Ukraine Follows a Fossil Fuel Recovery Pathway

To facilitate economic restoration after the COVID-19 crisis, governments across the globe adopted recovery packages to reboot their economies with a considerable share of bailouts targeting the energy sector. Depending on which fuels and technologies state support is channelled, this will define the energy sector outlook and will either move us closer to a sustainable and low-carbon future or lock in the dependence on fossil fuels for decades.

Despite multiple political statements supporting the European Green Deal and announced plans for the development of a joint with the EU Roadmap, Ukraine is moving in an opposite direction.

These are the results of Energy Policy Tracker – a dedicated instrument, developed and run by a group of think tanks led by the International Institute for Sustainable Development (IISD). DiXi Group joined this initiative as a Contributing Partner responsible for the monitoring policy developments in Ukraine since October 2020.

From the beginning of the COVID-19 pandemic in early 2020 until the end of July 2021, Ukraine’s government has committed at least USD 1.35 billion to supporting fossil fuels through new or amended policies. At the same time, total support to clean energy is estimated at USD -2.06 billion. This value is negative due to the decrease of the feed-in tariffs for renewable energy producers since August 2020. This decision results in the decline of state support for renewable energy by UAH 6 billion annually, which adds to USD 2.3 billion by the end of 2029 (planned phase-out of the preferential feed-in tariffs for renewables).

These public money commitments include:

• At least USD 1.35 billion for unconditional fossil fuels through 23 policies (7 quantified and 16 unquantified);
• At least USD -2.72 million for conditional fossil fuels through 4 policies (3 quantified and 1 unquantified)
• At least USD -2.06 billion for unconditional clean energy through 16 policies (6 quantified and 10 unquantified)
• Some public funds for conditional clean energy (2 policies with the value of public money unquantified)
• At least USD 236.8 million for other energy through 24 policies (3 quantified and 21 unquantified)

The largest quantified fossil fuel support measures include USD 1.19 billion compensation to Naftogaz for supplying gas at below-market prices under the Public Service Obligations (PSO) mechanism and USD 143 million allocated from the budget to Naftogaz for the acquisition of stake in Gas Transmission System Operator of Ukraine LLC.

An example of support to unconditional clean energy is the provision of state guarantees to secure loans for Ukrenergo from state-owned banks to partially repay the debt to Guaranteed Buyer, which in turn repaid the debt to renewable energy producers.

At the same time, for a range of policies such as legislative changes and amendments to pricing policies, no quantified estimates available – despite them having an impact on the energy sector and economic recovery of Ukraine. A complete list of identified policies is provided on the Energy Policy Tracker profile on Ukraine.

Yuliia Oharenko,
expert of the DiXi Group project “Promoting Ukraine’s Participation in the European Green Deal in the fields of energy and environment”

Background info

The Energy Policy Tracker builds on the international methodology for the SDG indicator 12.c.1 for identifying and measuring fossil fuel subsidies, which in turn is based on the WTO subsidies definition under Article 1.1 of the Agreement on Subsidies and Countervailing Measures (ASCM). SDG indicator 12.c.1 covers such fossil fuel support measures as direct transfers of funds, induced transfers (price support), tax expenditure and other revenue foregone and transfer of risk to the government. The Energy Policy Tracker encompasses all these mechanisms and additionally includes public money outflows to the energy sector such as public finance and SOE investments, and inflows via subsidy reform and increased fossil fuel taxation.

For this reason, the term “public money commitments” is used by the Energy Policy Tracker developers rather than “energy subsidies”. Thus, its scope is much wider than IEA’s estimates of fossil-fuel consumption subsidies and OECD’s fossil fuel support covering only budget and tax expenditure.

The Energy Policy Tracker monitors public money commitments for different energy types, and other policies supporting energy production and consumption. Only publicly available information is used for monitoring and values are collected exclusively from official government sources. The Energy Policy Tracker covers only new policies or amendments of existing policies adopted since the beginning of 2020. Ongoing subsidies and other support mechanisms in the energy sector, which existed prior to 2020, are excluded. That is, only policy changes since the beginning of 2020 are monitored.

Depending on the energy type getting support and any environmental conditionality attached to it, all policies are grouped in five categories:

• “fossil unconditional” policies support production and consumption of fossil fuels (oil, gas, coal, “grey” hydrogen or fossil fuel-based electricity) without any climate targets or additional pollution reduction requirements;
• “fossil conditional” policies support production or consumption of fossil fuels with climate targets or additional pollution reduction requirements such as application of the carbon capture, utilization and storage, reduction of methane leakages, extractive sites clean-up, etc.;
• “clean unconditional” policies support production or consumption of energy that is both low-carbon and has negligible impacts on the environment if implemented with appropriate safeguards (renewable energy coming from naturally replenished resources such as sunlight, wind, small hydropower, rain, tides, and geothermal heat, “green” hydrogen, active transport such as cycling, and walking);
• “clean conditional” (“potentially clean”) policies support the transition away from fossil fuels, but unspecific about the implementation of appropriate environmental safeguards (large-hydropower; rail, public transport and electric vehicles using multiple energy types; smart grids and technologies to better integrate renewables; hydrogen in the case of mixed, but predominantly clean sources; biomass and biogas with a proven minimum negative impact on the environment);
• “other energy” category covers policies outside of two “fossil” and two “clean” buckets. Examples include support to nuclear energy (including uranium mining), “first generation” biofuels, biomass and biogas (with a proven negative impact on the environment), incineration, hydrogen of unspecified origin, and multiple energy types, e.g. intertwined fossil fuels and clean energy.

To ensure high quality and consistency of monitoring for all countries, a cross-partner peer review is used. In the case of Ukraine, data are collected by the DiXi Group experts while the review is performed by the IISD.

The material was prepared with the support of the European Union and the International Renaissance Foundation within the grant component of the EU4USociety project. The material reflects the position of the authors and does not necessarily reflect the position of the International Renaissance Foundation and the European Union.