Country profile of UkraineEvaluation of energy and climate policies compared to the EU

By: Erika de Visser, Luis Janeiro, Yvonne de Bie, Niklas Höhne

April 2013

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Table of content

> Chapter 1 Introduction Slide 3> Chapter 2 Methodology Slides 4-5> Chapter 3 Results Slides 6 - 19> Chapter 4 Conclusions Slides 20 -

25

> References Slide 26> Annex I Overview of EU policies Slides 27 -

28

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Chapter 1: Introduction

Goal of the project:

> to evaluate climate and energy policies in countries outside of the EU and to provide recommendations for policy opportunities for the transition to a sustainable energy supply in the respective country.

Deliverables:

> to develop a methodology to evaluate energy and climate policies in non EU countries.

> to apply the methodology to two non-European countries: Morocco and Ukraine.

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Chapter 2: MethodologySegments

The analysis is categorized in key economic sectors (rows), and policy areas (columns), which together determine the individual segments (dotted lines) of the analysis:

General energy and climate strategy

Energy supply

Industry

Buildings

TransportEnergy Effi

ciency

Renewable energy

Low carbon strategies

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Chapter 2: MethodologyIndicators and scores

> For each segment we analyse indicators for incentives and barriers, which together form a coherent and consistent strategy to achieve a long-term low-carbon future

> Each segment is scored for incentives and barriers:– Incentives:

● 0: No incentives● 4: Capturing the full technical mitigation potential in that segment

– Barriers:● 0: no barriers● - 4: prevents policies from achieving reductions for this segment

as much as positive incentives could support them

Barriers-4 -3 -2 -1 0

Incentives0 1 2 3 4

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Chapter 3: ResultsOverview of policies

Energy efficiency Renewables Low Carbon

ENERGY

SUPPLY

• Tax exemptions and reductions on energy efficient technologies and appliances and CO2 taxation

• Low electricity tariffs do not allow for a return on investment; subsidies on fuels

I B• Feed-in tariff scheme with high rates for

solar, wind, small hydro, and some forms of biomass

• Administrative barriers for purchase of electricity and for licensing

I B• No relevant policy support in place

• Ukraine is considering a domestic GHG emissions trading scheme.

I

INDUSTRY

• Tax exemptions and reductions on energy efficient technologies and appliances and CO2 taxation

• No barriers found

I B• Fiscal incentives for import to Ukraine,

sales and use of renewable energy equipment in Ukraine

• Administrative barriers for licensing

I B• No relevant policy support in place

• Ukraine is considering a domestic GHG emissions trading scheme.

I

BUILDING

S

• Mandatory building energy code for new buildings and standards for energy using equipment in households

• Low electricity and heat prices

I B• Fiscal incentives for import to Ukraine,

sales and use of renewable energy equipment in Ukraine

• Low heat prices

I B

• No relevant policy support in place

TRANSPOR

T

• Excise tax on oil products• Fuel subsidies

I B • Fiscal measures for biofuels in place, including exemption from corporate profit tax on income from sale of biofuels and excise tax exemption for motor biofuels

• Fuel subsidies

I B

• No relevant policy support in place

I

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Chapter 3: ResultsGeneral energy and climate strategy

EFFICIENCY/RENEWABLES/LOW-CARBON

AssessmentScore

UkraineScore

EU

GENERAL CLIMATE STRATEGY

• Ukraine has declared a long-term goal of a 50% greenhouse-gas emissions reduction by 2050 from 1990 levels in the context of the UNFCCC, however a comprehensive climate strategy to achieve this goal is missing. The draft Updated Energy Strategy of Ukraine to 2030 provides general guidelines, but does not provide a strong foundation to drive action.

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Chapter 3: ResultsEnergy efficiency in energy supply

ENERGY EFFICIENCY

AssessmentScore

UkraineScore

EU

ENERGY SUPPLY

Incentives

• The tax code (effective January 2011) includes a number of instruments to energy efficiency: tax exemptions and reductions to stimulate the use of energy efficient technologies and appliances and CO2 taxation to stimulate GHG emissions reduction from the supply side.

• No policy support/incentive to reduce grid distribution losses.

Barriers

• Electricity tariffs do not allow for a return on investment and subsidies on fuels.

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Chapter 3: ResultsRenewable energy in energy supply

RENEWABLE ENERGY

AssessmentScore

UkraineScore

EU

ENERGY SUPPLY

Incentives

• Ukraine has a feed-in tariff system in place providing differentiated and relatively high support for solar, wind, small hydro and some forms of biomass. Electricity production from animal waste, biogas and landfill gas is not eligible for feed-in tariffs.

• In addition, some fiscal incentives apply to renewables, such as tax exemptions on import and sales of equipment for generating renewable energy and production and sales of electricity or heat from renewables.

Barriers

• The system operator has no obligation to provide priority dispatch for generation from renewable sources. Besides there is no strategy for integration of renewables in the grid.

• Moreover procedures for getting licenses and permits to build and operate renewable energy facilities are complex and time consuming.

• Investors face significant risks, because they can only obtain the feed in tariffs after the plant is constructed.

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Chapter 3: ResultsLow carbon technologies in energy supply

LOW CARBON

AssessmentScore

UkraineScore

EU

ELECTRICITY AND HEAT SUPPLY

Incentives

• No policy instruments to support fuel switch to low-carbon fuels have been found. In contrary, some district heating facilities have recently switched from gas to coal.

• There are no policy instruments to support CCS. • Ukraine is considering a domestic GHG emissions trading

scheme. A draft law is to be presented to parliament by the end of 2013.

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Chapter 3: ResultsEnergy efficiency in industry

ENERGY EFFICIENCY

AssessmentScore

UkraineScore

EU

INDUSTRY

Incentives

• The tax code (effective January 2011) includes a number of instruments to energy efficiency: tax exemptions and reductions to stimulate the use of energy efficient technologies and appliances and CO2 taxation to stimulate GHG emissions reduction from the supply side.

Barriers

• There are no barriers identified, such as subsidies or tax exemptions for fuels (e.g. coal, gas), in contrary to the supply sector and transport.

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Chapter 3: ResultsRenewable energy in industry

RENEWABLE ENERGIES

AssessmentScore

UkraineScore

EU

INDUSTRY

Incentives

• Some fiscal incentives apply to renewables, such as tax exemptions on import and sales of equipment for generating renewable energy and production and sales of electricity or heat from renewables.

Barriers

• Procedures for getting licenses and permits to build and operate renewable energy facilities are complex and time consuming.

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Chapter 3: ResultsLow carbon technologies in industry

LOW CARBON

AssessmentScore

UkraineScore

EU

INDUSTRYIncentives

• There are no policy instruments to support CCS.• Ukraine is considering a domestic GHG emissions

trading scheme. A draft law is to be presented to parliament by the end of 2013.

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Chapter 3: ResultsEnergy efficiency in buildings

ENERGY EFFICIENCY

AssessmentScore

UkraineScore

EU

BUILDINGS

Incentives

• Ukraine has a mandatory building energy code for new buildings since 2007. Compliance with the requirements from the building code could be improved.

• Furthermore Ukraine has a number of national standards and requirements for energy-using products in place. In 2011, actions were initiated to align with EU legislation on labeling and technical regulations for household refrigerators, freezers and washing machines. Transposition of the EU labeling directive is expected at the end of 2012.

Barriers

• Current (subsidized) electricity and heating tariffs do not provide residential homeowners with incentives to invest in energy efficiency measures.

• Furthermore the lack of end-user control over energy consumption and the absence of knowledge about the benefits of residential energy efficiency and technical expertise needed to develop bankable energy efficiency projects are key barriers.

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Chapter 3: ResultsRenewable energy in buildings

RENEWABLE ENERGY

AssessmentScore

UkraineScore

EU

BUILDINGS

Incentives

• Some fiscal incentives apply to renewables, such as tax exemptions on import and sales of equipment for generating renewable energy and production and sales of electricity or heat from renewables.

Barriers

• Current (subsidized) electricity and heating tariffs do not provide residential homeowners with incentives to invest in renewable energy

• Because the privatization process for housing has not been fully completed, commercial banks are not willing to give loans for renewables to homeowner associations since they are set up as not-for-profit legal entities, lack balance sheets and have neither guarantees nor income streams. Revision of the homeowner association legislation is planned for late 2012.

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Chapter 3: ResultsLow carbon technologies in buildings

LOW CARBON

AssessmentScore

UkraineScore

EU

BUILDINGSIncentives

• There are no policy instruments to support a low-carbon energy supply. In contrary, the government has launched a program to replace natural gas by coal in district heating plants.

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Chapter 3: ResultsEnergy efficiency in transport

ENERGY EFFICIENCY

AssessmentScore

UkraineScore

EU

TRANSPORT

Incentives

• There are no fuel efficiency standards for light and/or heavy vehicles in place. Though excise tax on oil products exists.

Barriers

• Lower prices due to taxation policy, poor quality products and domestic oil production sold at prices below real market levels.

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Chapter 3: ResultsRenewable energy in transport

RENEWABLE ENERGY

AssessmentScore

UkraineScore

EU

TRANSPORT

Incentives

• In 2009, a number of support measures for biofuels were introduced, including exemption from corporate profit tax on income from sale of biofuels, and excise tax exemption for motor biofuels production.

• The draft Updated Energy Strategy of Ukraine to 2030 projects gradual growth in demand for biofuels. In its reference scenario, the mix of bioethanol in total gasoline consumption will reach 10% by 2020 and 15% by 2030.

Barriers

• Lower prices due to taxation policy, poor quality products and domestic oil production sold at prices below real market levels.

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Chapter 3: ResultsLow carbon technologies in transport

LOW CARBON

AssessmentScore

UkraineScore

EU

TRANSPORTIncentives

• No relevant policy incentives for electric mobility, promotion of modal shifts or strategies to increase the share of non-motorised transport have been found.

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Chapter 4: ConclusionsElectricity and heat supply

Sector assessment ‘electricity and heat supply’

> Current electricity tariffs do not allow for a return on investment and price distortions on fuels do not promote efforts to increase efficiency in energy the supply side.

> Although a feed-in tariff system is in place, there is no strategy for integration and/or priority dispatch to the grid. Moreover, procedures for getting licenses and permits to build and operate renewable energy facilities are complex and time consuming. The risks for investors are substantial since feed in tariffs can only be obtained after plant construction.

> There is much to be gained in improving energy efficiency in transmission and distribution networks. Though there is no policy instrument to incentivize such investments.

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Chapter 4: ConclusionsElectricity and heat supply

Policy Recommendations ‘electricity and heat supply’

> Allow electricity producers to recover their full costs, e.g. increase the regulated tariff in a socially acceptable way.

> Remove administrative barriers so that the feed in tariff can be more effective.

> Expand the scope of the feed-in tariff scheme for renewables to include technologies such as biogas.

> Introduce an incentive-based tariff for distribution and transmission networks to trigger the required investments in energy efficiency.

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Chapter 4: ConclusionsSector industry

Sector assessment ‘industry’> Very little incentives for energy efficiency and renewable energy

found

> Energy subsidies are limited, in contrast to other sectors

Policy recommendations ‘industry’> Improve the administrative environment to make sure that the

incentives have maximum impact.

> Introduce an obligation for energy management systems and energy audits

> Set up an emissions trading scheme

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Chapter 4 ConclusionsSector buildings

Sector assessment ‘buildings’> Current (subsidized) electricity and heating tariffs in the Ukraine and

the lack end-user control over energy consumption, do not provide residential homeowners with incentives to invest in energy efficiency measures.

Policy recommendations ‘buildings’> Eliminate subsidies for electricity and heat end-use in a socially

acceptable way.> Establish (more) strict building energy codes for new buildings as well

as buildings undergoing renovation. Enforce and regularly strengthen the performance requirements for buildings. Establish timelines and renovation rates for energy efficiency retrofits in existing buildings. Provide all buildings with metering equipment.

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Chapter 4 ConclusionsSector transport

Sector Assessment ‘transport’

> Ukraine has neither energy efficiency nor renewable policy in place or strategies to stimulate electric mobility, modal shift and/or non-motorized transport.

Policy recommendations ‘transport’

> Adopt the European energy efficiency standards for light vehicles and elaborate a standard for trucks

> Introduce modal shift or strategies to increase the share of non-motorized transport.

> Create policy incentives for electric mobility

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Chapter 4 ConclusionsOverall conclusions

> Ukraine has significant GHG mitigation potential, mainly in the energy supply sector, and related to energy consumption in the residential and commercial sectors, primarily buildings and appliances, and in industry.

> However, little of this potential has been tapped, owing to a number of regulatory, economic, technical and infrastructural barriers.

> A priority could be to remove these barriers before putting in place incentives through policies.

> In addition, the lack of systematic planning, monitoring and evaluation of the programs and measures at the national and sectorial levels, is a challenge that needs to be addressed in order to tap this mitigation potential.

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References

• Ecofys, 2011. EU Climate Policy Tracker. Published in November 2011 by WWF.

• Government of Ukraine (2012), draft Updated Energy Strategy of Ukraine for the Period till 2030, June 2012, Kiev.

• OECD/IEA, 2012. Energy Policies beyond IEA Countries: Ukraine 2012.

• Ukrainian Programme of Economic Reform for the Period 2010-2014. Unofficial translation available from http://www.usubc.org/site/files/Ukraine_Program_of_Economic_Reforms_2010-2014.pdf (last accessed December 2012)

• Building code for Ukraine (2006). Thermal protection of buildings. DBN V.2.6-31:2006. Available from: http://energycodesocean.org/sites/default/files/%20%C3%A9%202.6-31-2006.pdf (last accessed December 2012)

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Annexes

> Annex I: Assessment of EU policies

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Annex I – Overview of EU policies

Energy Efficiency Renewables Low carbon

General Climate Strategy

Energy supply

Energy Efficiency Directive (2012/27/EU) Effort Sharing Decision (2009/406/EC) European Emissions Trading System

(ETS) (2009/29/EC) Energy Taxation Directive (2003/96/EC)

Renewable Energy Directive (2009/28/EC)

Internal electricity market Directive (2009/72/EC)

Security of electricity supply and infrastructure investment Directive (2005/89/EC)

Effort Sharing Decision (2009/406/EC)

Carbon Capture and Storage (CCS) Directive (2011/92/EU)

Industry

Eco-design Directive (2009/125/EC) Energy Labelling Directive (2010/30/EU) Energy Efficiency Directive (2012/27/EU) European Emissions Trading System

(ETS) (2009/29/EC)• Energy Taxation Directive (2003/96/EC)

• Renewable Energy Directive (2009/28/EC)

Carbon Capture and Storage (CCS) Directive (2009/31/EC)

Industrial Emissions Directive (IED) (2010/75/EU)

Landfill Directive (1999/31/EC)

Buildings

• Energy Performance of Buildings Directive (EPBD) (2010/31/EU)

• Energy Efficiency Directive (2012/27/EU)• Eco-design Directive (2009/125/EC) • Energy Labeling Directive (2010/30/EU)• Energy Taxation Directive (2003/96/EC)

• Renewable Energy Directive (2009/28/EC)

Transport

• Regulation on Energy Efficiency for passenger cars (443/2009)

• European Emissions Trading System (ETS) (2009/29/EC)

• Energy Taxation Directive (2003/96/EC)

• Renewable Energy Directive (2009/28/EC)

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