Low carbon development to drive economic growth in Ukraine

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Ever since economic crises hit Ukraine in 2009, the economy has been facing severe challenges. Thirteen years back, it was the combination of high export demand for industrial products together with low energy prices that kick-started a period of almost ten years of strong economic growth. Today, a rapid revival of such export-driven growth looks highly unlikely. Demand for Ukrainian exports was driven by strong growth in emerging economies like China or – later – Turkey. Today, emerging markets are developing much less rapidly. Moreover, by building up own industrial production capacities, Ukraine’s former customers have by now even turned into competitors on international markets. Finally, cheap energy has given Ukraine a considerable comparative advantage in production of energy-intensive products such as  metals or chemistry. Since 2005, this advantage has gone with the price hikes for natural gas imports and the adjustment processes it has triggered. Even worse, exploding costs for gas imports have turned the country’s current account as well as public budgets into deficit. Hence, the traditional model of economic growth driven by exports of energy-intensive products doesn’t work any longer and there is an urgent need for a vision, by which Ukraine could be re-invented as an industrial economy, resting on an industrial basis that is competitive by international standards and including sustainably financed energy and utility supplies, a service sector that meets the different demands of commercial and private customers, and an agricultural sector with sufficient perspectives for economic development.

 

Today Ukraine is one of the most energy inefficient economies in the world. The energy intensity of the country’s economy is 3.8 times higher than of the 27 EU countries. At the same time, economic growth is generally associated with high energy efficiency and there is an apparent need for a viable solution capable to improve energy efficiency or, more generally, resource productivity. Hence, improving the persistently low levels of energy efficiency along with all associated problems such as import dependency and greenhouse gas emissions is one of the key development challenges for Ukraine today.

 

“Capacity Building for Low Carbon Growth” project, implemented by UNDP and funded under the International Climate Initiative of the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety engages leading national and international experts in this sphere to help Ukraine address this challenge.

 

Based on the results of a thorough economic analysis with a deep emphasis on macroeconomic relationships as well as on sector-specific details, the project experts are working on economic growth strategy that takes into account these factors and can be used by the Government of Ukraine to inform the formulation of its sectoral processes domestically, and internationally.  As a first step the project expert team has completed the assessment of the costs and benefits of shifting towards a low-carbon development path, including the costs and benefits of the corresponding changes in technology, production and demand patterns. It was done based on detailed macroeconomic and sectoral data and was carried out with the help of modern computational tools. In this process, thanks to the project’s work representatives from all key ministries (economic development and trade, finance, justice, infrastructure, energy and coal, industrial policy, agrarian policy and ecology) developed better understanding  of sustainable development paradigm, and in particular that climate change, and low carbon development, are not just environmental issues. This allows for more holistic approach by government actors and prompts them to take into consideration every aspect of the sectoral policy, in particular energy strategy, and ensure economic growth supported by the greenhouse gases emission reduction.

 

In addition to ensuring low emission growth, the low-carbon growth strategy will also identify opportunities for attracting climate-friendly investment, incentivising low carbon businesses, and leveraging additional resources for realization of the government's emission reduction goals.

 

Implementation of a low carbon development strategy that will be developed by the end of 2014 is expected to significantly contribute to economic and social development of Ukraine by creating green jobs, promoting energy efficiency and energy security, and improving access to a variety of financial resources to stimulate the country's low carbon growth, including carbon markets and market-based mechanisms.