The World Bank has launched a new report “Greening Firms in Georgia”, which serves as a call to action for policymakers, businesses, and stakeholders to prioritize and invest in improving energy efficiency in the country. The report suggests that the agenda of greening businesses and promoting growth can go hand in hand.
The report notes that emissions in Georgia have significantly increased over the last 15 years, particularly from businesses engaged in industry, transport services, construction, and commerce. The report cautions that without urgent action, industry emissions in Georgia could be 90% higher in 2030 than the levels recorded in 2015.
Despite recent progress, the institutional and regulatory framework in Georgia still requires significant strengthening to align with EU legislation and standards. Georgia currently lags in translating the legal framework into concrete incentives and opportunities for business investments, as shown by its low ranking among regional peers in the Regulatory Indicators for Sustainable Energy (RISE).
The report stresses several key elements important to Georgia’s green transition:
• The need for improved incentives and opportunities for business investments in energy efficiency and renewables. For 80% of firms, improving efficiency will likely require new investments. However, the other 20% of firms do not need new capital to improve efficiency, and these firms alone have the potential to contribute to a one-third reduction in total emissions.
• The importance of productivity as a driver of energy efficiency at the firm-level.
• The importance of information and knowledge spillovers from more efficient firms to less efficient ones when these are in close-by locations and in similar sectors.
• Energy prices play a key role in determining the incentives to improve efficiency among firms in Georgia. The results show that when electricity prices increase, firms tend to reduce energy consumption. Remarkably, lower electricity demand is not associated with lower output, and is driven by energy efficiency gains. Businesses do not appear to reduce sales nor employment in the shorter term, but become more efficient and pass part of their increase costs down to their consumers.
• Technology adoption and quality green and general management practices are key ingredients for a successful green transition and both are lacking in Georgian firms. Georgia ranks among the bottom three countries in terms of green management practices among nine benchmark countries (Azerbaijan, Bulgaria, Czech Republic, Hungary, North Macedonia, Poland, Serbia and Slovenia). Green technology adoption is very limited, with many firms maintaining generators due to frequent power outages, which leads to significant inefficiencies.
To support green transition, the report recommends a comprehensive policy package of reforms and programs, including:
• Horizontal economy-wide policies centered around price signals and regulations, improvements to the grid infrastructure, and reliability of electricity services.
• Information: raising firms’ awareness about the potential benefits of becoming more energy efficient and about the available energy saving.
• Capabilities: helping firms identify opportunities for improvement of management, organization, technology, and skills.
• Finance: easing access to financial resources required for upgrading firms’ technology.
• Benchmarking and diagnostics: the report emphasizes the importance of targeting by using appropriate diagnostic and benchmarking tools to assess specific needs and readiness of businesses to upgrade and invest in energy efficiency.