Rhein on Energy and Climate

On April 25th, the President of the “Ukrainian Association of energy efficient cities”, which groups 35 small towns with a total population of two million people, has addressed a plea to the EU to launch an urgent twinning programme for sharing energy efficiency know-how, resources and professional skills to address the Ukrainian energy crisis.

The request shows that small municipalities seem ready to tackle burning issues themselves; but it also over-estimates their power to do so and the possibilities for EU cities to help them in their effort for a more efficient use of energy. There is unfortunately not much small municipalities can do for raising energy efficiency in the short term.

Energy is simply too cheap in Ukraine. The answer requires a radical shift of national energy policy. The government has to phase out the exorbitant subsidies for gas which absorb 7 per cent of GDP.

Ukraine is the second most energy-wasteful country on earth, using almost five times more energy for generating $ 1000 GDP than Germany, France or Italy.

Wasteful use of energy has been a heritage of Soviet times when nobody cared about it because gas was abundant and cheap. Lacking a far-sighted economic policy during the first two decades of independence Ukrainian governments did not dare to deprive their citizens of the advantage of cheap gas.

The new democratically elected government will have no choice but to phase out gas subsidies, something the interim government has already started in response to the much higher gas price imposed by Gazprom and the IMF request to raise domestic prices as a pre-condition for its $ 15 billion loan.

Substantially higher gas prices will have a beneficial impact on energy efficiency. Business and private energy users will look for methods by which to cut energy their input. These may range from lowering heating temperatures to modernising power and industrial plants, improving thermal insulation of private and public buildings, etc.

The new government will have to elaborate a comprehensive long-term energy policy aiming to reduce fossil energy consumption by raising energy efficiency and investing in wind and solar electricity, for which Ukraine possesses a considerable potential. Successful EU member states like Sweden, Denmark, Estonia and Latvia might be helpful in formulating such a strategy.

Eliminating gas subsidies will increase the gas price by 250 per cent. That is bound to provoke social unrest if it were to happen overnight. The IMF therefore asks for only a 50 per cent price increase. In order to dampen the shock the government should grant temporary heating subsidies to the poor sectors of society.

Eberhard Rhein, Brussels, 10/5/2014

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