GROWING GREEN 1 - The Economic Benifits of Climate ActionĐồ

2.4 Energy Intensities in Europe and Central Asia Relative to EU-15 Levels, 1990–2009 332.5 Convergence in Energy Intensity within 2.6 Energy Intensities in Europe and Central Asia, by C

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GROWING GREEN

GROWING GREEN

The Economic Benefits of Climate Action

Uwe DeichmannFan Zhang

The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views

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Attribution—Please cite the work as follows: Deichmann, Uwe, and Fan Zhang 2013 Growing Green:

The Economic Benefits of Climate Action World Bank, Washington, DC doi: 10.1596/978-0-8213-9791-6

License: Creative Commons Attribution CC BY 3.0

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All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank,

1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org ISBN (paper): 978-0-8213-9791-6

ISBN (electronic): 978-0-8213-9792-3

DOI: 10.1596/978-0-8213-9791-6

Cover photo: © Frank Chmura/Getty Images; sunlight collectors at a solar panel station, Bohemia, the

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Cover design: Naylor Design

Library of Congress Cataloging-in-Publication Data

Deichmann, Uwe.

Growing green : the economic benefits of climate action / Uwe Deichmann and Fan Zhang.

pages cm — (Europe and Central Asia Reports)

Includes bibliographical references.

ISBN 978-0-8213-9791-6 (alk paper) — ISBN 978-0-8213-9792-3

1 Environmental policy—Economic aspects—Europe 2 Environmental policy—Economic aspects— Asia, Central 3 Climatic changes—Economic aspects 4 Climatic changes—Government policy I World Bank II Title

HC240.9.E5D45 2013

With Growth after Transition, Improvements in

v

Lower Energy Intensity Insufficient to Reduce

Notes 57References 58

Spotlight 2 Emission Trends in the Europe and Central

Note 106References 106

4 Economic Growth 109

Innovation 120Jobs 125Notes 127References 128

Notes 169References 169

III Sectoral Priorities 171

Industrial Energy Efficiency: Where Are the

2.1 Energy Efficiency, Energy Intensity,

2.2 MAC Curves Can Make the Energy

2.3 Small Energy Savings Can Avoid Big Power

2.4 Energy Price Reform: Lessons from a

3.3 The Benefits of Energy Portfolio Diversification 894.1 Differentiated Climate Action, Carbon

4.2 Broader Innovation System Reforms

5.1 Impact of Climate Policies on Employment Patterns in Poland Relative to Overall

7.2 Efficiency Investment in Arkhangelsk Pulp

8.1 Improving Measurement of Transport

8.3 Avoiding Emissions by Reforming Private

8.4 How Seoul Effectively Integrated Supply-

8.6 Climate Finance Can Catalyze Smart

9.1 Thermal Efficiency Upgrading in Romania:

Demonstration of Benefits Fosters

9.2 Mixed Success of Partial Credit Guarantees

9.4 Innovative Financing of Energy Efficiency

9.5 TRACEing Energy Efficiency Opportunities

9.6 Monitoring Urban Emissions: You Can’t

10.1 Carbon Finance Can Assist in Financing

10.2 Mitigation Options in ECA’s Livestock

10.3 EU Policies for Promoting Environmental

and Climate Benefits in the Agricultural

1.3 Carbon Dioxide Emissions per Capita, Europe

1.4 Wind Energy Capacity in the EU-15, 2009 vs

S1.1 Rise in Global Land Air Temperatures,

2.1 Countries’ Per Capita Energy Consumption

2.2 Countries’ Per Capita Energy Consumption

Relative to Per Capita Fossil-Fuel

2.3 Energy Intensities in Europe and Central Asia

2.4 Energy Intensities in Europe and Central Asia Relative to EU-15 Levels, 1990–2009 332.5 Convergence in Energy Intensity within

2.6 Energy Intensities in Europe and Central Asia, by Country Group Relative to

B2.1.1 Energy Intensity (2009) and Average Annual

Change in Energy Intensity (2000–09) of

2.7 Trajectories of Economic Output, Energy Intensity, and Carbon Dioxide Emissions, Selected Eastern European and Central Asian and Western European Countries,

2.8 Projected Trajectories of Economic Output, Energy Intensity, and Carbon Dioxide Emissions in Europe and Central

B2.2.1 Marginal Abatement Cost (MAC) Curve of

Climate Change Mitigation Technologies for

B2.3.1 Projected Electricity Savings from

Appliance Energy Efficiency Standards

2.9 Progress on Power Sector Subsidy Reform, Selected Europe and Central Asia

2.10 Gasoline and Electricity Taxes, Relative to

EU Energy Tax Directive Minimums, in

2.11 Overall Energy Tax Rates in the Czech Republic and Estonia Compared with

Type, Europe and Central Asia Subregions,

3.4 Carbon Intensity of Electricity and Heat

Generation, by World Region,

1992–2009 68

3.5 Electricity Generation Sources in World

3.6 Projected Sensitivity of the Costs of Fossil

3.7 Volatility in Fossil-Fuel Energy Prices,

1997–2012 72

3.8 Renewable Energy Generation Trends in

Germany, Predicted vs Actual, 1995 –2020

3.9 New Renewable Energy Capacity in

3.10 Average Efficiency of Power Generation in

Global Regions and Selected Europe and

3.11 Electricity Transmission and Distribution

Losses in Europe and Central Asia, by

Country, Relative to World and Selected

3.12 CHP Use as a Share of National Electricity

Generation, Selected Europe and Asia

Countries Relative to Selected European

B3.3.1 Implied Fuel Switch with 20 Percent

Renewable Target in Europe and Central

B3.3.2 Risk-Return Profile of Fuel Mix Changes

under the 20 Percent Renewable Target,

Combustion, Europe and Central Asia

Countries Relative to OECD, EU, and

Fuel Combustion in the Europe and

Eurasia Region, under Three Policy

S2.5 CO2 Emission Intensities in Europe and Central Asia Relative to Other Regions, 1970–2010 102

S2.9 Annual Greenhouse Gas Emissions, by

S2.10 Annual Greenhouse Gas Emissions, by

S2.11 Trends in Greenhouse Gas Emissions, by Sector, Europe and Central Asia, 1990 vs

4.1 Restrictions on Two Dimensions of Green FDI and Economywide Restrictions, Selected

4.2 Average Annual Net Exports of Embedded

Annex 1 Countries Relative to Other

4.3 Number of Green Patents in Europe and Central Asia Relative to Selected Other

4.4 Number of Green Patents Granted to Europe

4.5 Imports of Green Goods and Services

in Europe and Central Asia Relative

4.6 Exports of Green Goods and Services in Europe and Central Asia Relative to Selected

4.7 Exports of Green and Close-to-Green Goods and Services in Europe and Central Asia Relative to Selected Other Regions, 2000–10 1224.8 Employment and Shares of Employment

in the Renewable Energy Sector in the

5.1 Employment and Value Added in

Energy-Intensive Sectors of Europe

5.2 Employment Vulnerability and

Adaptability of Europe and Central

B5.1.1 Projected Job Losses and Gains in Poland,

by Region, under a Green Scenario Relative

5.3 Residential Electricity Prices in Europe and

5.4 Residential Electricity Prices and

Cross-Subsidization between Residential

and Nonresidential Consumers in Selected

5.5 Potential Electricity Price Hikes with Subsidy

Removal and a Carbon Tax, Europe and

5.6 Estimated Change in Total Household

Expenditure on Electricity after Price

Increase, by Expenditure Quintile, Selected

5.7 Current Share of Electricity Expenses in

Total Household Expenditure, by Expenditure

Quintile, in Europe and Central Asia

5.8 Estimated Share of Electricity Expenses in

Total Household Expenditure after Potential

Price Increase, by Quintile, in Europe and

B5.2.1 Change in Relative Residential Fuel Prices

B5.2.2 Residential Energy Consumption in Turkey,

5.9 Estimated Gains from Removing Energy

Subsidies while Compensating Poor

Households and Improving Energy Efficiency

5.11 Total Estimated Health Damages from

Fossil-Fuel Power Generation in Europe and

S3.1 Concern about Climate Change among Populations of Europe and Central Asia

6.2 Life-cycle GHG Emissions of Natural Gas Supply, as a Percentage of Field Production

6.3 Marginal Abatement Cost Curve for Emission

6.4 Nuclear Reactor Construction Costs in France

6.5 Shares of Renewable Energy in Total Primary Energy Supply, Europe and Central Asia

6.6 Total Energy Generation from Solar and Wind, Europe and Central Asia, Selected

B6.1.1 Hydropower vs Total Renewable Power

Capacity in Europe and Central Asia,

B6.1.2 Distribution of Hydropower Capacity, by

B6.1.3 Hydropower Development Potential and

Production, Europe and Central Asia

6.8 Learning Curves of Renewable Technologies

6.9 Average Annual Generation of Onshore Wind Energy as a Share of Power Generation and Relative to Average Feed-In Tariffs and Tradable Certificate Prices in Selected Europe

7.1 Energy Consumption from Manufacturing, Selected Europe and Central Asia Countries Relative to World and Western European

Economies under Baseline and IEA BLUE

7.3 Decoupling of Energy Consumption from Manufacturing Output in Europe and

7.4 Convergence in Industrial Energy Intensity

of Europe and Central Asia Relative to

7.5 Convergence in Industrial Energy Intensity

7.6 Industrial Energy Intensity in Europe and

7.7 Industry Energy Intensity vs Value Added, by

7.8 Industrial Sectors Consuming Largest Shares

of Energy in Europe and Central Asia

7.9 Relationship of Changes in Economic

Structure, Energy Efficiency, and Energy

Intensity in Manufacturing Sectors of

7.10 Inverse Relationship between Energy

Intensity and Income or Energy Price in

Selected Countries, Europe and Central

7.11 Effects of Price and Income Changes on

Energy Efficiency, Energy Intensity, and

Industrial Structural Composition in Europe

7.12 Carbon Intensity of Trade, Selected

Countries, Relative to World and EU-15

7.13 Energy Intensity of Steel Production in

Selected Europe and Central Asia Countries

7.14 Energy Intensity and Energy Savings

Potential for the Iron and Steel Industry,

7.15 Thermal Energy Consumption in Production

of Clinker, Selected Countries and Regions,

7.16 Energy Efficiency of Clinker Production,

7.17 Energy Efficiency Benchmarks for the Pulp

and Paper Industry, Selected Countries and

7.18 Age Distribution of Paper and Pulp Mills,

7.19 CHP Share of Industrial Power Generation, Selected Europe and Central Asia Countries

8.1 Road Sector Energy Consumption in Relation to Per Capita Income, Selected

Europe and Central Asia, Relative

in Europe and Central Asia, Relative to

8.5 Road Emissions as Percentage of Transport

Europe and Central Asia Countries Relative

8.10 Motorization Rates in Europe and Central Asia Relative to Nominal GDP

8.11 Land Modal Split for Freight Transport,

8.12 Air Transport GHG Emissions in Selected Europe and Central Asia Countries Relative

8.13 Car Ownership in Relation to Per Capita Incomes, Selected Europe and Central Asia

8.14 Transport Fuel Prices in Selected Europe

8.15 Average Fuel Economy and New Vehicle Registrations in Selected Countries, 2005

8.16 Daily Commercial Parking Rates in

8.17 Greenhouse Gas Intensities, by

8.18 Electrification Rate of Rail Networks,

Selected Europe and Central Asia Countries

9.1 Energy Consumption (Electricity and Heating)

per Dwelling, Selected Countries, 2010, and

B9.5.1 Benchmarking Energy Use for Street Lighting

in Gaziantep, Turkey, and Other Selected

9.2 Municipal Waste Generation in EU, EFTA,

Turkey, and Western Balkan Countries, 2003

9.3 Share of Population Served by District

9.4 Greenhouse Gas Emissions Relative to

10.1 Cereal Yields in Europe and Central Asia

Compared with Argentina, Canada, China,

10.2 Change in Production and Cereal Yields in

Europe and Central Asia Compared with

Argentina, Canada, China, and Colombia,

1993–2007 346

10.3 Livestock and Changing Land Use in Europe

10.4 Changing Composition of Livestock in

10.5 Total Technical Climate Change

Mitigation Potentials in Agriculture

(All Practices, All GHGs), by Global Region,

10.7 Forest Area Trends in Europe and Central

10.8 Labor Productivity in the Forest Sector in

10.9 Forest Industry Employment Ratios,

S3.1 Vulnerability to Higher Carbon Prices and

6.1 Power Plants in Europe and Central

6.2 Nuclear Power Plants in Europe and

6.3 Renewable Energy Resources in Europe

8.1 Greenhouse Gas Emissions from Road Transportation 264

9.2 Population Change in Selected Urban Areas of Kazakhstan, Russia, and

10.2 Organic Carbon Content of Topsoils in

10.3 The World’s Forest Carbon Stock, by

10.4 Estimated Vegetation Area Destroyed

Tables

2.1 Market and Behavioral Failures Affecting Energy Efficiency and Low-Carbon Investments 45

2.2 Market Segments for and Barriers to

Energy Efficiency and Clean-Energy

3.1 Water Withdrawn and Consumed for

3.2 Penetration Rate of Electricity Smart

Meters in Selected Europe and Central

4.1 Public Policies that Promote Innovation,

5.1 Estimated Impact of Potential Electricity

Tariff Increases, by Subregion, on Europe

5.2 Estimated Health Damages from Power

Generation, by Fuel Source, in Europe

6.1 Nuclear Power in Selected Europe and

6.2 Comparison of Major Renewable Energy

Policies 210

6.3 Renewable Energy Support Policies in

7.1 Potential Energy Savings from Adoption

of Best-Practice Commercial Technologies

7.2 Steel Production and Technology in Europe

and Central Asia Countries Relative to

7.3 Cement Production Processes, Selected

7.4 Energy Savings Potential in the Pulp and

Paper Sector Using Best Available Technology,

7.5 Steam and Motor System Energy Savings

Potential in Selected Europe and Central

7.6 Fossil-Fuel Consumption Subsidies,

Selected Europe and Central Asia

8.2 Policy Instruments for Sustainable Road Transport 2809.1 Potential Energy Savings from Buildings in

Europe and Central Asia, with 2008 as a

B9.5.1 Ranking of Energy Efficiency Savings

9.3 Efficiency Measures in Water Supply and

10.1 Opportunities for Carbon Mitigation from Agriculture 35110.2 Carbon Stored in Topsoils, by Land

10.3 Practices Promoting Soil Carbon

10.4 Estimated Area of Degraded Lands in

10.5 Bioenergy Consumption in Europe and

10.6 Costs of Bioenergy for Heat and Power

10.8 Change in Forest Cover in Selected

10.9 Carbon Stock in Living Forest Biomass

in Europe and Central Asia, by Subregion, 1990–2010 370

The world is heading for a rise in average temperatures of 4° Celsius

by the end of the century and possibly more in higher latitudes We

could face a climate that has not been experienced in the millennia in

which human civilizations have developed Given the speed of

cli-mate change, adaptation can be costly and is unlikely to eliminate all

risks, especially for the poorest and most vulnerable As World Bank

Group President Jim Yong Kim warned recently: “Lack of action on

cli-mate change threatens to make the world that our children will inherit a

com-pletely different world than we are living in today Climate change is one of

the biggest challenges facing development, and we need to take action on

behalf of future generations.”

Most countries in the Europe and Central Asia (ECA) region have

been slow to respond to this challenge In light of the prospect of

more frequent and severe droughts, floods, heat waves, and wildfires,

many ECA countries have teamed up with the World Bank and other

development partners to explore adaptation options for coping with

a warmer and more variable climate Our 2010 regional

report, Adapt-ing to Climate Change in Eastern Europe and Central Asia, was written to

inform these efforts Adaptation will remain important as current

heat-trapping emissions commit the world to further warming But

to prevent climate change that exceeds our adaptation capacity,

climate action to significantly reduce emissions must become

a  greater priority for all countries This report, along with two companion reports that distill the lessons from successful countries in increasing energy efficiency and in mitigating the welfare conse-quences of reductions in energy subsidies, shows how this can be made to happen

There are legitimate concerns about the economic costs and social impacts of climate policies But this report shows that well-designed climate action can bring numerous benefits, while its costs can be contained It will be important for policy makers to be mindful of the following key considerations:

First, reducing emissions from energy consumption will require large investments but, given the high energy intensity of the ECA region, these investments offer attractive rates of return This is par-ticularly true for industrial energy use, which could be cut by half without loss of output This is also true for reducing losses in power and heat generation, and for raising the efficiency of energy use by households and in public service delivery By 2017, World Bank financed investments in energy efficiency in ECA will annually avoid the equivalent of today’s CO2 emissions of countries such as Bulgaria

or Switzerland There are many more cases where climate benefits are a small part of overall benefits Improving sustainable transporta-tion reduces congestion, local air pollution, and accidents These local and immediate benefits dwarf those from lower greenhouse gas emissions Air pollution from power generation alone causes almost

$20 billion in health damages in ECA each year In the rural sector, better land and forest management brings urgently needed produc-tivity gains while also increasing the amount of atmospheric carbon captured in soils and trees Restoring land abandoned in Western Russia since 2001 could yield 11 million tons of grain at a time of ris-ing global demand for food For some mitigation options costs still exceed immediate benefits—as is the case with some renewable energy technologies Such options may not become a priority in many ECA countries for some time But the costs of action have been falling as new technologies and experiences become widely shared, while the costs of inaction leading to dangerous climate change will continue to rise if mitigation is delayed The time to act is now

Second, climate action will require some difficult adjustments across the economy, but it will also bring new economic opportuni-ties Many firms have benefited from fiscally unsustainable and envi-ronmentally harmful energy subsidies Protection from the true cost

of energy has contributed to a lack of competitiveness in ECA pared to neighbors in Western Europe and East Asia A modern

com-industry should be able to cope with real input costs by using those

inputs far more efficiently The large shifts in energy and economic

systems over the next few decades will also create entire new

indus-tries and businesses The global market for renewable energy, for

example, was $250 billion in 2011 and is growing fast Opportunities

exist in all countries and across the technology spectrum

Govern-ments can encourage green growth by pursuing ambitious climate

policies and by improving their business climate Countries that have

learned the lessons of experience in the ECA Region’s recent

assess-ment of the European growth model (“Golden Growth”) will be in a

good position to benefit from the transition to a low-carbon

economy

Third, by raising the cost of energy, climate action can affect

employment and household welfare Greater energy efficiency and

effective social protection systems can soften those impacts Labor

market reforms and active labor market policies can facilitate job

transitions, and social safety nets can help those unable to find

ade-quate new work Similarly, rising energy bills would hit the budgets

of the poorest households the most Assistance for better home

insu-lation and more efficient appliances can reduce those bills And many

ECA countries have already improved social assistance programs to

provide additional support with energy costs of poor households

Climate action is one of the ECA Region’s three strategic pillars As

this report shows, it is closely linked to the other

two—competitive-ness and social inclusion Climate policies should prioritize actions

that will strengthen competitiveness and promote economic growth

There are many opportunities to do so in the ECA region And they

can be complemented by affordable policies that moderate the costs

of climate action for the poor and vulnerable By becoming leaders

on climate action, ECA countries can “grow green.”

This report was prepared by Uwe Deichmann and Fan Zhang based

on contributions from a large number of World Bank staff and

exter-nal experts This work was carried out under the direction of

Inder-mit Gill, Chief Economist for the Europe and Central Asia (ECA)

Region, who generously provided his guidance, insights, and

encour-agement The report was sponsored by the ECA Regional Leadership

Team under Philippe Le Houérou, Regional Vice President

The report received substantial support from the ECA

manage-ment team The team would particularly like to thank the Sector

Director for Sustainable Development, Laszlo Lovei, as well as

Kulsum Ahmed, John Kellenberg, Henry Kerali, Ranjit Lamech, Dina

Umali-Deininger, and Wael Zakout; Yvonne Tsikata, Sector Director,

and Benu Bidani in the Poverty Reduction and Economic

Manage-ment Unit; and Jesko Hentschel in the Human DevelopManage-ment Sector

Unit Martin Raiser, Country Director for Turkey, was an early

cham-pion of this study and gave helpful suggestions throughout its

prepa-ration Kseniya Lvovsky and Markus Repnik, country managers in

Albania and Bulgaria, respectively, also provided useful inputs

The study builds on more than 20 background papers and policy

notes authored or co-authored by Brian G Bedard, Brian

Blank-spoor, Hannes Böttcher, Hei Sing (Ron) Chan, Jacqueline Cottrell,

Mame Fatou Diagne, Ariel Dinar, Mark A Dutz, Eleanor Charlotte

Ereira, Carolyn Fischer, Alexander Golub, Mykola Gusti, Marcel Ionescu Heroiu, Gary Howorth, Erika Jorgensen, Matthew E Kahn, Leszek Kasek, Olga Kiuila, Natalia Kulichenko, Florian Kraxner, Donald F Larson, Sylvain Leduc, Michael Levitsky, Shanjun Li, Anil Markandya, Craig Meisner, Andrew Mitchell, Carolina Monsalve, Michael Obersteiner, Jung Eun Oh, Isil Oral, Caroline Plante, Louis Preonas, Irina Ramniceanu, Nina Rinnerberger, Lourdes Rodriguez-Chamussy, Indhira Santos, Dmitry Schepaschenko, Siddharth Sharma, Maria Shkaratan, Anatoly Shvidenko, Jas Singh, Ahmed Slaibi, Govinda Timilsina, Sebastian Vollmer, Krzysztof Wojtowicz, and Tomasz Zylicz.

The report benefited greatly from coordinating closely with two

related studies: Energy Efficiency: Lessons Learned From Success Stories by

Gary Stuggins, Yadviga Semikolenova, and Alexander Sharabaroff;

and Balancing Act: Cutting Energy Subsidies While Protecting Affordability

by Caterina Ruggeri Laderchi, Anne Olivier, and Chris Trimble The relevant sections of this report draw on their work These studies have been supported by the ECA Region’s Regional Studies Program, coordinated by Willem van Eeghen Marianne Fay, Vijay Jagannathan and Michael Toman were peer reviewers for this report and also provided valuable inputs and suggestions in the study’s early stages Elena Kantarovich and Rhodora Mendoza Paynor provided adminis-trative assistance and helped in the production of the report Sofia Chiarucci and Naotaka Sugawara carried out data analysis for various parts of the report and Irina Bushueva, Xu Chen, Tarik Chfadi, Ryan Decker, Po Yin Wong, and Kuangyuan Zhang provided research assistance Gazmend Daci, Dmytro Glazkov, Marat Iskakov, Elena Klochan, and Artur Kochnakyan kindly provided data for energy subsidy estimation

In addition to the contributors of the background papers and allel regional studies, many people at the World Bank and in the region provided helpful comments, suggestions, and other inputs along the way The team thanks Gabriela Elizondo Azuela, Benoit Blarel, Anna Maria Bogdanova, Pascal Boijmans, Ken Chomitz, Jane Ebinger, Daryl Fields, Antonina Firsova, Franz Gerner, Alexander Gershunov, Kathrin Hofer, Ron Hoffer, Peter Johansen, Stephen Karam, Sunil Kumar Khosla, Agi Kiss, Andreas Kopp, Holger A Kray, Ryszard Malarski, Yuriy Myroshnychenko, Shinya Nishimura, Kari Nyman, Victor Olkov, Harun Onder, Salvador Rivera, Alexander Rowland, Jitenedra P Srivastava, Claudia Ines Vasquez Suarez, William Sutton, Jari Vayrynen, Kryzysztof Blusz, and Michael Yulkin

par-We wish to apologize to anyone inadvertently overlooked in these acknowledgments

Matthias Beilstein, Viktor Novikov, and Otto Simonett of Zoinet

prepared most of the maps in this report and also provided valuable

comments on its content Michael Jones was the principal editor and

Romain Falloux designed the Overview of the report From the

Office of the Publisher, Denise Bergeron, Susan Graham, Paola

Scalabrin, and Dina Towbin managed the production of the full

report Preparation of several background papers was supported by

the World Bank’s Green Growth Knowledge Platform, the Research

Support Budget, and the DEC Knowledge for Change Program

xxix

CO2e CO2 equivalent

Anglia

(Fund)EJ/yr Exajoules/year

kilometer

kilometer

GJ GigajouleGJ/yr Gigajoules/year

GW GigawattsGWh Gigawatt-hours

ha HectareHFC Hydrofluorocarbon

IEA International Energy Association

Commission’s Database for Global Atmospheric Research

Mt Megaton

MW Megawatt

MWh Megawatt-hours

PM2.5, PM10 Particulate matter

PV Photovoltaic

Degradation

TJ Terajoule

Change

Indicators Tool

(45 European Countries)

The following country groups are used throughout this report These

categories are broad and commonly used across all the chapters

Commonwealth of Independent States

Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, the Kyrgyz

Republic, Moldova, the Russian Federation, Tajikistan, Turkmenistan,

Uzbekistan, and Ukraine

Eastern partnership countries

Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine

EFTA

Iceland, Liechtenstein, Norway, and Switzerland

EU candidate countries

Albania, Bosnia and Herzegovina, Croatia, Kosovo, the former

Yugoslav Republic of Macedonia, Montenegro, Serbia, and Turkey

Countries that joined the EU in 2004: Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic, and Slovenia

EU-12

Countries that joined the EU in 2004 or 2007: Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, the Slovak Republic, and Slovenia

EU-15

Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom

EU-27

EU-15 plus EU-12

• A simple framework helps guide climate action The priorities are to use energy more efficiently, use cleaner energy, and manage natural resources better Although price instruments like carbon or energy taxes tend to be most effective, climate action will also require regulations and investments such as fuel efficiency standards or research and development spending Complementary growth, social, and environmental policies promote the broader benefits of climate action while limiting its costs

A Third Transition

The ECA region has experienced remarkable changes over the past

nism freeing itself from the legacy of central planning and mending its economies in an often painful adjustment process The reward has been economic recovery and growth built on integration with West-ern Europe and the rest of the world, as figure 1.1 illustrates ECA spent the next decade, the 2000s, making growth more inclusive by improving public services, education, and social safety nets The rewards have been a fall in poverty, an emerging middle class, and higher living standards overall as the benefits from the economic shift have been shared more widely, as shown in figure 1.2

20 years The region spent the first decade after the fall of Commu-These two transitions—from plan to market and from division to inclusion—took enormous effort up front but eventually paid ample dividends They are also by no means complete There is still much that could be done to increase competitiveness and ensure opportu-nities for all

The financial crisis has understandably distracted from the term view Among the World Bank regions, ECA was hit hardest Countries had to focus on crisis management rather than on broad-ening past gains Despite the recent turmoil, policy makers should not lose sight of another transition that is necessary to make development

long-in ECA truly sustainable: the region’s third transition will be to reduce the adverse environmental side effects of economic growth For example, greenhouse gas (GHG) emissions fell after the first decade of transition but steadily rose in the 2000s until the recent economic cri-sis put the brakes on economic growth, as shown in figure 1.3

The consequences of neglecting the environment will affect ECA’s most vulnerable citizens more than anyone To thrive in the long