The investment climate for climate investment: Joint Implementation in transition countries

Abstract

Transition countries are expected to become important players in the emerging market for greenhouse gas emission reductions, as they can cut emissions at a relatively low cost. However, the attractiveness of the region as a supplier of emission reductions will not only depend on its cost advantage. It will also depend on the business climate offered to carbon investors—factors like a well-functioning legal and regulatory system, economic and political stability and the capacity to process emission reduction projects efficiently. This paper looks at the carbon investment climate in the transition countries eligible for Joint Implementation (JI)—Russia, Ukraine, Croatia and the EU accession countries. It concludes that JI investors will face a clear trade-off between the scope for cheap JI on the one hand, and the quality of the business environment and JI institutions on the other. The countries with the highest potential for cheap emission reductions also tend to be the countries with the most difficult business climate and the least institutional capacity for JI. The most attractive JI locations may be median countries with a reasonable JI potential and an acceptable business climate, such as Bulgaria, Romania and the Slovak Republic.