EU Environmental Standards: What can Ukraine expect?

Ihor BOHATYRIOVProject manager,

“A strategy for Ukraine’s integrationinto the European Energy Community”

Talking Points

• Joining the European Energy Community will be the main factor spurring the reform of Ukraine’s energy markets.

• Instituting EU environmental standards will be the main challenge to Ukraine in undertaking this agreement.

• The Government must establish a competitive energy market as soon as possible, attract private investment to thermo-electric generation, and institute strict penalties for pollution.

Why?

• For Ukraine, joining the Southeastern European Energy Community and fulfilling its commitments will make it possible to improve energy efficiency and the reliability of its power supplies while reducing its negative impact on the environment.

What’s the problem?

• There is a risk that Ukraine will fail to comply with its agreements with the EU, mainly because its lack of preparedness to execute Directive 2001/80/EC, which establishes caps on emissions generated by thermo-electric stations (TESs).

• The value of upholding this directive could, according to some experts, be worth up to EUR12 billion.

Comparison of national and European norms

Polluting the environs of thermo-electric stations (TES)

• Studies have shown that the soil and air around TESs are significantly polluted within a 20-kilometer area.

• For instance, the health index for children living in industrial areas with various kinds of air pollution is 66-75% lower than in children growing up in ecologically clean environments. As a result, they are sick 60% more often.

Why does Ukraine find it hard to meet EU requirements? (1)

• Outdated power generation and environmental protection technology

• Inappropriate use of power blocks: undercapacity and hand-managed

• The use of low-quality coal

Why does Ukraine find it hard to meet EU requirements? (2)

• Absence of competition on heating coal market stimulates declining quality and higher coal prices.

• Central executive bodies (CEBs) have no real leverage over those who generate pollution.

• Major political decisions keep being made without undertaking the necessary impact analysis or considering the positions of interest groups.

Where can Ukraine find capital?

There are a number of sources of capital financing for measures to institute environmental standards, but unless policy changes in Ukraine, they are unlikely to be available to their full extent:– Credit/loans– Budget funding, Environmental Protection Fund– Private capital– Trading in emission caps– Power exports

Stakeholders/interest groups

• TESs (state-owned and private)• Resource providers (coal)• Equipment manufacturers• Government: Environmental, Fuel &

Energy, Foreign and Health Ministries and National Agency for Environmental Investment

• NGOs

Practice among new EU members• CEE countries have managed to radically reduce

hazardous emissions by:– Changing the energy balance and structure of their

economies– Building administrative capacity in environmental

protection – Developing a private sector that can meet environmental

requirements – Increasing public awareness and fostering civic

engagement

• The process of instituting norms is costly and long: Poland spent an estimated EUR 12 billion over 20 years.

• Deadlines are often extended: EU countries are allowed to establish a transitional period for implementing environmental norms (EurActiv 26/06/09)

What options does Ukraine have?

1. Extending the timeframe for meeting EU requirements

2. Meeting requirements in a timely and thorough manner:

– Instituting only low-cost measures at existing TES power blocks

– Building new facilities that do not generate significant quantities of hazardous air pollution

What needs to be done?

Regardless of which way Ukraine chooses to go, domestic energy and environmental policies must change:

• Switch to a new model of how the wholesale electricity market operates.

• Privatize TESs.• Institute strict fines for polluting the environment

while providing incentives for companies who undertake eco-friendly measures.

Some key changes to environmental policy

• Increase fines severalfold for polluting the environment around TESs but direct the fines at instituting environment-friendly measures.

• Ensure that Ukraine participates in the EU’s Intelligent Energy-Europe Program. This program funds short-term projects aimed at reaching EU environmental goals and implementing policies to fight climate change. This program would allow Ukraine to learn ways to build capacity among its CEBs.