Business Opinion Politics Society, 09/12/2020

The Green Future of Ukraine and the EU – Forced or Free Will?

Henrietta WOLTER

Even though COVID-19 is currently keeping the world economy in a state of agitation, climate change is not making a pause. The European Union wants to act, and its partner countries are not exempt from its plans. Although the “European Green Deal” is not at the top of the political agenda in Ukraine, it will have a considerable impact on the country.

The partnership between Ukraine and the EU is manifold, in terms of treaties as well as expectations. On the one hand, together with other Central and Eastern European countries, Ukraine forms part of the Eastern Partnership (EaP) as well as it has its own Association Agreement. The EaP aims to strengthen the relationships between the EU and its partner countries, and is, like the Association Agendas, based on bilateral agreements. On top of the political agenda of the European Commission is now the European Green Deal, a multi-billion-euro investment aiming to make the EU carbon-neutral by 2050. As ambitious and benevolently as this might sound, the project causes political and economic problems, even within the EU. The question as to which country reduces what percentage of carbon emissions over the next year is the centerpiece of the discussion. Poorer EU Countries argue that the transition is more expensive and disruptive for them.

How Ukraine deals with this agreement is of strategic importance. But the financial pressure is high.

If Ukraine takes an active part in the deal, becoming carbon-neutral by 2050 would involve major investments, which raises the question of who should pay for them. Although Ukraine is and would continue to receive funds from the EU, it does not have access to the same financial resources as the EU-member countries. Johann Saathoff of the German Social Democratic Party and member of parliament emphasizes that the EU is ready to support Ukraine on its way, however, the investment structure is problematic. Andriy Martynyuk, the executive director of Ecoclub Rivne, Ukraine, explains that the needed private investors are reluctant to invest in Ukraine because of high feed-in tariffs. But he sees the solution in the country itself. Ukraine should keep on working on improving the relationship with the EU, decrease corruption and, by doing this, attract more investors. With the right investments, he sees the possibility of Ukraine becoming climate neutral by 2050, but he doubts the right incentives to be set by the political sphere in Ukraine.

If Ukraine does not take part in the deal, it runs the risk of falling under the negative influence of the planned tax regime related to the introduction of a carbon tax on the export of goods from Ukraine to the EU, the so-called Carbon Border Adjustment Mechanism (CBAM) which will apply to products imported into the EU from countries where the requirements to reduce CO2 emissions differ significantly from EU regulations. According to an article of the Kyivpost, industry experts calculated that this would lead to additional payments of Ukrainian companies by almost 600 million dollars per year. Saathoff emphasizes the importance of these taxes for the completion of the climate objectives and points out that although the Green Deal might be a challenge for some countries, the focal point should be its purpose, namely climate security for our future generations worldwide. He emphasizes that climate protection does not stop at national borders. On the Ukrainian side, the perspective is a little less optimistic. Stepan Kushnir, head of the board of the Khmelnytskyi Energy Cluster in Ukraine explains: “It is difficult for us to catch up with the EU’s climate neutrality goals by 2050 because the starting positions of the countries are different. The level of Ukraine’s Energy Intensity of GDP is twice higher than the world average indicator due to the inefficient use of energy resources in the industry.” And this is only one of many structural problems, besides a lack of energy efficiency of buildings built in Soviet times or the import of diesel cars over the last years which have been banned from the EU. Looking further at other current political and economic situations Ukraine must deal with, the transition to a green economy seems to be a minor problem for the country. “When we see the statistics on illness and mortality from COVID-19, it is difficult to argue why climate policy should be a priority,” says Kushnir.

To put it in a nutshell, in any scenario Ukraine must pay. The European Green Deal offers Ukraine a range of benefits, however, the difficulties are just as numerous. It is a balancing act raising social, economic, and political questions, perhaps offering a solution in the middle.