Low Carbon Ukraine (LCU): Advising Ukrainian decision makers on low emission policy paths

State of implementation/results

• The project regularly publishes compact Policy Briefings and detailed Policy Papers on various topics, such as the green recovery of Ukraine, effects of the Russian invasion of Ukraine on climate and energy policies in the European Union’s Eastern Partnership and Central Asian countries and the power plant park or the optimal determination of renewable capacities to be auctioned, Policy reforms supporting Ukraine’s green reconstruction (www.lowcarbonukraine.com/…).
• The Policy Paper “Exemption of electricity exports from EU-CBAM” examines Ukraine’s alignment with the EU’s Carbon Border Adjustment Mechanism (CBAM) conditions for exempting its electricity exports. Enacted in October 2023, the CBAM mandates importers of specific goods, including electricity, to account and pay for embedded greenhouse gas (GHG) emissions, with full implementation set for 2026. Ukraine faces a series of stringent criteria to qualify for an exemption, which includes harmonizing its electricity market and renewable energy legislation with EU norms, implementing an Emissions Trading System (ETS) with pricing equivalent to the EU-ETS by 2030, and establishing safeguards against indirect electricity imports from non-compliant third countries. Despite the challenges, particularly the introduction of a price equivalent ETS, the study emphasizes the necessity of Ukraine’s adherence to these conditions, detailing the need for a carbon leakage protection system and the critical importance of meeting the first compliance report by July 1, 2025. Failure to comply risks not only incurring CBAM costs but also jeopardizes Ukraine’s electricity market integration and its broader EU accession goals, underscoring the urgency and significance of Ukraine’s efforts to align with EU standards and regulations.
• The Policy Briefing on “Designing a suitable Emissions Trading System for Ukraine” accompanies and summarizes the Policy Proposal “Designing a Suitable Emissions Trading System for Ukraine: Squaring EU Convergence, Price Certainty, and Competitiveness”. It advocates for a tailored Ukrainian Emissions Trading System (ETS) to balance EU integration, economic stability, and competitiveness. We recommend implementing a strong price stability mechanism, such as a fixed-price regime during a transitional phase or a price collar, to ensure carbon price certainty crucial for Ukraine’s post-war recovery. This approach aims for a rapid convergence with EU-ETS prices by 2030, utilizing partial free allocations to ease the transition and mitigate economic shocks. Furthermore, we suggest setting a clear, forward-looking price trajectory and establishing a Ukrainian Carbon Border Adjustment Mechanism (CBAM) to protect domestic industries and keep carbon revenues within the country. The proposed ETS design, emphasizing price stability and long-term planning, seeks to support Ukraine’s economic resilience while advancing towards EU environmental standards.
• On March 7th 2024, LCU consultant and energy economist Rouven Stubbe presented the policy studies on the EU Carbon Border Adjustment Mechanism (CBAM) and the upcoming Emissions Trading System of Ukraine to an audience of energy professionals from public and private energy companies, the Market Operator, transmission system operator Ukrenergo, the Regulator and representatives from relevant Ukrainian Ministries. Yaroslav Demchenkov, Deputy Minister of Energy of Ukraine, delivered the introductory remarks. The first part of the meeting focused on the Policy Paper “Exemption of electricity exports from EU-CBAM”. The study highlights the conditions under which Ukrainian electricity exports to the EU could be exempted from the new EU Carbon Border Adjustment Mechanism (CBAM), which has been in effect since October 2023. The second part presented the Policy Proposal “Designing a suitable Emissions Trading System for Ukraine”, which outlines the challenges and strategies for Ukraine to align its carbon pricing and emissions trading frameworks with EU standards. It focuses on the design of the ETS, considering options such as a transition period with fixed prices or a price collar with an increasing carbon price floor. The proposal emphasises the need for predictable carbon prices to encourage investment in green and low-carbon assets, and the importance of designing an ETS that converges with EU price levels to avoid future carbon price shocks.
• On February 8th 2024, Low Carbon Ukraine presented its proposal on an effective Ukrainian ETS system in an online event, jointly organized by the German Agency for International Cooperation (GIZ), the Ukrainian Climate Office, the Ukrainian Ministry of Environmental Resources and Natural Protection and LCU. LCU project leader Robert Kirchner delivered some introductory remarks. Currently, Ukraine is defending itself against the Russian aggression. At the same time, Ukraine’s new status as candidate country for EU Membership, as well as the soon-to-be-starting accession negotiations mean that the country will need to bring its climate policies and legislations in line with EU standards. One of those areas will be the introduction of an EU-compatible ETS system, guaranteeing carbon prices on a level comparable to those under EU-ETS. During the event, in which representatives of the Ukrainian government, international organisations, such as the World Bank, the GIZ, as well as from the private sector, Low Carbon Ukraine, represented by Rouven Stubbe, presented its proposal for an EU-ready ETS system, which will be further outlined in a forthcoming study. Next to Low Carbon Ukraine, an array of seasoned experts on climate policy and carbon pricing mechanisms gave their respective opinions and proposal on the issue.
• This year (2024) the LCU team also took an active part at Café Kyiv, a Berlin based conference on developments in Ukraine, which took place in February 2024. As we have learned from the main organizer, the Konrad Adenauer Foundation, this year’s edition of Café Kyiv had more than 5000 visitors and 120 partners contributed with their respective panels, which were very well received. The LCU panel discussion “Fighting Two Evils at Once – Long-Term Climate Policy in Times of War,” at Café Kyiv, shed light on the intricate interplay between these pressing demands and the country’s green future aspirations. A special highlight of the panel was the keynote address by Yaroslav Demchenkov, Deputy Minister of Energy of Ukraine. The panel discussion provided valuable insights into the multifaceted challenges and opportunities facing Ukraine at the intersection of wartime imperatives and long-term climate aspirations. It underscored the importance of strategic adaptation, local capacity building, and international cooperation in advancing Ukraine’s climate agenda amidst ongoing turmoil. As Ukraine navigates these complex dynamics, collaboration between government entities, civil society organizations, and international partners will be essential in charting a path towards a more resilient and sustainable future, even in the face of adversity.
• On the 23rd of November, The LCU team discussed Ukraine’s challenges for the upcoming heating seasons at the event “Ukraine: Energy in the Spotlight Revisited” at the University of St Andrews. Rouven Stubbe argued that both electricity imports and increased decentralized power generation, particularly from rooftop solar systems with battery storage, could alleviate potential power generation deficits. However, commercial electricity imports have often been prevented by the electricity price caps on the Ukrainian wholesale electricity market – an electricity market reform should therefore aim to remove these hurdles.
• The annual German-Ukrainian Energy Day within the framework of the German-Ukrainian Energy Partnership strengthens the partnership between Germany and Ukraine, facilitating strategic engagement, knowledge exchange, and business opportunities within the energy sector. This event was held in Berlin on the 25th of October. During the event, Robert Kirchner, Team Leader of the Low Carbon Ukraine project, participated in a panel on “Strengthening Frameworks for Sustainable Development and Market Integration of the Ukrainian Energy Sector”. The focus was on the further integration of Ukraine into the European energy market, what instruments and regulations should be established for this purpose, as well as possible pathways to develop the green gas industry. During the panel, Mr. Kirchner highlighted the continued support of the Low Carbon Ukraine project to the Government of Ukraine, including recent analyses on energy market reforms, decentralized small-scale renewables and the economic rationale behind building back better.
• In October 2023, Rouven Stubbe was quoted in the Tagesspiegel Background, where he discussed the role of Siemens Energy in providing Ukraine with emergency deliveries of the technologies needed to ensure the continued operations of the Ukrainian electricity grid.
• The LCU team participated in a hot seat panel discussion at IKI conference on “NDCs and Recovering Green: How to prepare and implement long-term Climate Policies in Times of War” in October 2023. Making climate policy under high political and economic uncertainty as well as fiscal constraints is a complex task. Ukraine’s wartime NDC update will come with particular challenges: Mobilizing finance and risk insurance, balancing short-term needs with long-term sustainable reconstruction, providing investors with regulatory certainty and moving forward with policy reforms and market liberalization against the backdrop of wartime command and control. Nevertheless, there are also opportunities: Energy efficiency and domestic renewables can provide additional energy security benefits and a green reconstruction can be economically profitable with the right mix of policy reforms. Moreover, ambitious climate policy also provides Ukraine with leverage in the upcoming negotiations on Ukraine’s EU accession path.
• In September 2023, the Policy Paper on “Existing and past energy & climate-related financing for EU member-states, candidate, and neighborhood countries” was published by the LCU project. The European Union (EU) provides substantial financial support through loans and grants to its members, candidate countries, and those within its neighborhood policy framework, with a growing emphasis on energy and climate initiatives. Ukraine’s new status as a candidate country might provide access to additional funds such as the Instrument for Pre-Accession (IPA). Nevertheless, facing the twin challenges of post-war reconstruction and “catching up” with investment in green energy and industrial projects under the EU Green Deal is likely to result in significant additional financing needs.
• Rouven Stubbe, energy expert at the Low Carbon Ukraine project delivered a speech at the European-Ukrainian Energy Day in Vienna on September 28, 2023. Subsequently, he participated in a panel discussion on “Energy security and building back better: Energy efficiency as part of energy security strategy and a tool for freeing resources for economic growth”. His remarks focused on the opportunities and costs of a green reconstruction in the residential and district heat sectors. He demonstrated that a green reconstruction is possible and could bring numerous benefits. However, important obstacles need to be overcome first with ambitious policy reforms to mobilize required investments.

Latest Update:
04/2024