November 12, 2008
Ukraine is a major emitter of C02, comparable to Spain.
It is therefore laudable that the government aims at reducing C02 emissions at the same rate as the EU, i.e. 20 percent by 2020.
That should be feasible provided the country focuses on its huge potential for raising energy efficiency.
Like all former socialist countries, Ukraine has far too long indulged in an extraordinary waste of energy, encouraged by low prices of imported natural gas and subsidised coal and electricity.
The number one priority for Ukraine is therefore to align its energy prices on the world market level. This transition is under way and should be completed within the next three years.
Market prices for energy should offer incentives for reducing the rampant losses of energy at all levels, from housing to power transmission, heat distribution and, last not least, heavy industries and coal mines.
But market prices alone will not do the job. The government will have to intervene by setting strict thermal insulation standards for all new and old, public and private buildings, and fuel efficiency standards for automobiles, following the example of the EU. To accelerate the necessary investments, the government should generously engage in large-scale public financing of such investment programmes. Both the EIB and the BERD should offer credit lines to that end.
The state should progressively move out of the energy sector and allow private companies, including foreign investors, to move in. This is, however, not an overriding priority. In that context, Ukraine should also separate the generation of electricity from distribution, following the examples of the EU and Russia.
Nor is the development of renewable energy a top priority. Ukraine is not ideally endowed with renewable resources.
Building on its long experience, Ukraine should progressively replace its outdated nuclear power plants by new ones, responding to the strictest safety standards.