A Green New Deal for Ukraine?

The energy sector not only meets the basic needs of the population and industry, but also is responsible for most greenhouse gas emissions. As countries increasingly declare the fight against climate change to be an important goal, the energy sector has generally become a crucial focus. So how are the authorities in Ukraine addressing this pivotal generational challenge?

Green Deals in Ukraine and the World

The “Green New Deal” was formally introduced in the US House of Representatives by Alexandra Ocasio-Cortez in 2019. It concentrates on the advantages of emission-free energy, which it seeks to harness to improve public health, decrease the amount of pollution, and create new jobs for millions.

In contrast to a progressive path characterized by wide-ranging social programmes, the European Commission has proposed its own “European Green Deal”. The plan would establish a “Just Transition Mechanism” to help vulnerable regions, industries, and workers. This very programme has become the main point of reference for politicians in Ukraine, who recently adopted what they call the “Conception of Green Energy Transition of Ukraine until 2050”, also known as the “Ukrainian Green Deal”.

According to the plan, Ukraine would become climate-neutral by 2070, which is 20 years later than the EU. Like the EU, Ukraine agreed to abandon coal by 2050, and to do so in a socially acceptable way. But unlike the US and the EU, the “Ukrainian Green Deal” does not provide for particular steps to ensure the social acceptability of the “green” energy transition.

Moreover, it promises so-called “Social Assistance Reform”, designed to “reduce the share of consumers eligible for social support to the EU average (not more than 10 percent)”. Interestingly, the focus is on the average level of welfare benefits in the EU, rather than on the level of average European salaries and living standards. Apart from this, the plan foresees the introduction of other “consumer protection mechanisms” such as consulting on energy conservation or practical application of individual bankruptcy and debt restructuring. This procedure was used in Ukraine for the first time in 2020. Yet even if the regulation of personal bankruptcy can be regarded as a step forward in terms of legal protection, it is not clear how it constitutes a protection mechanism for vulnerable consumers, who will be increasingly unable to pay their bills due to high energy prices and low salaries.

Another important reference point in these reforms was the “Energy Strategy of Ukraine by 2035” adopted in 2017. According to it, the first step in further developing Ukraine’s energy industry would be the liberalization of competitive energy markets and restriction of government intervention. Only after such deregulation, advocates argue, will it be possible to ensure sustainable development, lower the volume of greenhouse gas emissions, and develop renewable energy sources. These measures are planned for 2026–2035.

Ukraine’s current energy strategy prioritizes energy development, the core of which is privatization and liberalization, rather than fighting the climate crisis and providing people with incentives to support the energy transition, which would ultimately benefit everyone. For example: the aforementioned “Energy Strategy by 2035” presupposes the closure of coal mines, but does not offer any social programmes for the miners who would lose their jobs as a result.

The reforms to liberalize the natural gas market and electricity grid as envisaged by the Energy Strategy were major events in Ukraine’s energy sector in recent years. The introduction of wholesale and retail markets led to dramatic price rises, sparking widespread popular protests against what the population decried as “tariff genocide”. These protests forced the state to intervene and establish a price cap for natural gas and a fixed price for electricity. However, these transitional gas and electricity prices are set higher than they were before liberalization, when tariffs were regulated. At the same time, facing pressure from external partners and creditors, these price restrictions may be cancelled even this year, threatening to make electricity unaffordable for many Ukrainians. This will in turn push the Ukrainian authorities to take out new loans to cover the budget deficit.

Integration into the European Energy Network

The integration of United Energy System of Ukraine (UESU) into the European Network of Transmission System Operators for Electricity (ENTSO-E) has been declared a main energy priority in the partnership between Ukraine and the EU. However, the situation in the electricity sector is again not in favour of consumers. The state-owned enterprises Energoatom and Ukrhidrenergo have been tasked with special duties in the market transition.

“Special duties” implies that the enterprises must sell electricity to the population at a price close to cost. Yet thermal energy, most of which is owned by Ukrainian oligarch Rinat Akhmetov, was excluded from the list. Therefore, thermal power plants controlled by private businesses will be allowed to sell electricity at market prices, while state-owned nuclear and hydroelectric power plants remain underfunded. Losses to the electricity supply for the general population will fall exclusively on the shoulders of taxpayers.

Renewable energy sources are no less important in the development of energy. In 2020, such power plants accounted for 8.2 percent of total electricity generation in Ukraine. Ukraine’s “green tariff”, which buys “green electricity”, remains the highest in Europe. However, the state-owned company Guaranteed Buyer has incurred large debts to green energy producers, and the situation remains tense as a result. The state’s debt to producers also drove the state to reduce the green tariff.

All in all, despite Ukraine’s obligation to the energy transition and its declared goal of decarbonization, privatization and liberalization of energy markets—which again fall on the shoulders of the population—remain at the heart of the country’s energy policy. Obviously, the authorities are not interested in real transformation.

The privatization and resulting fragmentation of integrated energy systems will not solve any climate or environmental issues. Ukraine will not emit fewer greenhouse gases after energy prices rise. This could be achieved by modernizing the country’s outdated energy infrastructure, implementing energy efficiency measures in industry, insulating buildings, and installing modern heating systems. Instead, the authorities only take the interests of business into consideration and do their best to create new profit opportunities. The needs of the general population continue to go ignored, as the price of energy will continue to rise after “full” competition in the energy markets becomes a fact of life.

It is necessary to set fair tariffs for the Ukrainian population that do not significantly exceed the cost of electricity or natural gas. Energy regulation should not be conducted by the representatives of the energy industry who currently serve on the National Energy and Utilities Regulatory Commission, but rather must integrate consumer representatives in management and oversight.