Supporting a Ukrainian Green Deal in a post-pandemic world to build forward better

Originally published by Interfax Agency on 2 March 2021

The year-long pandemic and consequent lockdowns have had severe impacts on the lives and livelihoods of people around the world.  In Ukraine, a socio-economic assessment of the pandemic’s impact on businesses and households, led by UNDP in collaboration with UN Women and UN Food and Agriculture Organization, found that, as of June 2020, 84 percent of households have lost income, and 43 percent have at least one family member who has lost a job.

Recovering from this shock will be no easy task, but with several vaccines now being produced, there is hope on the horizon. That hope could quickly dissipate however, if we fall back onto old patterns and mindsets, ignoring the potentially prosperous pathways that lie before us on the roadmap to a green economy.

A green economy is socially inclusive, produces very little carbon, and is resource efficient. In a green economy, growth in employment and income are driven by public and private investments into those economic activities that allow for reduced carbon emissions and pollution, enhanced sustainable energy production and resource efficiency – all while preventing the loss of planetary biodiversity. Together, these components could produce what has been referred to as a “great reset” of the world economy after a year of lockdowns and the socio-economic consequences of dealing with the COVID-19 pandemic.

Many innovations are taking place in this sphere, creating breakthrough solutions for the rapid improvement of economic and social conditions. Many of these innovations now appearing on the market are being used to transform the real economy and finance, thereby setting the world on a “green path.”

Politicians are also increasingly getting “on board” with the necessity of going green: the last two 5-year plans in China were aimed at forming a green economy and stimulating the development of green finance. The latter includes the activation of investment flows intended for projects in the field of sustainable development and ecological products, and which support the formation of the necessary conditions. The UN Environment Programme defines Green Finance as including “… financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities.”

In December 2019, the European Union adopted the European Green Deal (EGD), which involves achieving “climate neutrality” on the European continent by 2050. To achieve this goal, the EU plans to attract both private and state green financing. In October 2020 Ukraine declared its readiness to collaborate actively with the EU and to implement the provisions of the EGD. The Government also said it would actively support the EU in its intention to achieve a climate neutrality of the entire continent by 2050.

Building a green economy in Ukraine is now a core of the Association Agreement with the EU, which includes a list of relevant directives and regulations to make a transition towards a green economy easier. Implementation of these legal acts is voluntary but could be considered as a prerequisite for a full economic integration of Ukraine with the EU.

With this in mind, Ukraine should invest more in education to produce a qualified workforce with experts in green business transformation and green finance. The country is in desperate need of such talent.  Likewise, students entering university should be well-advised that all graduates with a knowledge of green business transformation and the development of green finance will have no problem finding work when they graduate. In 2020,  several thematic courses were added to the agenda of “Urban Studies” at one Ukrainian university.  However, much more needs to be done – and needs to be done soon if Ukraine is to catch the wave and emerge as a prosperous new economic engine powered by a green economy. Over the past few years, UNDP has conducted numerous educational seminars for representatives of government, academia and business, covering the green economy and green finance. Throughout this period, we have managed to find and unite experts who are pioneers in developing these topics in Ukraine.

Waiting for a green light to go green in Ukraine

There are political, economic and technical reasons why the process of green transformation proceeds at such a sluggish pace in Ukraine. Politically, the green dimension is not yet or not fully integrated into the agenda of the Ukrainian Parliament and the national government, but this could easily change with the technical support of development organizations, such as UNDP. The economic reasons involve a financial system that relies too heavily on carbon-intensive industries and fossil fuels.

Third, the technical reasons: according to the Energy Strategy of Ukraine, the share of renewable energy in the general mix of the primary supply should increase to 25 percent by 2035. Achieving this goal will require the entire infrastructure of energy distribution to be completely rebuilt using more modern technology, such as by installing smart grids.

Updating our energy infrastructure with “smart grids” using hydrogen-based fuel cell technology would bring us more into line with Germany and the European Union. In Germany, the share of renewable energy is already over 50 percent. The system is overloaded, and the only way to keep it working is to tap into the potential of hydrogen. Energy could be produced, let’s say, in the north of the country and transported to the industries in the south, as well as used on public and private transportation. Thus, in the current circumstances, hydrogen energy is a potential solution not just for Germany, but for Ukraine as well -- both for domestic use, and for the export of surplus abroad.

In addition, more could be done using modern blockchain technology to control the distribution of energy. Big energy companies and consumers in the EU have started to build decentralized networks based on this technology, where all processes are automated and regulated without intermediaries – in particular, for the purchase and sale of energy. For example, households have their own batteries, for virtual storage. Together, these small storages combine to make a large one, where surplus can be loaded, and if necessary, returned to the grid. This is a way to avert misbalances, to prevent congestion, to reduce transaction costs and to facilitate the collection of information on non-financial risks.

Green = sustained success with shared prosperity

Ukraine has agreed in principle to the European Green Deal, so such processes must take place sooner or later in Ukraine as well. What needs to be done now is to estimate the financial needs and to develop strategies for attracting private funding. The logic is simple: if our system continues to operate using the old principles, we won’t be able to join the EU energy system and its market, the old system will continue to waste energy and resources, and we will fail in our commitments to the Paris Agreement on Climate Change.

Ultimately, for these reasons, Ukrainian businesses will have to go “green” if they want to succeed. It is already very difficult to obtain direct funds on the financial market without conducting an evaluation of the environmental, social and governance risks for business. Without such information and relevant ratings from recognized agencies, no exchange or financial institution will be able to provide credits for a “green transition.”

The agro-industrial sector is the most promising in terms of the “greening” of Ukraine. This is one of a few sectors in Ukraine that is market-oriented. Its activity has already been reformed to meet the requirements of the EU market, where most Ukrainian products are exported. When we at UNDP talk with Ukrainian companies about new initiatives in the field of green economy and green finance, the most efficient dialogues take place with agro-industrial business representatives. They understand that it is impossible to move forward without such changes, and thus want to bring “green changes” into their companies, often with the help of UNDP technical assistance.

Our success with the agro-industrial sector can be used as inspiration and guidance to other businesses. All that is needed is the willpower and motivation to ensure a transition to a green economy.  The benefits go far beyond the economic, building a positive image, and ensuring long-term development for both individual companies and the country as a whole. If Ukraine takes the green course, it will not only strengthen its position on the EU market, but will also increase its chances to receive direct access to private “green” financial resources. The green economy and green finance are not a matter of choice for Ukraine, but a matter of economic survival in the coming century.

The solution: supporting a green recovery in Ukraine

UNDP is well aware that if the world falls back onto its old ways after the pandemic, it may continue on its trajectory towards global environmental emergencies with consequent impacts far worse than those caused by COVID-19. To avoid this, all economic recovery packages should be built on principles of the green economy, and designed to build forward better than before.

To support the Government and people of Ukraine to overcome these challenges, and to pave the way for full integration with the EU economy, UNDP has developed and launched a new programme to promote and support a green recovery of the Ukrainian economy. The time is now to update the European Green Deal framework in Ukraine and to harness it in efforts to build forward better. Earlier this year UNDP launched a US$ 1.2 million “Green Recovery Package” that includes, among other things, a plan to unlock private green and sustainable finance, and an analysis of the threats and opportunities for the Ukrainian economy associated with active participation in the European Green Deal. The Package includes expert support to state agencies and ministries, the preparations of a Green Bonds Standards and sophisticated IT solutions for companies to measure their carbon footprint. These solutions will help Ukrainian business to stay in the European market, once the restrictive measures of the European Green Deal come into force.

Implementing the new measures of the European Green Deal will be demanding and time consuming, but with support from the Government of Ukraine and UNDP, Ukrainian businesses will be better equipped to overcome the challenges and succeed in European markets. When Ukrainian businesses succeed, the entire country benefits through higher employment and increased tax revenue for public goods and services.