The Kyoto Protocol is also prompting other industrial countries to expand their renewable energy markets, which could provide new opportunities for U.S. companies. In anticipation of the protocol, the European Union adopted an official plan for sharply cutting emissions, which included a major role for renewables. The European Commission's White Paper on renewable energy, published in November 1997, has an overall goal of doubling the renewable energy share of the EU energy supply from the current 6% (including hydropower) to 12% by 2010.⁶² (See Table 5.) It foresees 40 gigawatts of wind power, 3 gigawatts of PVs, and 153 million tons of oil equivalent of biomass energy by 2010 -- creating between 500,000 and 900,000 jobs in the process.

Taking a more strategic approach than the U.S. initiative, the EU White Paper argues: "Without a coherent and transparent strategy and an ambitious overall objective for renewables penetration, these sources of energy will not make major inroads into the Community energy balance."⁶³ The report aims to position the European Union as a strong competitor in international renewable energy markets, with the hope of creating exports and jobs. Recognizing that the European renewable energy industry will require a strong home market to maintain worldwide leadership, it sets forth ambitious goals, including building 1 million PV systems -- 500,000 on domestic roofs and faěades and 500,000 village systems outside of Europe. It also calls for assisting 100 communities to become 100% reliant on renewables. According to the plan, wind power is already so economical that simply providing fair access to the electricity grid may allow it to reach 30,000 megawatts by 2010.

Leaders of Europe's renewables industries applaud the White Paper's aims but are concerned that they are not backed by sufficiently detailed implementation policies -- which are largely left to national discretion. Unless the EU proceeds rapidly to make energy policy at the international level, or accelerates national policy reforms -- particularly in laggards such as France and Italy -- the ambitious European renewables goals will be hard to achieve. These goals may also be complicated by simultaneous moves to "liberalize" European electricity markets, which will likely reduce subsidies for coal and nuclear power but could also interfere with pro-renewables policies, as it has in the United States.

Japan, meanwhile, is falling behind the pace of change in Europe. In January 1998, the Environment Agency submitted a framework bill for implementing the Kyoto Protocol that makes few specific policy recommendations.⁶⁴ The Ministry of International Trade and Industry is expected to submit legislation in late 1998 to amend Japan's 1979 energy conservation law, but it is unclear how much support will be given to renewables, which are largely excluded from the market by the country's monopoly power suppliers. Although the government has included promotion of carbon-free energy as one of nine policies and measures to be followed in implementing the Kyoto agreement, nuclear power is the government's preferred carbon-free option -- as noted earlier, 20 new plants have been planned. In addition, MITI has proposed that 3.7% of the country's reduction be achieved through a liberal interpretation of the language on carbon sinks, and has indicated a strong interest in purchasing emissions allowances from Russia and other countries.⁶⁵ As of June 1998, the government was finalizing its latest global warming plan, but no information on support for renewables was available.

The Kyoto Protocol has also stimulated efforts to expand renewable energy use in developing countries. The Clinton administration requested a tripling of the interagency pilot Initiative on Joint Implementation, from $4 million to $12 million, which as of April 1998 had approved 32 projects in 12 countries.⁶⁶ Eleven of these are renewables projects -- covering wind, biomass, small hydropower, geothermal, and solar energy -- and 9 are located in Latin America, the region most eager thus far to attract U.S. projects.⁶⁷ (See Table 6.) Most of the funding for these projects comes from the private sector, including a number of U.S. power companies, though a small grants program is available for project development. Although such pilot projects have to date been limited by the fact that no credits are available, the Clean Development Mechanism described earlier could give such efforts more momentum once uncertainties over procedures are worked out.

The provisions in the Kyoto Protocol for credit for joint implementation projects between Annex I countries could stimulate renewables projects in the countries of the Eastern bloc -- where 67 of the 101 JI projects are located. Of these, 27 involve renewables: 26 are Swedish projects to convert boilers in the Baltic countries from coal to biomass fuel, and the other is a German wind power facility in Latvia.⁶⁸ Promising opportunities also exist for other renewables, including plentiful geothermal energy. Overall, such opportunities may widen as energy growth resumes in these nations in the next decade.

Kyoto is also spurring governments to add climate-related initiatives to their bilateral aid programs. At the United Nations in June 1997, President Clinton announced a $1-billion, 5-year Climate Action Plan to assist developing countries in charting less carbon-intensive development paths. Administered by the U.S. Agency for International Development (AID), this includes direct aid of $150 million a year over five years for forestry and energy projects, and is to leverage an additional $250 million through $25 million of bilateral credit financing.⁶⁹ Renewable energy is a major element of the program.

In a related multiagency effort involving DOE and AID, the U.S. government has launched technology cooperation agreements in Brazil, China, India, Indonesia, Kazakhstan, Mexico, and the Philippines aimed at stimulating government and private investment in sustainable energy technologies.⁷⁰ The program will engage the private sector in both host and donor countries, with the coordination of the Business Council for Sustainable Energy, which is providing advice on how to expand these markets. Broader, more detailed agreements are planned by the time of Fourth Conference of the Parties, with the goal of identifying potential CDM projects. However, representatives of some renewable industry trade associations view these initiatives as a creative repackaging of existing programs that may do little to stimulate international renewables markets.

Japan, the world's largest bilateral aid donor, seems to be more serious about expanding renewables markets in developing countries. It announced a Kyoto Initiative at the December 1997 meeting, aimed at providing low-interest loans for climate change projects in developing countries, including renewable energy.⁷¹ In April 1998, the government launched a solar energy aid program, consisting of grants, loans, and training to assist in electrifying rural villages.⁷²

Renewable energy financing by the Global Environment Facility may also increase in the post-Kyoto era. Established in 1991 by the World Bank, United Nations Development Programme, and United Nations Environment Programme, GEF provides support for projects designed to help developing countries meet the "incremental" or additional cost of projects that address several global environmental problems, including climate change. Under the 1992 climate treaty, GEF is an officially authorized, though interim, funding mechanism for developing countries. Frequently, GEF grants for energy efficiency and renewable energy are attached to larger World Bank energy loans, providing leverage for the limited funds and introducing Bank personnel to the new technologies.

Recently, the goal of stimulating "market transformation" for renewables has been adopted by GEF, a goal achieved via demonstration projects as well as policy advice. GEF's complex governance structure and narrowly defined mandate, combined with a lack of experience with such projects in many developing nations, have slowed implementation. Nonetheless, by the end of 1997 GEF had invested $700 million in climate change projects in 114 countries, including a number of successful renewable energy projects.⁷³ The World Bank has also proposed a new partnership with the GEF on renewable energy that would leverage, at a four-to-one ratio, an annual GEF increment of $150 million, with the GEF share dropping as projects become more competitive.

Following Kyoto, at a GEF Assembly in March 1998, donor countries agreed to a $2.75-billion replenishment of the fund, which should allow it to increase its support of renewables.⁷⁴ Among the projects likely to be given a boost are a $100-200 million commercial and concessional fund for renewable energy and energy efficiency, and a debt and equity financing program for small to medium-sized renewables enterprises. Renewable energy companies are already involved in GEF projects in Costa Rica (wind), Mauritania (wind), India (wind, hydropower, solar PV), Tunisia (solar hot water), and Indonesia (solar PV). GEF is considering the possibility of soliciting project proposals from the private sector -- which could give it a more direct role in boosting renewables markets in the years ahead.⁷⁵

Efforts are also under way to enlist the World Bank as a whole in the effort to slow climate change. Over the past several decades, the Bank has been one of the world's leading financiers of fossil fuel projects, and it continues to be heavily involved in coal projects in countries such as India and China. In response to mounting pressures for reform, World Bank staff have prepared a draft environmental strategy for the energy sector called Fuel for Thought, which was submitted to the Board of Directors in mid-1998. The new strategy aims to "bring environmentally-friendly technologies and practice into the mainstream of its operations [and] undertake high-visibility projects involving renewable energy and energy efficiency to serve as models of best practice."⁷⁶ The World Bank's new goals are laudable, but experienced observers are skeptical; the Bank's lending priorities are heavily influenced by its country directors and by client nations, which have successfully resisted past energy reforms and in some cases have a large vested interest in coal. Unless the new policies include concrete lending goals, policy guidelines, and enforcement measures, they are unlikely to provoke timely change.

The World Bank -- with funding from Norway and other governments -- has in the meantime launched a new Global Carbon Initiative to explore market-based instruments for greenhouse gas reductions and to spur private financial flows and technology transfer.⁷⁷ By June 1998, it had $100 million of initial commitments from 12 companies and five governments (Finland, the Netherlands, Norway, Sweden, and Switzerland) for a prototype carbon fund. This would pool money from companies and governments seeking greenhouse gas emission reduction credits, and then find emissions-reducing projects in which to invest those funds. Bank staff describe it as a sort of greenhouse mutual fund that could be used to support renewable energy and other projects -- as currently envisioned, approximately half of them in developing countries and half in those in transition. One use of the funds would be to add climate-friendly elements to Bank energy loans. It remains to be seen whether such a new role for the World Bank will be accepted internationally, particularly among developing countries, and what its relationship to the Clean Development Mechanism will be. Skeptics question whether this initiative is not just delaying reform of the Bank's core lending, while proponents welcome the prospect of another source of financing for renewable energy projects.

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