Executive Summary
Since the collapse of the Soviet Union, the countries of Eastern Europe, the Caucasus and Central Asia (EECCA)1 have been undergoing profound changes, while pursuing their transformation towards market economies and democratic societies. On average, the region had maintained relatively good economic growth rates over the past two decades (3.4 % on annual average from 2001 to 2021). However, various external and internal shocks, such as the global financial crisis in the late 2000s, drops in commodity prices and political instability, have affected economic growth rates.
The most recent shocks have been the COVID-19 pandemic, and Russia’s large-scale aggression against Ukraine. The impact of COVID-19 pushed down gross domestic product (GDP) growth rates by 5-13 percentage points across all EECCA countries in 2020. Despite signs of improvement shown for 2022, the war in Ukraine has led the countries to a significant recession.
EECCA countries have also been on long journeys to pursue economic development that is environmentally sustainable. All EECCA countries have adopted the 2030 Agenda for Sustainable Development and the Paris Agreement and translated them into national strategies and policies. The countries have introduced a number of policies, instruments and approaches that strengthened environmental protection and laid the ground for a greener economy. To finance required actions, many EECCA countries have mobilised domestic and international finance, and begun aligning the policy objectives of financial-sector development with their national climate and environmental targets.
Several indicators have shown signs of progress in resource productivity and environmental quality in the region. Yet, the pace of progress towards a green economy has not been fast enough. For example, the regions’ CO2 and energy productivity is much lower than the EU averages. Exposure of the population to fine particulate matter (PM2.5) remains high with associated premature deaths due to PM2.5 pollution.
Political instability or on-going conflicts have stifle policy reforms and implementation in the EECCA countries. Tackling those challenges go beyond the remit of environmental governance. Further, reform of many environmental policies in the region has been slow and many of them rely on administrative and regulatory instruments that are often still based on the Soviet approaches. Insufficient economic incentives fail to stimulate innovation and business models for greener production and consumption. High cost of capital, inefficient use of domestic public finance, direct and indirect subsidies to environmentally harmful activities or lack of good quality green investment projects are also important challenges.
The Eighth Environment for Europe (EfE) Ministerial Conference – held in Batumi, Georgia, in 2016 – confirmed that the EECCA countries’ are committed to improving the environment and advancing action towards sustainable and green economic development. The Ninth EfE Ministerial Conference in October 2022 provides a basis for evaluating progress and identifying future priorities for action.
This report presents key achievements in a green economy transition in the EECCA region, in particular since the Batumi EfE Conference in 2016. It also presents examples of co-operation between the EECCA countries and their development partners carried out under the GREEN Action Task Force, hosted by the Organisation for Economic Co-operation and Development (OECD). Those examples show that the progress can be made with tangible results on the ground by mobilising a broad range of stakeholders. They also show that policy objectives and targets on the green economy transition can be more ambitious and realistic, and the implementation can be more efficient, effective and socially inclusive. Five key messages emerge from the report:
The transition to a green and net-zero economy should be significantly accelerated, and the context of Russia’s war in Ukraine provides additional reasons for this fundamental transformation. Countries are looking into shifting from the reliance on fossil fuel from Russia to renewables due to high and unpredictable prices and supply issues. With the intensifying impacts of climate change, global policy pressures towards more ambitious climate action are likely to continue, including in the EECCA region.
Mainstreaming climate and environmental considerations in infrastructure investment strategies and decisions is key and should be done at multiple levels. This should include upstream sustainable infrastructure planning, project prioritisation, financing and delivery, and the development of enabling policy and regulatory frameworks. EECCA countries should also link national and sub-national plans for a green economy transition to the broader, long-term infrastructure investment strategies. High-quality environmental impact assessments (EIAs) for major infrastructure projects and strategic environmental assessments (SEAs) could also help EECCA countries to better evaluate policies and investment programmes.
The green economy transition requires greater co-operation between different sectors and stakeholders, and across levels of governance. For example, water resource management touches all areas of the economy and EECCA countries’ effort in the green economy transition. The countries should further enhance several aspects of their strategies and legal frameworks on water, economic instruments for water management, finance mobilisation, and multi-stakeholder dialogues and promotion of multi-purpose water infrastructure.
EECCA countries should improve legislation and policy instruments that provide enough incentives for companies to comply with environmental legislation or go beyond compliance. Compliance assurance actions should focus, first and foremost, on promoting compliance. The institutional set-up for compliance assurance should also be strengthened through increased co-ordination and streamlining human and financial resources, better information systems and equipment, and measures to tackle corruption.
EECCA countries should further strengthen public financial management and mobilise finance from the private sector (domestic and international) to support a green economy transition. EECCA countries could improve budget-related information, facilitate inter-ministerial co-operation, and promote green stimulus measures as part of post-COVID economic recovery measures. EECCA countries should also enhance capacity to prepare public investment programmes that are properly costed and supported by specific implementation measures. Reforming fossil-fuel subsidies and support is also a key policy measure to rationalise public finance, tackle climate change, reduce pollution and contribute to long-term energy security in the region. The role of central banks and financial regulators in the EECCA region should also be elevated. This would help ensure financial sector regulations and capacity development activities are aligned with the country’s national objectives on sustainable development.
The GREEN Action Task Force provides a unique platform that supports the EECCA countries in their transition to a green economy. The report highlights some possible future directions of work under the Task Force for addressing remaining gaps in capacity, governance arrangements, policy frameworks and access to finance in the region:
Supporting EECCA countries in accelerating and enhancing action for green recovery from recent external shocks and contributing to energy, environmental and natural resource security.
Putting greater emphasis on support for the EECCA countries’ efforts towards implementing the Paris Agreement on climate change and the post-2020 Global Biodiversity Framework.
Making EECCA countries’ financial systems environmentally, socially and economically sustainable.
Strengthening engagement with development finance institutions and other development partners active in the EECCA region, and potentially with those outside the region.
Continuing and reinforcing Task Force work to address persistent gaps in ensuring compliance with adopted strategies and policy frameworks to ensure a green economy transition of the region.
Note
← 1. EECCA countries include Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Republic of Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.