Economic Assessment of Low-Emission Development Scenarios for Ukraine

Abstract

In this chapter, we provide an assessment of low-emission development scenarios for the Ukrainian economy, which faces significant economic and environmental challenges. We use the soft-linkage of the TIMES-Ukraine and Ukrainian computable general equilibrium models, which allows us to estimate an economy wide implications of long-term energy policies, including the Ukrainian low-carbon development strategy initiative (consistent with 2 °C target), and a more ambitious transition towards 92% share of renewables in gross final energy consumption by 2050 (consistent with 1.5 °C). Results show that further maintenance of the existing highly inefficient energy system is more expensive than transition towards a 92% renewables share. Key differences between 2 and 1.5 °C scenarios arise after 2035–2040, which enables the possibility of smooth transitions from less to more stringent pathways during this period. With initially low level of energy efficiency in Ukraine, both policies result in positive macroeconomic and sectoral effects, with better perspectives in case of the renewable scenario, which at the same time requires over 3 times more investment. The existing institutional environment and inefficient market framework can pose significant risks. Key sets of issues, which should be further addressed by policy makers, include: inconsistency between targets of different strategic energy documents; lack of incentives for market transformation, including environmental taxation for industrial users and further subsidy reform for households; and lack of competition and transparency on energy markets.