norway was submitted, joint implementation projects were foreseen to be the key case studies for this study. However, the implementation of this mechanism for reducing greenhouse gas emissions has taken longer than foreseen. As of early 2001, emissions reductions for so-called Activities Implemented Jointly (AIJ) still cannot be applied to the reduction targets agreed to in Kyoto in December 1997. And since many of these

2 For governments, negative cost results when fiscal revenue increase because of increased net income caused by energy savings. For taxpayers, negative cost results if these increased fiscal revenues result in lower taxes. For consumers and firms, negative cost (i.e. profits) results when discounted investments in energy efficiency are lower than discounted savings. projects are implemented bilaterally, without the involvement of multilateral institutions, they cannot form the basis for case studies in a research project on multilateral institutions. This is why the empirical focus had to be placed exclusively on energy efficiency projects. However, this does not represent a major change from the original research project, because the emphasis on energy efficiency was highlighted in the original application approved by the Program Committee.

While the EECEE study focuses on energy efficiency as a case in point, it hopes to contribute to a greater understanding of the factors that influence MI performance more generally. It is conceivable that some of the lessons learned from promoting energy efficiency apply to other environmental technologies, as well as to activities in other sectors such as health, education, and economic development.

The following broader lessons can be expected from this analysis: First, performance problems, and the causes for these problems, may be similar across different activity types. Second, there may be a significant commonality between performance criteria in different activity types: e.g., criteria such as cost-effectiveness, implementation speed, transparency, legitimacy, and participation are not limited to energy efficiency activities.3 Third, general insights can be expected about the tools and methodology required for any type of performance analysis.

So far, the wealth of experience accumulated by MIs in the field of energy efficiency has not been collected in a systematic way. Many MIs keep a large paper trail of documents relating to their projects and activities, but these documents are rarely analyzed in depth after the project is completed. When projects are completed, team members are required to focus their time and attention on new projects in the pipeline and have little time and incentive to analyze completed ones.

3 In addition, many performance criteria are unique to particular sectors: e.g., morbidity and mortality reductions in health, school enrollment and literacy in education, the commercialization of environmental technologies, etc. Traditionally, performance analysis comes in the form of monitoring and evaluation (M&E) reports, which focus on individual projects or organizations and do not compare between projects and organizations. A common shortcoming of many M&E reports is a general, descriptive methodology, which omits systematic performance explanation . The EECEE study includes performance explanation and performance prescription: in other words, after identifying what has worked and what has not, the study explains why it has or has not worked. Based on this explanation, the study examines what can be done to improve performance.

OBJECTIVES

The analysis proceeds in three steps: perfomance evaluation, performance explanation, and performance prescription. Accordingly, the objectives of the study are threefold: first, to determine the performance of the multilateral system (performance evaluation); then, to examine the reasons for success or failure (performance explanation); and finally, to provide prescriptions for performance improvement (performance prescription).

1. Performance evaluation

The first objective is to measure the performance of MIs in the energy efficiency field. Recognizing the complex nature of promoting energy efficiency and the roadblocks in the path to energy conservation, the study examines to what extent multilateral institutions have made a difference in terms of increasing efficiency levels in Central and Eastern Europe. The performance analysis is based on clearly specified criteria for evaluation, and guided by an appreciation of the difficulty of measuring and judging performance. The purpose of the performance evaluation is to review what has been done, how it was done, by which organizations, and what outputs or results were achieved. The EECEE study goes beyond assessing success or failure in energy efficiency activities by MIs, and also examines why there was success or failure.

2. Performance explanation

The second objective is to explain the findings on performance. The explanation can be conducted at the micro and macro-level: At the micro-level, there is a need to explain why particular projects or activities were successful while others failed. At the macro-level, more general explanations may be sought as to why the multilateral system as a whole has performed the way it has (as determined by the aforementioned performance evaluation).

The third part of the research moves from explanation to prescription. If the policy goal is to accelerate the commercialization of energy efficiency technologies, it is necessary to know the conditions for success as well as the paths to failure. By studying the 'making of success or failure', the study seeks to uncover the levers for boosting performance. The assumption is that if we understand which factors influence performance, we know more about how to strengthen the problem-solving capacity of individual organizations (and possibly the multilateral system as a whole). In this way, the study intends to contribute to ongoing efforts to mobilize multilateral institutions more effectively in addressing global environmental problems.

3. Performance prescription

The third objective is to prescribe steps for performance improvement. The method to arrive at performance prescription is a practice analysis that synthesizes the experience of MIs in the field of energy efficiency. Through replication of best practice, a multiplicator effect in raising energy efficiency levels can be achieved. The best practice examples should not be copied and applied in all situations alike, but they can serve as blueprints that can be tailor-made to fit different locations and circumstances. The analysis does not end with prescription, because there is still a gap between prescription and implementation. Despite good information, many organizations find it difficult to avoid past mistakes, to replicate past successes, and to implement prescriptions.4 Following the presentation of prescription, the research therefore lays out the issues and obstacles organizations face in implementing the prescriptions.

QUESTIONS

Each of the three parts of the research projectperformance evaluation, performance explanation, and performance prescriptionaddresses a separate research question.

Part I. The research question for performance evaluation is:

1. How successful has the multilateral system been in promoting energy efficiency in Central and Eastern Europe?

The study identifies which activities have been successful and unsuccessful in commercializing energy efficiency technologies. Evidence is presented on what was done, how it was done, by which organizations, and what outputs or results were achieved. Five categories of activities are analyzed: project development and implementation, project finance, intermediation and facilitation, policy advice, and technical assistance/training/education.

Part II. The research question for performance explanation is:

2. Which factors and theories can plausibly explain the findings identified in the performance evaluation?

The study relies on three theoretical models to explain the performance of multilateral

institutions in energy efficiency.5

4 In reality, it may not be sufficient to assume that what worked in the past will necessarily work in the future. A dynamic analysis is necessary. 5 These models are described in the research design (Assenza, 2001). Part III. The research question for performance prescription (best practice analysis) is:

3. Which strategies, policies, and instruments have proven to be effective in promoting energy efficiency in Central and Eastern Europe?

In order to answer this question, we need to revisit the performance evaluation and identify the main successes of the multilateral system in promoting energy efficiency in Central and Eastern Europe, to study the reasons for these successes, and to examine the potential for replication and scale-up. Best practice cannot be identified at the project level, because it presumes that projects exist in which everything (or almost everything) went right, and which therefore can serve, in their entirety, as best practice examples. Best practice is identified in the details of the project: in particular structures, instruments or methods used.

STRUCTURE

Overview of the structure The following page shows the structure of the book project: Box 1: Structure of Book

Introduction

Research design and methodology

Selected case studies

Part I: Performance evaluation

 Project development & implementation  Project finance  Intermediation and facilitation  Policy advice  Technical assistance, training, and education

In part I, evidence from a wide variety of institutions and projects is presented in separate chapters grouped by five types of activities undertaken by multilateral institutions. The focus here is on show what was done, how it was done, by which organizations, and what results were achieved.

Part II: Performance explanation

 Theory 1: The Unitary Rational Actor  Theory 2: Stakeholder Interaction  Theory 3: Organizational Capacity

In part II, three theories are used to explain the results of part I. Why were some projects and institutions successful while others were not?

Part III: Performance prescription

 Best practice in project development and implementation  Best practice in project finance  Best practice in intermediation and facilitation  Best practice in policy advice  Best practice in technical assistance, training, and education

Conclusion

The conclusion synthesizes the findings and indicates (a) whether the lessons from energy efficiency promotion can be transferred to other environmental technologies; and (b) whether the lessons about performance of multilateral institutions can be transferred to other organizations (e.g. private firms investing in energy efficiency). 2. Context

ENERGY EFFICIENCY AND CLIMATE CHANGE

In a broader context, the study analyzes the adaptability of the multilateral system to the new demands of global environmental governance. In recent years, the main focus concerning the global environment has been on the warming of the earth’s atmosphere and related policy responses. One area of particular interest to climate change mitigation is energy efficiency. Together with renewable energy, transportation and forest projects, energy efficiency is recognized as one of the most accessible and cost-effective opportunities to mitigate climate change.

Since 1992, a global negotiation process has taken place, in which governments meet regularly to discuss issues concerning climate change. Many ambitious proposals have been discussed, but there is still significant uncertainty regarding the implementation of policy measures at the international level. This uncertainty has stemmed the flow of public and private capital into climate-friendly technologies. As a result, there has been no significant increase in energy efficiency activities, despite the recognized potential for cost-effective projects in this area. The low number of projects and other activities in energy efficiency limits the number of case studies, on which performance analysis can be based.

THE EMERGING CLIMATE REGIME

After a boost through the adoption of the Kyoto Protocol in December 1997, the international climate change negotiations have lost their momentum in two key areas: first, there has been a slow ratification and implementation, and second, there has been a lack of consensus on the modalities for implementing the so-called Flexible Mechanisms (Joint Implementation, the Clean Development Mechanism, and Emissions Trading). The adoption of Flexible Mechanisms is the key to a significant boost in spending for environmental technologies including energy efficiency. Among the key countries in the negotiation process, the United States is unlikely to ratify the Kyoto Protocol in the near future given the political constellation after the November 2000 elections. President Bush, a former oil executive, occupies the White House; the House of Representatives is Republican-dominated; and the Senate is split, with Republican Vice President Dick Cheney holding the decisive vote.

Another major player, the EU, no longer assumes the leadership role it has played in earlier stages of the negotiation process. In October 1996, the EU argued for quantified and binding reductions in a position paper presented to the FCCC

Executive Secretary.6 One year later, this argument became the Kyoto Protocol.

Increasingly, everybody has a stake in the emerging climate regime, but nobody is in charge. The US could, but does not want to, assume a leadership role; the EU is too fragmented to speak with one voice; the business community is divided; and MIs are relatively minor players, although they are important sources of funding for climate change mitigation projects.7 In the absence of leadership, the players remain uncoordinated, which increases the transaction costs and timeframe both of the negotiations as well as the pilot projects carried out for mitigating climate change.

If a new impetus is to happen, it might come from the business community, as corporations and financial institutionsespecially the insurance industryhave begun to adopt the view that climate change needs to be taken seriously, both in terms threats and opportunities. However, the private sector depends on the speed and efficiency of national governments. Through their ability to change the incentive structures in the marketplace, goverments hold the key to the feasibility and profitability of climate change mitigation measures. In the meanwhile, the private sector is waiting for policy signals, while governments are waiting for greater private sector interestthe classic “chicken and egg” scenario.

6 Editor´s Note, Joint Implementation Quarterly, 2:4, December 1996, p.1. 7 Other sources include corporate and philantrophic funding, bilateral development assistance and country-based funding derived from local, municipal and federal funds (although many of these funds have zero actual budgets). Some energy efficiency activities are also funded by privatization funds of municipal authorities. THE ROLE OF MULTILATERAL INSTITUTIONS

What is the role of MIs in climate change? Synthesizing the diverse activities of MIs, one may distinguish five strands of activities:

(1) designing and implementing projects which already have an economic and environmental rationale today, but which would receive an additional boost if emission reduction credits were available and tradable;

(2) financing such projects and mobilizing cofinancing from public and private sources;

(3) project brokering, facilitation and other intermediary mechanisms;

(4) advising governments on the legal, policy regulatory changes required for greater energy efficiency and climate change mitigation; and

(5) providing technical assistance, research, training and education services.

DRIVERS AND BARRIERS

Throughout Central and Eastern Europe there are large untapped markets for energy conservation. Despite significant potential for cost savings and efficiency improvements in households, industry, and government, many of these markets remain underdeveloped. Consequently there is a large gap between what is technologically possible/economically viable on the one side,8 and what is actually harnessed in terms of energy conservation opportunities on the other. The prime reason for this energy efficiency gap is that energy efficiency technologies are not yet fully commercialized.

In light of competing claims on scarce public funds, governments and multilateral institutions are unlikely to make up for this gap through massive investments. A significant proportion of capital must come from the private sector. Governments and multilateral institutions may be more effective if they shift emphasis from capital infusion to: (1) overcoming the barriers that prevent the commercialization process and (2) stimulating the drivers that promote the commercialization process.

8 …but not necessarily financially profitable… There are a large number of barriers, which slow the commercialization process. These barriers are well-known and include subsidized energy prices, high first cost, high transaction costs due to small scale, high risks, and inexperience of financial institutions with energy efficiency projects and technologies. Although emphasized in the literature, the barriers are not the only relevant factors. In recent years, there have been a number of trends, which accelerate the commercialization of energy efficiency technologies. These trends can be referred to as drivers and include factors such as high prices for fossil fuels, technological innovation, increasing economies of scale, rising environmental consciousness, growing recognition of energy efficiency as a source of profit rather than a cost, increasing investments of firms in this sector, and the prospect of stronger measures being introduced in the coming years in order to mitigate global warming. Any action to reinforce these drivers is likely to boost the commercialization trend.

OUTLOOK

Regardless of the performance of multilateral institutions, without increased pressure from business community, there is little chance of breakthrough in the climate negotiations, i.e. a low probability that Flexible Mechanisms will be implemented in the near future. Factors such as lack of scientific consensus on the design of these mechanisms as well as worries about an impending recession suggest that the adoption and implementation of a climate regime may be further delayed. With these delays, it seems likely that many countries will miss the Kyoto Targets agreed upon in 1997.

Despite the setbacks, however, the policy debate shows no sign of abating and there are still efforts to find consensus on the modalities of an emerging global carbon trading system. On the national and international level, there is a trend toward experimenting with flexible mechanisms. Corporate efforts to establish trading schemes and other responses to climate change are likely to proceed regardless of the near-term negotiation outcomes. Through trial and error, corporate and government programs may provide the experience necessary to make carbon trading feasible on a larger scale. In the same period, policy initiatives may help to establish the legal and regulatory basis for trading greenhouse gas reduction credits. At the same time, new technologies are entering the marketplace, and existing ones become better and cheaper. All together, the increasing prevalence of corporate initiatives, the technological advances, and the regulatory changes add up to a dynamic environment, to which MIs adapt, and forces them to reposition themselves. In this dynamic context, the performance and best practice of multilateral institutions should be analyzed. 3. Methodology

ISSUES IN PERFORMANCE RESEARCH

Direct vs. indirect performance evaluation As a starting point, it is useful to distinguish between basic methods of performance evaluation.

The direct method requires

 specifying the criteria to measure MI performance, and

 measuring performance based on these criteria.

The advantage of the direct method is the robustness of conclusions that can be reached on the performance of MIs if methods and data are sound. The disadvantage lies in the difficulty to measure and verify data. The verification of third-party information (e.g., performance data contained in project documents) may require as much effort as the self-generation of performance data. In many cases, the direct method requires technical equipment and engineering expertise to evaluate performance (e.g., for measuring environmental impacts).

The indirect method comes in several forms. One form is similar to political opinion research and requires

 letting otherse.g., members of multilateral organizations or external stakeholderschoose the criteria based on which they judge MI performance;

 reporting on the frequency of the chosen criteria as well as the score assigned by interviewees to these criteria.

The main challenge lays in the careful design of the questionnaire and the elimination of factors, which may distort the answers of interviewees. The advantage of this method is that it allows conclusions on an important dimension in performance evaluation, namely, the degree to which MIs have succeeded in the eyes of their own staff, members of participating organizations, and external observers. The disadvantage of this method is that conclusions can only be drawn as to perceived but not real performance of MIs. Review method. Another form of the indirect method is the review. A review could be limited to a meta-analysis of previous research, or it could include new primary information and analysis which makes an original contribution to the overall literature. This type of review method requires:

 an analysis and critique of primary and secondary performance-related literature,

 a chapter or section discussing the requirements for performance analysis as a foundation for the review and critique,

 a section on the limited ability of the review method to prove or disprove the performance claims of others (unless data verification is possible).

Sources of data for the review method include interviews, evaluation reports, and other primary and secondary literature. One advantage of the review method is the potential to uncover strengths and weaknesses of different performance evaluations. One may learn about how these evaluations are conducted and how they might be improved in the future; and one may conclude whether the results are plausible in light of the offered evidence. The review method strongest for assessing the methodological, conceptual and logical dimensions in performance research.

Implicit vs. explicit performance research If there was the possibility to review and classify all books on multilateral institutions, chances are that many would fall into the category of performance analysis. However, only a few of them are explicitly labeled as such. By failing to be explicit about the performance analysis, there is a risk that the research is not based on a structured methodology as required for a performance analysis.

Evaluation vs. judgement Performance evaluation is not the same as performance judgement. Evaluation is an analytical process that results in factual statements. Judgement is the normative assessment of these factual statements. Because performance evaluation leads to judgement, special emphasis should be placed on proper methodology and evidence. Objectivity, however elusive, remains the goal. Objectivity vs. subjectivity The problem of objectivity pervades all research but it may be particularly acute in the study of multilateral institutions because of the longstanding controversies and entrenched opinions in this field. The activities of MIs elicit a great spectrum of opinion, ranging from the most ardent supporters to the most ardent critics. Recent events in Seattle, Washington DC, and Prague have shown to what extent divisions have formed between those who believe that these institutions are crucial for international collective action, and those who believe they are unnecessary and harmful. Much evidence is available both for highlighting the need and success of multilateral institutions as well as for demonstrating their futility and failure.

The analyst vs. the judge As for other scientific endeavors, it is necessary in performance research to distinguish the roles of analyst and judge. The role of the analyst is to identify a representative set of evidence, to calibrate the argument according to the evidence, and to highlight any issues that might complicate the ability to pass judgement. The analyst should provide the basis for making differentiated judgements. As in any good research, however, the reader should be the judge.

The internal vs. external analyst The role of analyst can be performed internally and externally: Internal analysts are those who have worked directly with the object of analysis; external analysts are outsiders who have no such experience. When there is no conflict of interest or other interference, external analysts may be more objective than internal ones. On the other hand, external analysts lack the direct experience and the knowledge of details that internal analysts possess. It is difficult for outsiders to know the real history of MI activities even if they have access to primary written information and are able to interview project participants and other stakeholders.

Results vs. problem scale It is well known that success or failure in any given task depends on the level of difficulty of the particular task. Incremental progress in difficult tasks can be greater successes than the full achievement of objectives concerning easy tasks. Therefore, in evaluating the activities of MIs, one must not only consider whether MI activities have achieved their goals, but how far-reaching the goals were in the first place, and how many internal and external obstacles MIs have faced in their attempt to achieve these goals.

Learning vs. inertia While it is commonly assumed that success is good and failure is bad, this may not always be the case. Success can lead to overconfidence and sloppiness, while failure may provide lessons for future success. What matters is learning. Personal and institutional learning is required for repeating successes as well as preventing failures. Without learning, performance improvement is unlikely. Thus, the EECEE study seeks not only to understand and explain how success or failure developed, but also how organizations subsequently dealt with success or failure. Have successes been replicated? Have failures been drivers for performance improvement? If learning occurred, how far have lessons spread: to close colleagues, to the department, to the organization, to the collaborating organizations, or to a wider set of organizations in the multilateral system and beyond?

Good ideas vs. good results It is conceivable that there exist projects, which were successfully implemented but which have little to offer in terms of best practice insights. Likewise, there might be failed projects, which hold great lessons. For example, if a project is well-designed, but then rejected for political reasons, it might still be worth considering as a source of best practice insights.

Control vs. dependence In performance research, it is not sufficient to focus exclusively on multilateral institutions. The reason is that the performance of multilateral institutions depends on the performance of other institutions in the public, private and non-profit sectors. For example, MIs are dependent on government approvals, energy policies, laws and regulations, the commitment of private sector institutions, and the cooperation and goodwill of civil society. The greater the dependence of MIs on other institutions, the lower the ability of MIs to control performance results, and the greater the influence of other organizations on MI performance.

Performance analysis vs. M&E Performance analysis needs to be distinguished from monitoring and evaluation (M&E). In recent years, the practice of M&E has become increasingly widespread, partly because of pressures for accountability, and partly because of an increasing awareness in multilateral institutions of the need to increase learning outcomes.

M&E reports are not always publicly available and they sometimes suffer from shortcomings in terms of:

a. Information sources: Many M&E reports are based on questionnaires and/or published project documents, not on the primary materials that were generated in various stages of project development (e.g. project concept development, planning, financing, and implementation).

b. Analysis: Many M&E reports simply report data without explaining it.

c. Reliability: The information received by the analyst is taken at face value, because there is no possibility for independent verification and for double-checking unpublished primary materials.

d. Specificity: M&E analyses often remain at a general level and do not discuss the details of the project.

e. Comparability: M&E reports usually focus on particular institutions or projects and not on the multilateral 'system' as a whole. M&E reports use different methodologies and formats, which makes it difficult for independent analysts to compare projects and organizations.

Many of these problems have to do with two factors: first, that external consultants are requested to produce the evaluations within short time frames and with low budgets; second, that project team members who possess the direct knowledge and experience are only superficially involved in terms of information provision and interviews.

One-time impact vs. multiplicator effects Energy efficiency activities can promote broad policy objectives including environmental improvements, financial savings, job creation, and energy security. The performance of multilateral institutions (MIs) in terms of these objectives can be increased if multiplicator effects are triggered. Such effects can be triggered if MIs:

 use their funds in a strategic way (i.e., not to fund dispersed, one-off projects that have no replication potential) – Multiplicator effect: Replication.

 mobilize resources from other institutions (public, private, non-profit)  Multiplicator effect: Leveraging scarce resources.

 promote greater awareness among stakeholders, in particular consumers, regulators, and investors.  Multiplicator effects: Creation of demand, facilitating regulation, and stimulating investment interest.

 build in-country capacity countries to deliver energy efficiency improvements.  Multiplicator effect: Continued expertise and activity once the project is over.

Multiple vs. single performance criteria Ideally, the performance of MIs should be measured along several dimensions, because MIs may succeed in some performance measures and fail in others. However, a multivariate analysis of this kind may not be practicable due to lack of data availability. Therefore, choosing a single performance criterion can simplify the evaluation process. For example, climate change reduction projects are often evaluated based on their cost-effectiveness in reducing greenhouse gases. While it may be methodologically justified, the problem of choosing a single criterion is of course that important other dimensions of performance are not considered. Direct vs. proxy variables Performance evaluations can be based on direct evaluation of success or failure in terms of variables such as environmental improvements, financial savings, job creation, and energy security. Another approach is to focus on a key underlying proxy factor, which is relevant for achieving several or all of these objectives. In other words, there may be one or several objectives, whichif achievedsatisfy other objectives as well. Do such underlying factors exist? It can be argued that in relation to environmental technologies such as energy efficiency, the key underlying factor is technology commercialization. Technology commercialization is a process whereby certain technologies become more profitable, less risky, and more feasible to implement by private sector organizations. THE ‘SYSTEMIC’ FOCUS

The systemic perspective is at the core of the research program on multilateral institutions supported by the Research Council of Norway. 9 When the program was announced, it was not entirely clear what the program committee envisaged with the requirement to include the systemic perspective. Was it a warning against focusing on discrete and unrelated case studies, was it a requirement to focus on the interplay and relationships between multilateral institutions, was it a ‘philosophical’ statement on the difference between the sum of multilateral institutions and individual organizations, or was it a methodological specification?

If we understand the ‘systemic’ focus as a philosophical or methodological specification, we may distinguish three approaches:

 The first is to assume that there is such a thing as a ‘multilateral system’, that it is qualitatively different from its components (the individual organizations), and that it requires a different type of analysis than would be required to study a single organization.

 The second approach is to assume that there is no such system, but that there should be attempts to create a more coherent system from what is now a somewhat incoherent and uncooperative set of organizations. If this assumption is true, the purpose of research may be to produce knowledge on how to increase the ‘systemic’ character of multilateral organizations, i.e. how to increase collaboration and coordination, how to prevent overlaps, and how to harness synergies between different organizations and programs.

 The third approach is to argue that the requirement to focus on the ‘systemic’ level is primarily a methodological specification rather than a statement about the sum of multilateral institutions relative to its constituent parts.

9 See www.sol.no/forskningsradet/program/profil/multi First cut: There is a multilateral system The first interpretation of the focus on the ‘multilateral system’ is that the totality of multilateral organizations is conceived as more than the sum of its organizations. While the components are separate and can be studied individually, the totality is seen as something qualitatively different from its components. If the multilateral system as a whole is conceived as an actor in its own right, the analysis needs to go beyond the discrete analysis of projects and organizations. The statement that “the multilateral system does X or Y” creates a new ‘organism’ in its own right when there may only be a set of ‘suborganisms’. These suborganisms sometimes coordinate and collaborate, sometimes compete and conflict, and engage in other types of interaction, but it is an open question whether this interaction warrants the notion of a larger whole.

This perspective can be illustrated using anologies from sociology and ecology. One school of thought in sociology argues that if we want to understand society, we need to do more than study people. The opposite school of thought can be summarized in Lady Thatcher's famous claim that: "there is no such thing as society; there are only people." In ecology, there is a similar argument, which claims that phenomena like forests and wetlands can only be understood, if we focus on plants and animals as ecosystems rather than just multiples of discrete components.

What works in ecology must not necessarily work in political science. How plausible are these arguments when they relate to groups of organizations rather than to plants and animals? If we speak about a multilateral system, we must explain how the totality is different from its components. If this is omitted, the use of this terminology is somewhat fuzzy. The following quote illustrates this problem:

"The multilateral system has performed several key roles in the follow-up to the Framework Convention on Climate Change: It has been a provider of projects and programs to reduce carbon emissions; it has been a catalyst for private sector involvement and funding; and it has been an advisor on the establishment of the

Clean Development Mechanism (CDM) and a global market in CO2 emissions. In the future, the multilateral system may assume the role of facilitator, manager, or regulator of such a market." (The Fridtjof Nansen Institute 1998, 16).

Written by this author some time ago, this paragraph describes the multilateral system as if it were an actor in its own right without more exact specifications what that actually means. This statement could be misleading, because it suggests a greater overall design, logic, or order than there really is. Surely, an argument could be made that some form of structure and logic has evolved over time, which justifies using the term 'system' and writing about the diverse organizational groupings as a whole. For example, an evolutionary theory of the multilateral system could explain a rough division of labor between the main organizational groupings such as the World Bank Group, the UN and the EU. The argument could be that in the past half century, the multilateral 'system' has evolved through a competitive process to attract funds from donor nations and private sector organizations.10 But equally plausible may be an argument that multilateral insitutions have experienced increasing incoherence, multiplication and separation over the past fifty years. In the final analysis, it may be a matter of perception: To what extent does one perceive structure and logic in the group of organizations that make up the multilateral ‘system’. Responding to an ever- changing environment, multilateral institutions try to remain coherent, constructing and following an overall vision (e.g. poverty alleviation, sustainable development). However, internal or external disturbances can upset this balance, and it takes a while before some degree of balance, order and coherence is restored.

Second cut: There should be a multilateral system The second perspective argues that the activities of multilateral institutions are largely atomistic, uncoordinated, and fragmented, and that beyond accidental similarities no overall pattern is discernible. While there may have originally been ideas about joint problem-solving in the Bretton Woods agreement, today there is no such thing as multilateral system and there is no authority that steers the system as a whole. The ‘division of labor’ between multilateral institutions, which was envisaged when the Bretton Woods institutions were founded, has been eroded over time.

10 This argument somewhat resembles the theory that our structured natural world evolved through natural selection, i.e. that order develops as a result of non-controlled processes. The logic of this argument could be as follows: Far from being a mechanism for creating an evolutionary structure, competition has been a cause of fragmentation. Competition for donor funds forced multilateral institutions to spread their activities into new areas where funds were available, while abandoning traditional types of activities for which funds were scarce. The portfolios of multilateral institutions were adapted pragmatically to funding priorities of national governments. And because limited funds were spread across a growing number of institutions, the portfolios of multilateral institutions converged around donor priorities, diminishing whatever original separation of duties there may have been. Competing for donor funds, multilateral institutions have taken on new tasks in areas that were previously the prerequisite of others.

The second argument boils down to the statement that there is little systemic about the multilateral system, but that it would be beneficial for international problem- solving if there would be more of a system. Donors dealing with multilateral institutions are concerned about cost-effectiveness and are therefore likely to support measures to mobilize multilateral organizations jointly. There is no shortage of visions for the overall structure of multilateral institutions and the greater collaboration between organizations. There have been many

(a) attempts to reduce the fragmentation within the ‘system’, within organizational groupings, and even within organizations and departments;

(b) ideas on comparative advantage, e.g., prescriptions which institutions should specialize on what tasks; and

(c) thoughts on how to coordinate action among multilateral organizations in order to increase problem-solving effectiveness.

In this perspective, the purpose of scientific studies could be to help produce knowledge that is useful for increasing the ‘systemic’ character of multilateral organizations. Third cut: A ‘systemic’ methodology? The third perspective is the approach chosen in this study. This perspective is a priori agnostic about whether there is a multilateral system or not. The argument is that a productive way to focus on the ‘systemic level’ is to see it primarily as a methodological specification rather than a statement about the characteristics of multilateral institutions. But what exactly does it mean to see the requirement to focus on the multilateral system as a methodological specification? It means to pay attention to

- configurations of the organizations that make up the multilateral 'system': to study where there are gaps, overlaps, complementarity, and synergies in the 'system';

- patterns of behavior between organizations: to study such things as coordination, cooperation, competition, and conflict;

- comparative perspectives across multilateral institutions and other actors: Not to focus on individual projects and organizations, but rather to conduct comparisons, because individual projects and organizations cannot be

assessed without reference to others;11

- questions of overall effectiveness of the 'system', recognizing that the multilateral 'system' does not create results in and of itself, but that people working in organizations do.

Especially the last dimension is problematic. An overall performance analysis of the multilateral ‘system’ as a whole risks sweeping generalizations which cannot do justice to the real-life diversity of organizations and programs. Given the widespread generalizations about multilateral institutions that are common in the public discourse, there is a need to differentiate carefully between organizations, between departments, and between activities and people within organizations. The ‘systemic’ focus should not become an obstacle to such micro-level differentiation. The finding of this study could well be that the macro-level matters, but even more important could be the individuals and small organizational units that actually design, finance

11 The main difficulty is to compare data from different projects and organizations. and implement the projects. It could be that particular institutions integrate the best and the worst under one roof, and that they are at the same time high-performing and low-performing organizations, depending on the departments or activities one chooses to study.

In conclusion to this analysis, the choice of perspective is important because it determines what we expect to see and what we choose to focus upon: the individual project, the organization, or some greater whole called the ‘multilateral system’. Taking a stand on whether the multilateral system exists as a system or not means making an assumption that shapes the lens through which the empirical material is evaluated. All things considered, the concept of ‘multilateral system’ is perhaps too amorphous to be of great use. It may overemphasize the view of the forest relative to the trees: for if we specifically look for systemic features, we are likely to find them and emphasize them at the cost of what is not systemic.

Perhaps the best resolution of the various arguments brought forth above is pragmatic: to let the extent to which the multilateral system has systemic or non- systemic character be revealed in the detailed empirical analysis. Maybe there are both systemic elements and elements of fragmentation. One should remain open to discovering universal features of multilateral institutions, patterns of behavior common to many institutions, as well as a division of labor between institutions. But one should be equally open to recognize evidence about ‘unsystematic’ features of multilateral institutions, for example, lack of coordination and collaboration, fragmentation and duplication, and ad-hoc processes of project generation and implementation. If one broadens the analysis beyond individual organizations, it should be done without losing the sight for detail, and without assuming that the key to performance necessarily lies on the macro-level rather than on the micro-level. PERFORMANCE EVALUATION: VARIABLES AND MEASUREMENT

Performance evaluation is designed to determine the results of a particular activity or organization in terms of clearly specified criteria. As a starting point for specifying criteria, it is worth noting that all environment and development activities share a number of common performance criteria such as cost-effectiveness, implementation speed, participation, and sustainability of benefits. In addition, there are unique criteria for each sector. The benchmarks in energy efficiency projects are different from the benchmarks in social security, health care or education projects. For example, while technology commercialization is a key benchmark in energy efficiency, it is not important for other activities. Few people would argue, for example, that commercialization is an important objective in education and that schools therefore should be run like profit-maximizing businesses. Thus, for different sectors different benchmarks of good practice need to be defined to serve as indicators for performance.

Performance variables: An overview What kinds of indicators could be suitable for measuring the performance of multilateral institutions in energy efficiency? The concepts of output, outcome and impact can be used to categorize the available choices.

Impacts

Categorizing impacts Within the broad cateogory of impacts, there are a number of sub-categories for performance indicators:

 Environmental impacts: reductions of various pollutants associated with transport, heating and electricity and industrial production. This mitigates adverse impacts on air, water, land and biodiversity. Moreover, energy efficiency projects tend to use less land than energy production projects.

 Economic impacts: cost-savings and profit increase on the project level as well as growth, employment, and rising export earnings on the national level. Environmental technologies may also stimulate regional development, entrepreneurship and innovation, and lower the vulnerability of firms and households to increases in energy prices. Lower energy production may be correlated with reduced power shortages; shorter lead times make it easier to accommodate changes in energy demand; and the production of energy efficiency equipment may use idle production capacity.

 Political impacts: In as far as energy efficiency projects reduce the reliance on nuclear energy and fossil fuels, they may reduce conflict potential and increase the security of energy supply;

 Social impacts include a reduction of crime through better street lighting as well as lower morbidity and mortality through better heating systems, better isolated homes, lower pollution, and improved air and water quality.

It is also conceivable that energy efficiency projects have negative impacts: consider, for example, the pollution and waste produced by the production, distribution, and maintenance of energy efficiency equipment. Moreover, benefits and costs are unequally distributed: For example, for oil exporting nations energy efficiency improvement can mean lower demand for oil and thus lower revenue. For producers of inefficient technologies, energy efficiency improvements can mean unsold inventories and financial losses.

What counts is not so much whether there are positive or negative effects associated with energy efficiency, but what the net balance of effects is. Overall, are there more positive impacts than negative ones.

Measuring impact. In many projects it is impossible to quantify environmental, economic, political, and social impacts because of a lack of data. The problem with such impact indicators is that they are hard to measure. It is unclear whether individual projects, even large ones, can at all have a discernible effect in terms of such variables. However, since taxpayer-supported projects must be justified in terms of such impacts, MIs often claim to have such impacts with their activities. Even calculating one single impact can be quite complex: For example, energy efficiency activities are often accompanied with rising energy prices because accounting structures were created at the same time to pass on the full cost of energy to consumers. This, however, reduces the need for subsidies and therefore lowers the fiscal expenses and tax burden. Moreover, charging the correct price for energy removes distortions in resource allocation, improves investment decisions, and makes it more profitable to invest in further energy efficiency improvement. All this, in the end, may benefit the same consumers who are initially burdened by higher energy prices.12

Even people who develop projects and have access to all information regarding their projects find it difficult to establish impact findings in a reliable manner. The longstanding debate about the incremental cost principle of the GEF demonstrates how difficult it is to prove impacts: Establishing proper baselines and measuring what difference a particular project makes for the global environment are some of the difficulties facing incremental cost calculation .

If impacts are too difficult to measure, the next best alternative may be to choose a proxy variable, which is positively correlated with many of those impacts. One possible proxy variable would be the level of investment in energy efficiency from public and private sources. Another would be the level of commercialization of energy efficiency technologies. These variables are discussed in more detail below.

Outcomes The second category of measures can be referred to as outcomes. Outcomes are usually defined as changes in the behavior of target groups. A positive or negative investment decision would be an example of an outcome. The mobilization of private capital for energy efficiency is an attractive policy objective because of the assumption that the more is invested in energy efficiency, the more emissions of

12 This paragraph is a simplified description of the causal linkages that need to be considered. This only supports the point how complex it is to measure impacts. GHGs and other pollutants will be reduced, the more growth and employment will be created; the more energy security will be achieved; the lower the morbidity and mortality; and so on. In this way, the outcome variable of private investment is a determinant of impact and therefore may serve as a proxy variable.

There are complications, however. The above direct causal link between investment and impact may only be true if the following conditions are fulfilled:

(a) …if the investment leads to actual efficiency improvements. This is not always the case. If the investment is wasted, the technology breaks down, or planned efficiency improvements do not materialize, the stated impacts/benefits will not materialize.

(b) …if the public expenditure on mobilizing private capital will not encourage a 'culture of subsidy', in which firms get used to the subsidy and cannot compete if they are removed. If this is true, subsidies may hamper rather than promote the spread of environmental technologies in the long term.

There are other problems connected with using private capital mobilization as a performance benchmark. One such problem is that private capital mobilization is not easy to measure:

 First, there is a need to distinguish between different forms of funding (grants, debt, equity, quasi-equity, and guarantees): A $1 grant does not equal a $1 loan, which in turn does not equal $1 worth of guarantees. There is no easy way to make these outcomes comparable.

 Second, there is a need to consider different stages of funding (initial seed funding, operating capital, funding expansion). In some cases, seed funding is much more important but harder to come by than operating capital. Therefore, $1 in seed funding cannot necessarily be equated with $1 operating capital.

 Third, indirect multiplier effects in which the private sector replicates projects may be much larger than direct project cofinancing, but such indirect multiplier effects are harder to measure. A project may have low private investment, but it may become the model for future private sector investment, and is hence much more valuable than a one-off project with a large sum of private cofinancing.

Another problem with using private capital mobilization as the performance measure is that it can have negative consequences: if a project is unprofitable or does not yield the desired results, private sector players may be discouraged from participating in future projects. In this case, the commercialization process would be slowed. These problems show that the commercialization process is probably a better performance benchmark. It will be discussed in a separate section below.

Outputs Each project produces a number of outputs, which may or may not create outcomes and impacts. Outputs are the immediate results from an activity, for example, trainings or workshops held, feasibility studies written, policy missions completed. In many cases, project documents describe broad environmental and other impacts while committing only to doable outputs such as certain numbers of investment proposals completed (instead of promising to get them financed) or certain activities of policy advice completed (without promising any impact in terms of policy change).

The effect of outputs varies: Some outputs remain ineffective and without discernible benefit in terms of any performance indicator; while other outputs can be critical in achieving outcomes and impacts. For example, policy missions or phone calls to legislators may remain without effect, but they can also catalyze changes in laws and regulations, which in turn would produce major impacts (for as long as these laws and regulations remain in effect and as long as they are enforced).

From a research perspective, measuring performance in terms of outputs would be the easiest approach, because outputs are usually measurable and quantifiable. But outputs have no intrinsic value. They are relevant only in as far as they lead to outcomes and impacts. But herein lays the problem: It is difficult to show whether trainings, studies, meetings indeed had an impact on outcome or impact variables. We can assume that they do, but we may not be able to prove it. Therefore, most output measures cannot be taken as proxy variables for outcomes and impacts. Commercialization – the key variable? In the methodology section, we distinguished between direct and proxy variables: Either, performance evaluations can be based on direct evaluation of success or failure in terms of variables such as environmental improvements, financial savings, job creation, and energy security. Or, the focus can be on a key underlying factor, which is relevant for achieving several or all of these objectives. One such proxy variable is the commercialization of energy efficiency technologies.

Commercialization could be defined as a process whereby a technology or sector becomes more profitable, less risky, and more feasible to implement by private sector organizations. Commercialization goes beyond generating private sector interest and involvement in energy efficiency projects. This is important to note, because it has become very common to call for more private sector 'involvement', 'participation' and the like, as if such involvement is a goal in itself. Getting the private sector involved is only the first step; getting the private sector satisfied is much more important. Private sector involvement without private sector satisfaction is counterproductive: If the expectations of the private sector are not fulfilled, or if the private sector gets 'hooked' on public sector incentives, the commercialization of environmental technologies is slowed. It is easy to involve the private sector if sufficient incentives are provided. But it is more difficult to make sure that the involvement leads to sustained interest, and that financial profit originates from good project design and implementation, not from subsidies.

To say that one of the main objectives of MIs in energy efficiency should be to work for commercialization means, paradoxically, that multilateral institutions should try to put themselves out of business: the greater the funding from the private sector in energy efficiency, the less funding is required from governments and MIs. Governments and MIs can concentrate instead on activities and technologies with lesser private sector potential.

What are the indicators of successful commercialization? The following signs point to progress in terms of commercialization:  when the private sector makes a successful investment by subscribing equity in, or providing loans to, an energy efficiency project;

 when after the development and construction phase projects are sold to, and successfully operated by, the private sector;

 when projects are completed without private sector funding, but are later successfully replicated by the private sector;

 when the business environment for investments in energy efficiency improves (e.g. through reform of energy prices, taxation, currency convertibility and profit repatriation, property rights and contract enforceability).

 when costs for energy efficiency improvements decline.

 when beneficial effects are noted on the demand side (e.g., greater consumer interest, higher willingness to pay). 4. The causal model

STRUCTURE OF CAUSAL MODEL

The causal model serves as a basis for thinking systematically about the interaction of all variables in the commercialization process. The model is useful because it helps classify a large number of variables in terms of their functions in the commercialization process, and because it helps to focus on the overall structure when it is easy to get lost in the details of particular projects and activities.

The causal model links the factors explaining success or failure to commercialize (the independent variables) with the commercialization outcome (the dependent variable) through the determinants of commercialization (linking variables in the causal pathway). The three elements can be characterized as follows:

 The dependent variable is the commercialization outcome, which usually is a decision of a profit-driven private firm or investor to risk their funds on energy efficiency projects.

 The causal pathway is the transmission mechanism linking the MI mechanisms (the independent variables) with the commercialization response (the dependent variable). This transmission mechanism consists of two sets of variables:

 The first set of variables refers to the mechanisms used by multilateral institutions to promote energy efficiency

 The second set of variables are the 'determinants of private investment', and they can have two manifestations: (1) drivers of commercialization, or (2) barriers to commercialization.

 The independent variables are the factors, which influence the choice, design and implementation of mechanisms used by multilateral institutions, and which contribute to their success or failure in affecting commercialization outcomes. LOGIC OF CAUSAL MODEL

The logic of the causal model can be best illustrated through an example (see Figure 1 below). Let us take one variablesay the quality of staffto see how it may explain some hypothetical performance findings. The model could argue that the quality of staff is related to performance as follows:

High quality staff at multilateral institution (independent variable: explanatory variable) enables the establishment of a persuasive set of policy advice (linking variable a: MI activity or mechanism), which in turn triggers policy measures to cut subsidies for polluting energy sources (linking variable b: determinant of commercialization), which in turn leads to higher energy prices and ultimately to greater commercial activity in energy efficiency (dependent variable: commercialization).

The causal model thus explains why certain MI activities or mechanisms have succeeded or failed in affecting the determinants of commercialization (barriers and drivers) to create a commercialization outcome. It is critical to understand this multiple-step causal process, in which the independent variables affect linking variables, which in turn affect the dependent variable. It shows that MI actions are not directly linked to commercialization outcomes, i.e. that MIs are only successful in as far as they manage to affect the determinants of commercializations (the drivers and barriers).

The structure of the causal model is illustrated in Figure 1: 2nd MULTI-conference 4th session: Governance

Figure 1: Structure of causal model

Causal Pathways

Transmission mechanism linking independent and dependent variables

Independent Pathway I Linking Pathway II Linking Pathway III Dependent Variable (y) Variables (xa-xz) Variables (aa-az) Variables (ba-bn)

Explanatory variables Mechanisms Determinants of Response Factors explaining the choice, Activities of commercialization Sustainable design and implementation of MI multilateral Commercialization mechanisms as well as their success institutions or failure to commercialize

Vettre, 18-19 January 2001 Independent variables Levers for performance 4 categories of linking Effects of linking 2 categories of linking Effects of linking The performance of categorized in 3 dimensions improvement variables b variables b variables c variables c multilateral institutions in terms of stimulating: POWER  pressure from board (1) Project QUANTITY stimulate drivers promote  -source profit-driven of authority: private moral, Development & military,investment resources?  pursuit of self interest. Commer- Financing overcome barriers prevent - price reductions due to scale economies cialization How?LEARNINGand Bytechn. innovation of cleanQUALITY (2) Project  cooperation betw. MIs Brokering  -affectinginvolvement lasting demandcosts & of andcivil societytechno- benefits willingness to pay logies (3) Policy Advice -changing institutional power COMPARATIVE CAPACITYrelationsinnovation ADVANTAGE  promoting  quality of staff and or mgmt. OR SYNERGY (4) Education learning  avail. financial resources  promoting cooperation org. design & governance structure validating certain actions 5. Case study: The Poland Efficient Lighting Project (draft) 13

Acronyms used in the case study CEE Central and Eastern Europe CEECAP Central and Eastern European Consumption and Production Patterns Secretariat CFL Compact Fluorescent Lamp (a fluorescent lamp designed for use in a standard light bulb socket) DSM Demand-side Management EBRD European Bank for Reconstruction and Development EEA European Environment Agency ELI Efficient Lighting Initiative ESCO Energy Service Company FEWE Polish Foundation for Energy Efficiency GDP Gross Domestic Product GEF Global Environmental Facility GHG Greenhouse Gas IBRD International Bank for Reconstruction and Development IFC International Finance Corporation IIEC International Institute for Energy Conservation IRP Integrated Resource Planning NGO Non-Governmental Organisation PELP Poland Efficient Lighting Project PLP Philips Lighting Poland VAT Value Added Tax WB World Bank WWF World Wide Fund for Nature ZE Zaklad Energgetycznes (Polish Electric Distribution Companies)

Introduction The Polish Efficient Lighting Project (PELP) traces its roots back to 1992. At that time Polam Pila, the largest and then government owned Polish lighting manufacturer formed a joint venture with Philips B.V. Lighting of The Netherlands. The joint venture produce compact fluorescent lights (CFLs) for the Western European export market. In 1992 the International Finance Corporation (IFC) commissioned the International Institute for Energy Conservation (IIEC) to review Philips Lighting Poland’s (PLP) investment portfolio. The goal was to identify energy efficiency projects, which could be undertaken in cooperation with the Global Environmental Facility (GEF). The IIEC recommended promoting CFL use in the residential lighting

13 Some of the data contained in this case will be updated using the latest statistical reports published by EBRD, IEA and the World Bank. Some missing data will be added using the same publications.

41 sector as a pilot demand-side management (DSM) project. In 1994 the GEF granted final approval to the project and the IFC approval followed a year later.

Setting the Scene Poland is located in east central Europe bordering on the Baltic Sea and Russia to the north, Lithuania, Belarus and Ukraine in the east, Germany in the west, and the Czech Republic and Slovakia to the south. Climatically, Poland lies in a transition zone between the coastal central European region and the continental extremes of the eastern European region. Poland has a surface area of 312,683 km2 and a population of roughly 40 million. The population density is 123 people/km2, of which 62% is urban and 38% rural. The most densely populated areas are found in the south and west while the north and east are devoted primarily to agriculture and are thus more thinly settled. About 60% of the country’s total land area is used for agriculture.

Following World War II, Poland experienced extensive industrialization. The coal, steel and chemical industries were all intensively developed. Electricity production increased by an order of magnitude (IFC, 1996). Like all former East Block countries, emphasis was placed on the development of the industrial sector with little concern for the environment.

Poland’s economy today is characterised by inefficient energy use. Coal dominates Poland’s fuel resources, accounting for three-fourths of primary energy consumption in 1994 (GEF 1994; IFC, 1996). The mining and burning of coal for electricity result in extensive air and water pollution. In 1994, Poland ranked twelfth in the world in terms of CO2 emissions (GEF, 1996). Poland is second only to the former Soviet Union in energy intensity, consuming up to twice as much energy per dollar of GDP as the United States (GEF, 1994). Other GHG emissions include methane from bituminous coal production. Poland accounts for 7% of global coal mine methane emissions (IFC, 1996). The use of low-energy, high sulphur lignite also contributes to

SO2 emissions, which are substantially higher than EU per capita averages (IFC, 1996).

Uncontrolled coal-fired industrial and electricity generation facilities have historically been concentrated in Silesia, the south-western region of the country. This area, shared between Germany and the Czech Republic, is known as the “Black Triangle”.

42 Its accumulated environmental harm has put ecosystems and human communities at risk.

Poland’s energy domain is similar to other sectors of the economies of Central Europe. During the communist regime, energy production was characterised by top- down decision-making and production quotas. Environmentally unrestricted development of heavy industry and intensive agriculture resulted in the deterioration of both air and water quality in ground and surface waters. Coal burning, apart from the release of GHGs, is responsible for the release of toxic amounts of mercury, arsenic and lead, which then collect downwind in lakes, farmlands and cities (IEA, 1993). Saline water discharges from coal mines are also discharged into rivers. Consequently, the pollution of both air and water is a critical issue (CEETAC, 1999; WWC, 1999). Recent slowdowns and closures of polluting factories has improved the quality of some surface water. Yet, aquatic biota remain affected by both point and not-point sources of pollution, hydraulic engineering works, and hydroelectric and electricity generation works.

Poland faces the dual challenge of sustaining growth performance in a newly competitive economic system (WB, 1996), and of preparing for European Union accession. These two objectives are closely intertwined: the measures required to eliminate macro-economic imbalances, increase micro-economic efficiency, eliminate environmental deterioration, and sustain growth, coincide to a large extent with the economic requirements of EU accession.

The Central and Eastern European Consumption and Production Patterns Secretariat (CEE CAP, 1998), observes that some environmental benefits have been derived from the closing down of dirty and inefficient factories and mines, as well as the effects of the prolonged economic slowdown in the early 1990s.

However, new environmental problems are associated with “rampant economic competitiveness” in the new private sector and a corresponding lack of good economic governance of the transition process, as well as the emergence of affluent and status linked consumption as the dominant life-style model, which has replaced more frugal and conserving practices” (CEE CAP, 1998).

Electricity and lighting

43 Following the political transformation of 1989, a raft of institutional and economic reforms were initiated. Chief among which was the Privatization Act of 1990. In the first few years after the institution of reforms primary energy consumption declined (IFC, 1996) such that in 1990, total consumption of lighting products represented only about 70% of 1988 levels. However, positive growth in this sector began again in 1993. Generally the lighting market has been found to be closely related to the state of the economy, the standard of living, the extent of social facilities, and the pace of industrial, commercial and infrastructure development (IFC, 1992).

Gross electricity consumption was projected to grow at rates of 3-5% during the 1990s, depending upon economic growth, energy price reforms, macro-economic reforms and the priority given to energy efficiency investments (GEF, 1994).

Planners in the power sector contemplated the need to invest US$5.2 billion in generating capacity between 1991-1995 to meet new demand, replace existing plant and install pollution control devices (WB, 1993). Substantial excess generating capacity exists, but additional investments by the Polish Power Grid Company (PSE) in new generating capacity are currently forecast by the World Bank for the period beyond the year 2000 as the economy continues to grow (WB, 1996). Demand-side management initiatives have been adopted as conservation measures to defers the need for new generation, transmission, and distribution capacity.

The market for energy efficient lighting products in Poland has grown by X% between 1990 and 2000. Most residential customers in the household sector still use conventional incandescent bulbs for lighting purposes. These bulbs are inexpensive to purchase, provide good lighting quality, and fit most Edison type (screw-in) sockets. However, incandescent bulbs are energy inefficient and have a relatively short life span. Compact Flourescent Lights (CFLs) increasingly replace conventional incandescent light bulbs. CFLs provide a high quality of lighting, consume only 25% of electricity of incandescent light bulbs, and last 8 to 10 times longer (GEF, 1996).

Barriers Competitive market concepts were relatively unfamiliar terrain in Poland at the time of PELP initiation (IFC, 1996). Poland’s newly emerging market had difficulty attracting capital from financial institutions such as commercial banks and leasing

44 companies. Effective project implementation for PELP depended on remedying the lack of access to financing for lighting efficieny projects and equipment. But the project was constrained by the fact that both manufacturers and installers lacked experience with financing. The development and adaptation of financing mechanisms depended on reducing development risks and costs.

Practical limitations also existed at the public-private sector interface. Among the main problems were antiquated state of billing and collection systems: late issuance of bills for electricity consumption; the use of aggregate metering on entire apartment blocks; the absence of consumer-oriented marketing experience on the part of utilities; and widespread customer non-payment (IFC/GEF, 1994) prevented both the utility and distribution company to attract interest from financial institutions.

Table 1: Main Barrier Types

Main Barrier Types Project Activities to Remove Barriers high initial cost of lamps a) increase market size to reap quantity discounts and reduce unit cost b) develop promotional price discount programs with interested manufacturer lack of financing facilities c) offer partial credit guarentees to financial institutions d) attract additional capital from IFC and other sources e) develop and arrange to provide financing from commercial sources for long-term program lack of linked programs between utility bill develop joint programs between financial collection facilities and financial institutions and electric distribution utilities institutions that would provide customer for the distribution of lamps on credit or under credit for energy efficient lighting leasing arrangements and the collection of repayments through beneficiaries government regulations prohibiting utilities provide assistance to regulatory authorities, to include repayment charges for lamps utilities and financing institutions to into their bills, with the power to cut remove these barriers services in the case of non-payment lack of awareness by utilities about the educational programs, training and

45 advantages to their operations (e.g. demonstration programs for utility peakload operations) from the widespread management and staff use of energy efficient lamps ignorance of potential customers about the public education campaigns and benefits from using CFLs and other demonstrations efficient lighting technologies risk aversion of potential customers development of quality assurance because of fear of non-performance and programs, testing facilities and seal of shorter than expected life-expectancies quality approval, combined with extended warranties from reutable dealers, utilities or outside institutions unfamiliarity of potential users with the a) public information and demonstration unusual shape and lighting characteristics programs of CFLs and other efficient lamps b) collaboration with lighting and luminaires manufacturers to develop suitable luminaires and fixtures optimized for CFL use and other efficient lamps

Source: Adapted from Project Documents of IFC’s Efficient Lighting Initiative (ELI)

Moreover, the Polish lighting industry lacked the institutional infrastructure to effectively support the testing specifications and standards required for efficient lighting products. And consumers were not prepared either to switch in large numbers to CFLs as long as the savings potential was poorly understood.

Little information was available for consumers to know that a CFL is a cost-effective purchase on the basis of both avoided electricity consumption and conventional incandescent lamp re-purchases. At the time of pre-appraisal, CFLs in Poland were selling at retail prices equal to or greater than those generally found in Western Europe (IFC, 1996). Because income levels in Poland are significantly below those in Western Europe, the initial cost of a CFL posed a significant barrier to the consumer (IFC, 1996). Although rates of return on investment in energy efficient lighting can be attractive, such investments typically fare poorly in competition with other investment options for both businesses and consumers .

Savvy consumers evaluate lighting purchases by assessing the amount of time required to recoup the initial cost through undiscounted energy savings (GEF, 1996). However, electric utility billing practices for residential consumers can obscure the

46 economic signal to invest in energy conservation. Residential billing was typically done on a quarterly or semi-annual basis, six months after the time of actual consumption (GEF, 1996). Since 1989, the rate of inflation and the frequency of increases in electricity tariffs have caused changes to customer bills of such magnitude as to overwhelm most conservation-induced savings (GEF, 1996).

Lack of information was not limited to consumers. Utilities, NGOs, and other groups knew more about CFLs but lacked the necessary information and skills to conduct demand-side management programs in a professional manner. To help remedy this situation, PELP provided grants Polish utilities to undertake demand-side management and consumer education campaigns. The purpose of these campaigns was to make consumers aware of the existence and the benefits of CFLs. A 1993 survey revealed little familiarity amongst consumers with CFLs. Not only did consumers knew little about product benefits, selection and installation. In the shops, there was a limited selection CFL products and not enough shapes and sizes that would fit into different types of lamps.

Early development of PELP

Before the launch of PELP, the IFC had helped to mobilise the resources to finance new investments in one of the first major privatisations in Poland, that of Polam Pila. In 1992, a joint venture between Polam Pila, the government-owned and largest Polish lighting manufacturer, and Philips Lighting B.V. of the Netherlands was launched with IFC debt financing (IFC, 1996). Following modernisation, the resulting Polish joint venture was renamed Philips Lighting Poland (PLP). The joint venture contributed to the transfer of state-of-the-art production technology for the production of CFLs (IFC, 1995). It manufactured a number of lighting products, including two lines of CFLs (GEF, 1996). Production capacity for CFLs at PLP was in excess of 14 million annually (GEF, 1996). Because the domestic market for CFLs was quite small the lamps were exported, mainly to Western Europe.

IFC’s proposal to use GEF financing to stimulate the CFL market in Poland was a novel attempt to leverage private sector investment for environmental purposes by complementing the existing IFC loan to PLP. The GEF component would make the

47 CFLs affordable to the average Polish houselhold through targeted manufacturer subsidies. This in turn would create domestic demand for these and other energy efficient lighting products, yielding both economic (indigenous market stimulation) and environmental benefits (reduced GHG emissions).

GEF funding was thus sought to (1) promote household and commercial energy conservation; (2) indirectly reduce emissions of CO2 and other GHGs associated with Poland’s energy sector; and (3) offset some of the need to make new investments to generate additional electricity supplies to accommodate demand growth (GEF, 1994).

PELP Goals

PELP had four principal goals: (1) to reduce GHG emissions from the Polish electricity sector, (2) to benefit the Polish economy through consumer savings and expanded CFL manufacture, (3) to develop the capacity of Polish utilities to deliver DSM services, and (4) to demonstrate the benefits of DSM programs. PELP was designed to encourage investment by the private sector in the project’s realization (GEF, 1996) and manufacturers were asked to decrease the wholesale price of their products to participate in the project. The goal was to approach price reductions of US$1.6 million over the project’s two-year lifespan (IFC, 1996). The combined effect of typical Polish distribution mark-ups and VAT usually results in retail CFL prices which are 175% of wholesale prices. By reducing wholesale prices, PELP effectively sought to solicit an additional investment in the form of reduced distributor mark-up and VAT worth approximately US$3.6 million. The US$2.7 million GEF subsidies should, therefore, have resulted in total retail price reductions with a value of approximately US$7.9 million (IFC, 1996).

Project Design

A project template developed by Southern California Edison (Borg, 1994) was chosen by IFC and IIEC as the basis for a CFL-based Polish DSM initiative (GEF, 1996). Because the retail price of a CFL is typically 35 times that of an incandescent

48 bulb, the price difference poses a significant “first cost” barrier to consumers (IFC, 1996; GEF, 1996). GEF support for PELP focused on reducing the first cost and other market entry barriers for consumers to make initial purchases of CFLs. The GEF subsidies and the manufacturer price reductions were applied at the wholesale level; they were then multiplied as CFLs are sold, bought and resold through the product distribution chain (GEF, 1996). By lowering the wholesale cost, the amount the consumer must pay after mark-ups and taxes was lowered. PELP also provided customer information on the benefits and applications of CFLs with a view to strengthening the Polish energy efficient lighting industry to sustain long-term transformation of the lighting end-use sector to higher levels of energy efficiency (IFC, 1996).

During 1993 and 1994 the IFC and IIEC worked closely with the Polish Foundation for Energy Efficiency (FEWE) to research the Polish lighting market and to survey the level of consumer awareness of energy efficiency lighting options (GEF, 1996). In conducting the pre-appraisal, the IIEC team relied mainly on focus groups, product field tests, and interviews with professionals from the lighting industry, and on market data made available by manufacturers and distributors (GEF, 1996). Focus group research and a CFL field test were conducted by FEWE. In the Warsaw and Katowice regions, the latter in highly polluted Silesia, 35 participants were given 80 CFLs to use at home and were asked to fill out a questionnaire to track use and consumer response to the lamps (GEF, 1996). A WB report on demand-side management in Poland was also prepared (Hagler, Bailly, 1993). This research prepared the ground for the adaptation of international experience with DSM CFL dissemination programs to Poland, namely the Poland Efficient Lighting Project (PELP) (See Figure 1).

In December 1994, PELP received GEF approval for the use of US$5 million in pilot phase funds. IFC’s Environmental Division was assigned responsibility for managing project implementation. Because Polish electric utilities had no experience with DSM, IFC’s management approved competitive selection of a private sector utility partner with the appropriate experience to administer the CFL-based DSM in Poland (GEF, 1996). The Netherlands Energy Company (NECO) was chosen. The management of project activities resided principally with NECO’s daughter company,

49 Netherlands Energy Efficient Lighting B.V. (NECEL). NECEL worked with FEWE, Polish professional societies, NGOs, selected Polish electricity distribution companies (ZE), PSE, and Polish lighting manufacturers to implement PELP (GEF, 1996).

Netherlands Efficiency Lighting B. V., although not called upon to invest its own capital, was responsible for the administration of PELP. It fulfilled its administrative tasks on a fee-for-service basis. The incentive structure for manufacturers was based on unit sales. The promotion of CFLs by the cities of Elk and Chelmno, which took part in the project, increased support for demand-side management. By reducing electricity demand through CFL subsidies, which is cheaper than building new generating plants, cities have a financial incentive to ensure success of the DSM program. There was no private sector co-financing of PELP. Day-to-day operations were conducted by the Dutch company NECO and its subsidiary NECEL, in cooperation with FEWE.

PELP was designed to use a combination of direct subsidies, other DSM approaches and consumer and lighting professional education. Careful monitoring documented PELP’s impact on the Polish lighting market, Polish residential energy consumption, and on GHG emissions (IFC, 1996).

The major components of PELP were:

 CFL subsidy program  Luminaire subsidy program  Pilot DSM program  Public education program  Monitoring and evaluation program  PELP administration

Each of these components are discussed below.

CFL Subsidy Program

The average Polish home has 15 standard Edison-type electric light sockets. Although the market for CFLs had grown steadily since its start in 1992, when sales began, CFLs in 1994 still occupied only a fraction of these sockets, and represented a tiny

50 percentage of total lighting sales. IIEC estimated the size of the Polish market for CFLs at 21-26 million units. The CFL subsidy program was designed to increase demand for CFLs by approximately one third. The subsidy program was used to achieve the direct replacement of at least 1.2 million incandescent light bulbs with CFLs over a period of eighteen months.

The saturation level of sales, i.e., a CFL fitted to every socket that can use one, divided by the average lifetime of a CFL, was estimated at 3.7 million (#63). Market analysis estimated that the saturation level would be achieved by 2012. The subsidy program was designed to promote market dissemination by placing downward pressure on retail prices. Lowering prices was expected to stimulate demand, which in turn would help jump-start the retail market. The demonstration effect of the project was to accelerate the market by five years, therefore, achieving saturation by 2007.

To qualify for subsidies under PELP, manufacturers were required to show that their CFLs were produced in Poland, that they meet PELP’s technical standards, and that a sufficient number could be produced. Four manufacturers, Detlam, Maya, Philips Lighting Poland, and Vox, qualified for PELP and signed agreements with NECEL to participate.

Luminaire Subsidy Program The benefits of CFLs can be realized using a systems approach that incorporates the design of the fixture, the light source and associated electronics. To promote this technology, PELP ran a subsidy campaign in the winter and spring of 1998 for resiential CFL luminaires, similar to the subsidy campaign for CFLs. The luminaire subsidy program subsidised luminaires appropriate for small businesses and homes in a manner similar to that of the CFL subsidy program. However, instead of receiving monetary subsidies, Polish manufacturers received compact fluorescent luminaire components for incorporation into their products. Producers were then required to pass on their reduced costs to the retail level. PELP also sponsored luminaire education events for professionals, including an energy efficiency awareness program for lighting designers. A design competition was co-ordinated with the faculties of industrial design at the Academy of Fine Arts in Warsaw and Krakow. Seminars were

51 held on energy efficient luminaires and plans were made to introduce a design project on energy efficient luminaires for the following academic term.

In the meanwhile, PELP also worked with the Polish Foundation for Energy Efficieny (FEWE) to continue programs begun with the German branch of the World Wide Fund for Nature (WWF) to perform energy efficient lighting retrofits in schools. PELP also prepared brochures on the benefits of energy efficient lighting retrofits for dissemination throughout schools in Poland.

Moreover, there was an education campaign to introduce luminaires to both manufacturers and service providers who were unfamiliar with them. These combined efforts built a human capital infrastructure, which supports future market development and efficient lighting design.

Pilot DSM Program

The pilot DSM project was intended to demonstrate how DSM could be used to address the distribution capacity constraint persisting in several urban areas in Poland. On the market side, DSM can help electric distribution utilities increase the cost-effectiveness of their operations. DSM management can be a cost-effective means of reducing demand and alleviating overcapacity within a designated service area defined by a capacity-constrained substation within the distribution system (IFC/GEF, 1994).

On the environmental side, DSM can be a low-cost measure to reduce environmental externalities associated with the power sector. DSM produces measurable reductions in GHG emissions within a relatively short time period. Energy restructuring through DSM contributions avoids bringing additional generating capacity on-line. It also provides a more sustainable source of financing required to achieve the maximum effectiveness of such programs. High efficiency lighting programs featuring CFLs have been aggressively promoted by North American and Western European utilities as DSM programs targeted at residential consumers (Borg, 1994).

A 1993 study of DSM potential in Poland identified significant energy consumption associated with lighting in the residential, commercial and industrial sectors. In the residential sector lighting use accounted for 14,550 GW of annual energy, or 55% of

52 the total sector, representing a total end-use capacity of 13,250 MW (Hagler, Bailly, 1993). PELP aimed to provide the following benefits: (1) reduce present electricity consumption by 94 GWh/year as well as peak demand by 44MW; (2) reduce CO2 emissions associated with coal powered burning stations by about 200,000 tons/year; achieve reductions in GHG emissions directly related to subsidized lamps at a cost of roughly US$21 per tonne of carbon; and (3) achieve electricity savings of 4-10% in residential consumers’ electricity consumption depending on the numbers of CFLs installed (GEF, 1995).

The Gliwice DSM was initially designed to concentrate on opportunities in the industrial sector. Early on, it became clear that the proposed CFL program’s focus on residential sector lighting represented an opportunity to diversify the experience and impact of Gliwice’s planned DSM efforts (IFC/GEF, 1994). In the residential sector, improved lighting energy efficiency can significantly reduce overall sector electricity consumption by reducing load during the peak hours, which results in fewer power plants having to be on line. By actively changing demand, power utilities are able to plan power system development using integrated resource planning (IRP) methods.

Gliwice’s participation in the smaller scale CFL project was to have built capacity in the short term for the utility’s newly established DSM department. Thus, the plans of the Gliwice Distribution Co. (ZE) were linked to the World Bank’s efforts to finance a small pilot industrial DSM in Poland (IFC/GEF, 1994), raising their credibility in the eyes of the public.

As a pilot DSM project PELP was a novel approach not used except in the United States under the auspices of large power utilities. PELP was used to address some of the problems faced by Polish ZEs during the Privatization process, including deferral of distribution system investments (WB, 1998). As expected the project helped build capacity within the utility sector to successfully implement future DSM efforts, which may involve World Bank financing. The project demonstrated the direct and indirect economic and environmental benefits to be derived from DSM efforts, e.g., reduced air pollution, improved human health measured in terms of higher labour productivity, improved agricultural production, and reduced built environment property damage (WB, 1998). The DSM project built awareness and developed the capacity necessary for broader DSM initiatives, which are critical for the long-term

53 success of IRP in Poland. The cost of reducing GHG emissions is zero because the lighting program is cheaper than the avoided power plant.

Public Education Program: Adopting A Multi-stakeholder Approach

Developing consumer awareness was thought to be essential if PELP was to have a sustained impact on the market for energy-efficient lighting products in Poland. The consumer education component of PELP encompassed television advertising to promote CFLs, as well as the preparation of energy efficiency education materials and curricula. The purpose of investing in consumer education was to contribute to the development of long-term demand for energy efficient products. In contrast to a pre-PELP survey undertaken in 1993, which showed little customer familiarity with CFLs, in 1995 83% of survey respondents indicated they had heard of CFLs, and 28% were even able to accurately describe one. At the time 71% of surveyed electronics shops carried CFLs and 11.5% of households owned at least one CFL. By May of 1996 surveying showed that while the percentage of consumers sampled who had heard of CFLs had not increased, 41% could now describe a CFL and 14.4% owned at least one. CFLs were also available in 75% of electronic shops (IFC, 1996).

Polish governmental and non-governmental organizations played important roles in the project. IFC formed an Advisory Committee composed of both governmental organisations and NGOs (GEF, 1996). Ad hoc groups were formed to focus on the environmental issues and benefits associated with energy efficiency and to design a grass-roots public education campaign (GEF, 1996). The public education component of PELP promoted the CFL subsidy by providing general consumer information on the benefits of energy efficient lighting from a trusted non-industry source. Public education activities thus took the form of generic advertising campaigns in support of new lighting technologies.

A PELP logo was designed by the Polish advertising firm Studio P and was promoted as a symbol by which the public could identify high-quality energy efficient products. The PELP logo was used to broaden the recognition of products, which are energy efficient and of high quality. In PELP’s generic advertsing this logo appeared with the names and logos of four widely repsected Polish organizations: FEWE, the Polish Ecology Club, the National Energy Conservation Agency and the Polish Consumers

54 Federation. The logo was used on posters, PELP publications, and in both the television and press advertisments. Articles on PELP and energy efficient lighting were published in leading Polish newspapers. As a result, PELP achieved a relatively high profile in Poland.

Students from 250 grammer schools participated in an energy efficieny education program jointly funded by WWF Germany and endorsed by the Polish Ministry of Education.

Monitoring, Evaluation and Dissemination

IFC was responsible for monitoring and evaluation activities including verification of the project’s environmental benefits (IFC, 1992). PELP used the competitive award of GEF-funded manufacturer incentives, coupled with intensive marketing and public education, to stimulate growth of the Polish market for efficient lighting technology while reducing costs to end-users. PELP used GEF-funded financial incentives to enable price reductions from lighting manufacturers and Polish CFL distributors and retailers. As a result of the subsidy and the marketing and public education programs, a new major CFL manufacturer entered the Polish market. The manufacturers have committed to continue elements of the program without additional subsidies.

PELP monitoring efforts were designed to assess both the direct and indirect impacts of the purchases of subsidized CFLs and the wider transformation of the market with respect to GHG emissions in Poland. Preliminary findings indicate that over their lifetime PELP CFLs will avoid 693,120 tons of CO2 emissions and save customers US$40 million or 725 GWh on their electric bills.

PELP worked with lighting manufacturers through existing product distribution channels and addressed market barriers by promoting projects conceived by local private sector entities that were already attuned to specific market conditions (502238). The success of PELP has generated interest from other developing and transitional countries and encouraged IFC to identify promising locations in which a strategic intervention could accelerate the market for high-efficiency lighting technologies and generate profitable energy savings and environmental benefits.

55 Environmental performance

PELP was designed with special attention to achieving environmental results. Within the context of the Polish environment, PLP is considered to be an environmentally conscious enterprise (IFC, 1992). The principal environmental effect of the project was to reduce GHG and other emissions by lowering electricity demands in the residential sector. Poland’s electricity generating sector is primarily based on coal- fired generation, which is a major contributor to GHGs and hence to global warming. Efficient lighting was an attractive way to reduce projected GHG emissions attributed to energy end-use.

By avoiding electricity consumption, distribution, transmission and production CFLs can avoid more than 75% of the CO2 emissions associated with conventional incandescent bulbs (GEF, 1996; IFC, 1996). Energy savings from PELP were expected to avoid power plant emissions equal to 198,000 tonnes of carbon equivalent (GEF, 1995).

CFLs last 8,000 - 10,000 hours compared to 1,000 hours for a convention incandescent bulb. They produce up to 80 lumens/watt compared to 9 lumens/watt for conventional bulbs. Over its life, one 15W CFL replacing ten 60W conventional incandescent bulbs can avoid the need to burn 350-400 pounds of coal or almost one barrel of oil in a power plant. This in turn avoids the release of 600-800 pounds of

CO2 (IFC, 1996). The estimated emissions reductions for the eight year life of the 1.2 million CFLs to be installed by PELP totals more than 1,100 tons of SO2, 390 tons of

NOx and 1,200 tons of particulates. Over a 21 year period (the period over which the existing inventory of power plants in Poland will remain unchanged according to demand growth projections), the subsidised CFLs and additional CFL sales induced by the project were projected to result in emission reductions of 27,3000 tons of SO2,

6,800 tons of NOx and 15,500 tons of particulates (WB, 1998) Estimated benefits of avoided local air pollution were based on estimates of the per-ton benefits of avoided air pollution used by the WB in previous studies.

Although GEF is primarily concerned about the impacts on the global environment, it was clear that PELP would also bring substantial local-level environmental benefits primarily by avoiding SO2 (IFC, 1996) and other non-GHG air pollutants such as

56 arsenic and mercury. Additional environmental benefits include avoided water and air pollution from coal mining, avoided thermal water pollution from power generation, avoided land use changes from transmission line siting, and direct and indirect economic benefits from reduced or avoided pollution, (IFC, 1996-7) i.e., acid-based erosion of the built environment.

Conclusions PELP received strong support and endorsement from Polish environmental and energy efficiency NGOs. Participation in the project by Polish electric utilities, NGOs and government organisations helped to develop an indigenous capacity to implement further DSM efforts in the future. The development of knowledge was also reaped at the international level. The GEF program in Poland had a significant demonstration value for other CEE countries. The Efficient Lighting Initiative (ELI), a three year program implemented by the World Bank, draws on lessons learned in the IFC/GEF PELP and applies them to other developing and transition countries in order to significantly accelerate the penetration of energy efficient lighting technologies.

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