Ukraine’s non-compliance with environmental obligations may lead to the loss of investor confidence and international isolation

20/ 01/ 2021

On January 19, representatives of the EBA Committee for Industrial Ecology and Sustainable Development specified the consequences of Ukraine’s non-compliance with the national plan to reduce emissions from large combustion plants (NPRE) during the committee hearing on implementation of measures for industrial greening and reducing pollutant emissions in Ukraine, initiated by the Verkhovna Rada Committee on Environmental Policy. Developed to meet the requirements of the Energy Community Treaty and approved by the Cabinet of Ministers in 2017, the NPRE aims to reduce nitrogen oxide emissions by 72% by 2033 and sulfur and dust emissions by 95% by 2028. Thus, the NPRE specifies 90 facilities where dust, sulfur, and nitrogen treatment plants should be installed. Another 135 facilities must be decommissioned after 20 or 40 thousand hours of service operation. In case of non-compliance with the requirements of the NPRE, the large combustion plant operators will have to stop the work of power units. This, in turn, will lead to a shortage of capacity and reduce the efficiency of Ukraines energy system. However, as of today, the NPRE is not being implemented. The EBA member companies analyzed the situation and identified 6 reasons why it happened: Too ambitious reduction terms. To achieve the current level of air pollutant emissions, the EU needs more than 30 years of environmental measures. For example, Poland has spent 18 years to reduce dust emissions, and Ukraine is obliged to achieve this figure in 10 years. Lack of public funding mechanism. In the EU, the NPRE eco-modernization measures are funded by large combustion plants with state support. The National Energy Strategy of Ukraine for 2035 provided that the legislative provision of mechanisms for financing investment projects for the construction of gas treatment equipment under the NPRE should be the main national task in the field of environmental protection until 2020. However, this initiative was never implemented. Electricity market reform. In the EU, access to new emission standards was enabled by the investment component of the electricity tariff or other types of state aid and sources of funding. In the 2000s in Ukraine, the mechanism of state aid for the implementation of measures to modernize heat generation units was regulated by Cabinet Order №648 On measures for reconstruction and modernization of thermal and combined heat power plants and the order of the Ministry of Fuel and Energy №183 On approval of project preparation and financing plan for reconstruction and modernization of thermal power plants . In 2017, due to the adoption of the Law On the Electricity Market, the mechanism of financing new investment projects at the expense of a separate component in the tariffs of TPPs was gradually terminated. During a certain transition period, such a mechanism was applied only to projects started before 2015, and the accrual of this component was completed on July 1, 2019. Besides, the new electricity market model includes price restrictions to prevent a significant increase in the price of electricity for consumers. Also, over the past five years, there have been unpredictable critical phenomena for the Ukrainian energy sector, in particular: - Loss of control over mines producing anthracite coal and forced redistribution of capacities and reconstruction of 10 power units in 2017-2019 to protect the United Energy System of Ukraine. According to the current NPRE, they should be decommissioned by 2033. - Reduction in 2019-2020 of electricity consumption caused by the decline in industrial production and the pandemic of coronavirus COVID-19. - Changes in the structure of traditional generation, caused by a rapid increase in the installed capacity of solar and wind power plants by 5 times in the period 2018-2019. These factors and the lack of sources of funding for enterprises in the industry have led to the actual inability of plant operators to make capital-intensive long-term investments in environmental measures provided by the NPRE. Thus, the total amount of investment required for the implementation of all NPRE measures, according to EBA experts, is 4.1 billion euros. At the same time, the largest share of investments (about 82%) should be made in 2021-2027. Olga Boiko. EBA Committee on Industrial Ecology and Sustainable Development. We have to put ourselves in the place of an investor who supported the state’s need to modernize its energy system and relied on the financial support offered by it. Instead, we see a situation in which all Ukrainians have become hostages. We need to resume dialogue as soon as possible to overcome this crisis while it is not too late. According to the EBA, for the actual implementation of the NPRE, it is necessary to: - develop and envisage sources and mechanisms for financing the NPRE activities, enshrined at the legislative level. - update the list of facilities provided in the NPRE annexes, particularly, those to be upgraded (Annex 2) and those that will operate for a limited period with subsequent decommissioning (Annex 4). - review the sequence of project implementation for the installation of dust and gas treatment equipment and mechanisms (Annex 3) - extend for Ukraine the term of fulfillment of the requirements of Directive 2010/75 / EU and the general term of implementation of the NPRE until January 1, 2038. Therefore, the European Business Association supports the full implementation of the NPRE, provided that the process of its renewal is launched with the involvement of all parties (government, representatives of the Energy Community, business, and the public) and the search for sources of funding for the National Plan. After all, the issues of energy security, environment protection, and the countrys image in the international arena are currently at stake. Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

Developed to meet the requirements of the Energy Community Treaty and approved by the Cabinet of Ministers in 2017, the NPRE aims to reduce nitrogen oxide emissions by 72% by 2033 and sulfur and dust emissions by 95% by 2028. Thus, the NPRE specifies 90 facilities where dust, sulfur, and nitrogen treatment plants should be installed. Another 135 facilities must be decommissioned after 20 or 40 thousand hours of service operation. In case of non-compliance with the requirements of the NPRE, the large combustion plant operators will have to stop the work of power units. This, in turn, will lead to a shortage of capacity and reduce the efficiency of Ukraine’s energy system.

However, as of today, the NPRE is not being implemented. The EBA member companies analyzed the situation and identified 6 reasons why it happened:

Too ambitious reduction terms. To achieve the current level of air pollutant emissions, the EU needs more than 30 years of environmental measures. For example, Poland has spent 18 years to reduce dust emissions, and Ukraine is obliged to achieve this figure in 10 years.

Lack of public funding mechanism. In the EU, the NPRE eco-modernization measures are funded by large combustion plants with state support. The National Energy Strategy of Ukraine for 2035 provided that the legislative provision of mechanisms for financing investment projects for the construction of gas treatment equipment under the NPRE should be the main national task in the field of environmental protection until 2020. However, this initiative was never implemented.

Electricity market reform. In the EU, access to new emission standards was enabled by the investment component of the electricity tariff or other types of state aid and sources of funding. In the 2000s in Ukraine, the mechanism of state aid for the implementation of measures to modernize heat generation units was regulated by Cabinet Order №648 “On measures for reconstruction and modernization of thermal and combined heat power plants ” and the order of the Ministry of Fuel and Energy №183 “On approval of project preparation and financing plan for reconstruction and modernization of thermal power plants “. In 2017, due to the adoption of the Law “On the Electricity Market”, the mechanism of financing new investment projects at the expense of a separate component in the tariffs of TPPs was gradually terminated. During a certain transition period, such a mechanism was applied only to projects started before 2015, and the accrual of this component was completed on July 1, 2019. Besides, the new electricity market model includes price restrictions to prevent a significant increase in the price of electricity for consumers.

Also, over the past five years, there have been unpredictable critical phenomena for the Ukrainian energy sector, in particular:

– Loss of control over mines producing anthracite coal and forced redistribution of capacities and reconstruction of 10 power units in 2017-2019 to protect the United Energy System of Ukraine. According to the current NPRE, they should be decommissioned by 2033.

– Reduction in 2019-2020 of electricity consumption caused by the decline in industrial production and the pandemic of coronavirus COVID-19.

– Changes in the structure of traditional generation, caused by a rapid increase in the installed capacity of solar and wind power plants by 5 times in the period 2018-2019.

These factors and the lack of sources of funding for enterprises in the industry have led to the actual inability of plant operators to make capital-intensive long-term investments in environmental measures provided by the NPRE. Thus, the total amount of investment required for the implementation of all NPRE measures, according to EBA experts, is 4.1 billion euros. At the same time, the largest share of investments (about 82%) should be made in 2021-2027.

Olga Boiko EBA Committee on Industrial Ecology and Sustainable Development

We have to put ourselves in the place of an investor who supported the state’s need to modernize its energy system and relied on the financial support offered by it. Instead, we see a situation in which all Ukrainians have become hostages. We need to resume dialogue as soon as possible to overcome this crisis while it is not too late.

According to the EBA, for the actual implementation of the NPRE, it is necessary to:

– develop and envisage sources and mechanisms for financing the NPRE activities, enshrined at the legislative level.

– update the list of facilities provided in the NPRE annexes, particularly, those to be upgraded (Annex 2) and those that will operate for a limited period with subsequent decommissioning (Annex 4).

– review the sequence of project implementation for the installation of dust and gas treatment equipment and mechanisms (Annex 3)

– extend for Ukraine the term of fulfillment of the requirements of Directive 2010/75 / EU and the general term of implementation of the NPRE until January 1, 2038.

Therefore, the European Business Association supports the full implementation of the NPRE, provided that the process of its renewal is launched with the involvement of all parties (government, representatives of the Energy Community, business, and the public) and the search for sources of funding for the National Plan. After all, the issues of energy security, environment protection, and the country’s image in the international arena are currently at stake.

Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.