Economic Assessment of Low-Emission Development Scenarios for Ukraine

1. Economic Assessment
of Low-Emission Development
Scenarios for Ukraine
Maksym CHEPELIEV, Ph.D. in Economics
Oleksandr DIACHUK, Ph.D. in Engineering
Roman PODOLETS, Ph.D. in Economics
Zürich, Switzerland, 11/12/2017
ETH Zürich Zentrum campus

2. 2
CO2 Emission and Climate Change in Ukraine
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
In 2015 Ukraine was the
23d (189.4 million tons
of CO2 largest emitter
of CO2 emissions from
fuel combustion.
In 1990 Ukraine was
ranked the 6th among
the countries – largest
emitters of energy-
related CO2
* CO2 Emissions from Fuel Combustion only

3. 3
Structure of GHG Emissions in Ukraine
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
GHG emissions in “Energy” sector in 1990-2015 constituted 64.7-75.7% of total
GHG emissions together with emissions related to “Industrial Processes” it
constituted 82.0-90.0%. This determined general dynamics of GHG emission in
Ukraine.
76%
12%
11%
1%
65%
17%
14%
4%
Energy
Industrial processes
and product use
Agriculture
Waste
1990 2015

4. 4
Renewables in Gross Final Energy Consumption
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
In terms of Renewables share in GFEC Ukraine lags behind not only developed
countries (including the countries-members of Visegrad Group) but also globaly.
20.0%
14.0%
19.5%
4.2%
13.6% 15.7%
12.5% 15.1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
World OECD EU-28 Ukraine Poland Czech
Republic
Hungary Slovak
Republic
2014
Other Biofuels and waste Geothermal, Solar, Wind etc. Hydro Share RES in GFEC

5. 5
Energy and Carbon Intensity
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
The carbon intensity of the
country´s GDP, in 2014 was almost
2.8 times higher than in OECD-
countries and 2.4 higher than in
Visegrad Group-countries. And it
was 3.8 times higher compared
with the EU-28 countries.
The energy intensity of Ukraine's
GDP (2014) was correspondingly
2.6 and 2.4 times higher than in
OECD countries and in the
countries- members of the
Visegrad Group. And it was 3.4
times higher than in European
Union.0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
toe/thousand2010USD
Energy Intensity
Ukraine
OECD
The Visegrad
Group
World
EU-28
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
tCO2/thousand2010USD
Carbon Intensity
Ukraine
OECD
The Visegrad
Group
World
EU-28

6. 6
Key Indicators of Ukraine
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
Dynamics of GHG emissions follows the curve of total primary energy supply.
In 1990-2000, rates of GHG emission was comparable to the rates of GDP decrease, but
in 2001-2008, as a result of changed structural proportions in economy, GDP increase
was no longer accompanied by the relevant GHG emission increase (decoupling).
-20%
0%
20%
40%
60%
80%
100%
-250
-50
150
350
550
750
950
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Sharesof1990
MtCO2-eq.
TOTAL (excl. LULUCF)
LULUCF
Share of GHG's (total) compared to 1990 (right scale)
Share of GDP compared 1990 (right scale)
Share of TPES compared 1990 (right scale)
Share of GHG's (Energy + Industrial processes) compared to 1990 (right scale)

7. 7
Selected performance indicators of ESU2035
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
In August 2017 Cabinet of Ministers adopts updated Energy Strategy of Ukraine
till 2035 (ESU2035).
2015 2020 2025 2030 2035
Primary Energy Intercity,
toe/thousand 2010 USD GDP PPP
0.29 0.20 0.18 0.15 0.13
Share of RES (including hydro and
thermal energy in TPES, %
4% 8% 12% 17% 25%
Share of RES (including big Hydro PP)
in Electricity production, %
5% 7% 10% >13% >25%
Share of Wind and Solar in Electricity
production, %
1% 5.5% 6.7% >9.7% >12.8%
Share of Nuclear in Electricity
production, %
54% 52% 51% 50% 48%
The share of Coal PP complies with
Directive 2010/75/EC
<1% <10% <40% 85% 100%
CO2 Emission compared 1990, % 31.8% <60% <60% <60% <50%

8. 8
Ukraine in International Climate Agreements
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
 Ukraine is Annex I Party to United Nation Framework
Convention on Climate Change since 1996
 Ukraine is Annex B Party to the Kyoto Protocol since 2004
(Second Commitment Period of the Kyoto Protocol is under
ratification process)
 Ukraine is a Party to Paris Agreement starting from
September 19, 2016 with Nationally Determined
Contribution (NDC) that presents national goals on climate
actions – both mitigation, reduction of GHG emissions and
adaptation to impacts of climate change

9. 9
Ukrainian Nationally Determined Contribution (NDC)
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
• “Ukraine defines ambitious, but at the same time substantiated and fair target with
regard to the level of GHG emissions. It will not exceed 60% of 1990 GHG emissions
level in 2030”.
• Ukrainian NDC will be revised till 2020.
43.8%
31.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
Climate Obligation of Ukraine
Total GHG's compared 1990
Kyoto Protocol 1st period
Kyoto Protocol 2nd period
National Determined Contribution (Paris Agreement)
- prewar level

10. 10
Low-Emission Development Scenarios for Ukraine
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
In accordance with Article 4, paragraph 19, of the Paris Agreement, all Parties should
design long-term low GHG emission development strategies and communicate them by
2020.
Low Emission Development (LED) Scenario is designed in the scope of Ukrainian LED
Strategy development within the framework of USAID project.
It is based on the policy measures compiled by the project’s working groups and
quantified for the assessment by TIMES-Ukraine model.
All energy policies are grouped into four streams: Energy Efficiency (EE) improvements,
promotion of Renewable Energy (RE), Modernization and Innovation (MI) and Market
Transformations (MT).
Scenario of the “energy transition” in Ukraine from fossil (including nuclear) to
renewable energy sources (RE Scenario), with further increase of energy efficiency, has
been developed in collaboration with the Heinrich Böll Foundation’s Office in Ukraine,
which supports Greenpeace initiative in performing conceptual studies on energy
system transformations with RE domination, the so called “Energy [R]evolution”.
Although most similar studies focus on a complete phase out of fossil fuels, in case of
Ukraine, we take a 92% RE share as an economically feasible target. The main reason
behind this decision is that according to our analysis further increase of the RE share in
GFEC results in the exponential growth of additional investments and total system costs.

11. 11
TIMES-Ukraine and UGEM models linkage
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
To provide an assessment of LED policies in Ukraine we use a soft-linkage of
TIMES-Ukraine and UGEM models.

12. 12
The energy system in TIMES-Ukraine model
Institute for Economics and Forecasting National Academy of Sciences of Ukraine

13. 13
Circular flows in the UGEM model
Institute for Economics and Forecasting National Academy of Sciences of Ukraine

14. 14
Scenarios GHG Emissions for LED Strategy
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
44% 42%
36%
54%
70%
41%
53%
37%
34%
31% 29%
31%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2012* 2013* 2014* 2015* 2020 2025 2030 2035 2040 2045 2050
comaredto1990(1990=100%)
BAU EE EE+RE EE+RE+MI EE+RE+MI+MT

15. 15
Gross Final Energy Consumption in RE Scenario
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
3% 4%
9%
19%
30%
40%
52%
64%
91%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
10
20
30
40
50
60
70
80
90
2012 2015 2020 2025 2030 2035 2040 2045 2050
RE Scenario
Mtoe
Imact of EE
Electricity from RE
Heat from RE
Solar
Biofuels and Biomass
Electricity
Heat
Oil Products
Gas
Coal
Share of RE
-28%
-42%

16. 16
Electricity Production in RE Scenario
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
6% 5%
16%
39%
58%
63%
70%
75%
93%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
50
100
150
200
250
300
350
400
2012 2015 2020 2025 2030 2035 2040 2045 2050
TWh
CHP Bio
Geothermal
Solar Roof Panel
Solar Plant Size
Wind On-shore
Hydro Smal
Hydro Big
CHP Non-RE
TTP Gas New
TTP Coal New
TTP Coal Advanced.
TTP Coal Exist.
Nuclear New
Nuclear Exist.
Share of RE
-14%

17. 17
District heating in RE Scenario
Institute for Economics and Forecasting National Academy of Sciences of Ukraine

18. 18
Cumulative 2012-2050 LED policy results
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
In general, both scenarios have negative total system costs, which means that additional
capital expenditures are overstated by associated energy efficiency improvements and
reduction in fuel consumption.

19. 19
Fluctuation of Wind and Solar Technologies
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
SPPs in Ukraine in 2013-2015
WPPs in Ukraine in 2013-2015
The real data shows that the ratio
of battery capacities to the capacity
of a SPP could vary from 63% to
91%. The average value of this
ratio was 75-77% in 2013-2015.
For WPPs this parameters could
fluctuate from 9% to 94%, and
average value was 47-54%.

20. 20
Absolute and relative decoupling for LED scenarios
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
One of the significant benefits of the RE scenario is that this policy set up
allows achieving absolute decoupling of GDP from GHG emissions and energy
use.

21. 21
Macroeconomic effects of LEDS implementation
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
According to our results, both LED scenarios are associated with positive
macroeconomic effects. While in the short run, additional GDP growth is
relatively low (1-2%), in the mid- and long-term it can reach up to 12-16%.

22. 22
Impacts of LED Scenarios on households real income
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
With growing GDP, households also experience positive impacts of LED policies.
In the short run, they are relatively insignificant, and even slightly negative for
the RE scenario, but in the mid and long term, additional income growth can
reach up to 12-14%.

23. 23
Changes in the sectoral output in 2050
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
On average, estimates of the output changes show higher degree of uncertainty
compared to aggregate macroeconomic effects. For some sectors, they even indicate
the possibility of sign change, like in case of electricity industry under LEDS scenario.

24. 24
Long-term vision of Ukraine
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
In November 2017 Ministry of Ecology and Natural Resources of Ukraine released Draft Low
Emission Development Strategy (LEDS) with target – no exceed 35% of 1990 GHG emissions
level in 2050.
10%
31.7%
43.8%
35.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
Climate Obligation of Ukraine
Renewables Scenario
Total GHG's compared 1990
Draft LEDS Pathway
LED Strategy Target
Kyoto Protocol 1st period
Kyoto Protocol 2nd period
National Determined Contribution
- prewar level
RE Scenario Target

25. 25
Conclusions (1/2)
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
•With one of the highest levels of energy and emission intensities
in the world, Ukraine has a high potential to exploit the “low
hanging fruits” of the energy sector transformation by
implementing LED policies, which can benefit both economy and
environment.
•To explore such opportunities we use an integrated modelling
approach, which includes energy system TIMES-Ukraine model
and Ukrainian general equilibrium model. Using such
methodology we provide an assessment of Ukrainian LEDS, as
well as analyze more ambitious long-term environmental target,
which includes transition towards 92% share of renewables in
Gross Final Energy Consuming by 2050.
•While both policy options show an improvement relative to the
BAU path, RE scenario provides ambition and sufficient national
contribution in terms of limiting global warming below 2oC.

26. 26
Conclusions (2/2)
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
•With initially low level of energy efficiency in Ukraine, both LED
policies result in positive macroeconomic and sectoral effects,
with better perspectives in case of RE scenario, which at the same
time requires significantly larger investments. Ukraine benefits
from double dividends under both policy options, while RE
scenario also provides an economically acceptable way of going
from relative to absolute decoupling.
•At the same time, existing institutional environment and
inefficient market framework can pose significant risks towards
LED policies implementation. As a result, national energy markets
transformation towards transparency and competitiveness
becomes a necessary condition of LED policies success. In this
context, Ukraine’s further engagement into European legal
framework through the European Energy Community may provide
an effective support on the way forward.

27. 27
Contacts
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
Oleksandr DIACHUK, Roman PODOLETS
Department of Energy Sector Development and Forecasting,
Institute for Economics and Forecasting
National Academy of Sciences of Ukraine
26, Panasa Myrnoho St., Kyiv, 01011. Ukraine
Office: +380 44 280 89 27
E-mail: diachuk@ief.org.ua
podolets@ief.org.ua
Maksym CHEPELIEV (corresponding author)
Center for Global Trade Analysis,
Purdue University, West Lafayette, USA
E-mail: chepelev@gmail.com

28. 28
Renewables in Gross Final Energy Consumption
Institute for Economics and Forecasting National Academy of Sciences of Ukraine
3.2%
4.3% 4.2%
4.9%
3.1%
4.0%
4.9%
5.9%
6.7%
7.4%
8.3%
9.1%
10.1%
11.0%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Share of RE in GFEC (real data)
Ukrainian NREAP