Stanislav Zinchenko, Leading Industry Expert at the Center for Economic Recovery, Head of the Committee for Environment and Sustainable Development of the European Business Association
The EU's experience in implementing "green" industrial policy can become a driver of structural restructuring of the Ukrainian economy
January 2021 will mark a year since the Green Transition Concept was presented in Ukraine. This document assumes an almost complete cessation of greenhouse gas emissions. Scientifically speaking, Ukraine's economy should become carbon neutral by 2070.
This is an extremely ambitious goal. Moreover, it can be dangerous as it carries risks for economic growth. Improving the environmental friendliness of industrial enterprises implies an increased need for investment. Less investment in growth, more investment in sustainability. Green technologies are expensive. Also, as a result of decarbonization, the competitiveness of products may deteriorate. "Green" goods are more expensive to produce. Therefore, it is important to strike a balance between environmental objectives and economic growth.
An example of a European green deal for the metallurgical industry is indicative here - Green Deal on Steel. According to Eurofer, the European steel industry will reduce greenhouse gas emissions by 55% by 2030, but this requires a set of measures to financially support the industry and a number of regulatory measures. In particular, the creation of a market for "green" goods through the public procurement system, the application of trade protection measures, support for investment in innovative solutions. What is the result of these measures? European metallurgists are actively developing and testing new technologies to reduce emissions. The latest example is the launch of a pilot project (HYBRIT) on the use of hydrogen in the production of direct reduced iron. This will make it possible to almost completely avoid greenhouse gas emissions from the steelmaking process. Another question arises - where to get hydrogen in such large volumes? It is supposed to use environmentally friendly hydrogen, produced by electrolysis, using electricity from renewable sources. In this case, the production of hydrogen for energy is a way of storing electricity, which was a bottleneck in the development of "green energy". Europe decisively refuses coal.
Similar processes are taking place in the field of transport. Subsidies have made the purchase of electric vehicles more affordable. Conversely, combustion vehicle emission standards have made traditional vehicles more expensive. Demand for such goods as lithium, copper, nickel and rare earth metals is increasing. In the long term, the demand for oil will decrease, and, accordingly, for a number of products and services for its production and processing.
It turns out that the use of some technologies pulls along the chain a number of transformations in the economy. Value chains are changing, new industries and new markets are being created, the demand for some goods disappears, while for others it rises sharply. That is, increasing "environmental friendliness" leads to a structural change in the economy.
Is Ukraine ready for such transformations? A lot has been done since the adoption of the Green Transition Concept. For example, a package of documents has been adopted for monitoring, reporting and verifying greenhouse gas emissions. This creates conditions for the launch of a system of quotas trading in Ukraine. Also, a position paper "On Ukraine's participation in the European Green Deal" was developed. This document will become the basis for cooperation between Ukraine and the EU in the environmental field.
Also today, at the initiative of the government, work is underway in Ukraine to create a National Economic Strategy. Industry will become one of the vectors of the strategy. And green technologies are one of the points that, as we can see, will become an important element of the Ukrainian industry.
Joining the European Green Transition will give Ukraine a lot. First, it is an individual approach to the conditions of decarbonization of our economy. Secondly, this will allow avoiding barriers to exports to the EU, which is relevant in the context of the discussion on the introduction of a special fiscal instrument (CBA), which will impede the export of carbon-intensive products. Third, this is expected to open up funding sources for us. Ukraine, as a country with a developing economy, cannot be a leader in the decarbonization process. The leaders of this expensive process are the most developed countries in the world. Therefore, being part of the European "green" deal, Ukraine will be able to learn from the EU experience. Considering the fact that we have not yet developed strategic documents on environmental policy, it is more than logical to use the experience of Europe. If we set ourselves goals similar to the EU, then it is advisable to use the same instruments that the EU uses.
Europeans have a systematic approach to environmental policy. Simply put, it is a policy of balances, "carrots and sticks." If there are limitations somewhere, then tools are given due to which you can solve this problem. That is, if standards or tax policies are tightened, then financial instruments, subsidies, trade barriers, etc. work at the same time. For greater efficiency, these measures are applied in a comprehensive manner, which saves money and avoids failures in related industries. For industry, this set of measures is called a "green" industrial policy.
"Green" industrial policy is a set of measures carried out by the state aimed at accelerating the transformation of the economy in order to both reduce harmful emissions, increase resource efficiency, and at the same time increase productivity and competitiveness. Green industrial policy allows not only to eliminate the risks of transition to a carbon-free economy, but also to serve as a source of economic growth. Such a policy involves stimulating investment in new efficient technologies, creating new jobs, creating new markets, promoting the export of "green" products, etc.
Decarbonization creates a number of challenges and risks for the Ukrainian economy. But, if approached comprehensively and reasonably, without populism, decarbonization, together with the use of the EU experience, can become a driver of the structural restructuring of our economy. This may be the answer to the question of how we can get rid of the legacy of obsolete technologies and the status of a raw material appendage.
At the same time, decarbonization is a global process and a global race. Whoever enters a new market first can gain an advantage and leadership positions in the future. Therefore, if developing countries strive to maintain their place in global value chains, to enter new markets, then the implementation of "green" industrial policy is not an option, not international obligations, not a fashionable trend, but a necessity.