Financing options for “green” policy measures


Within our Policy Proposal series, we propose ambitious measures to reduce and curb greenhouse gas emissions in a variety of sectors of the Ukrainian economy. Since the proposed measures are capital-intensive, this paper aims at the capital markets and the unlocking of private capital. Therefore, we propose an overview of tailor-made green financing schemes consisting of public and private funding. We elaborate on certain financial instruments typical for green measures, such as green bonds, and potential ways of their correct implementation in Ukraine.

  • For the transport sector, we proposeto implementproject finance for public private partnership in order to financethe capital-intensive monitoring and control infrastructurefor congestion charging in Ukrainian cities. The scheme allows for the cooperation of the public and private sectors.
  • To cushion the impact of a coal phase-out on regional socio-economic indicators, a transition fund could be established to finance retraining programs, pension schemes etc. A mix of grants on the one hand and loanson the other could then channel funds to regions and projects useful for anequitable transition.
  • To finance an increaseofrenewable electricity generation, project finance and on-balance sheet financeare considered. High capital costsdue to high perceived risks of such investmentslead to a higher cost of electricity from renewable energy. Therefore,steps to reduce the risks are needed.
  • We propose the use of green bonds to supportenergy efficiency retrofitting of public buildings asthey offer secure options for large-scale projects and attract private investors. Nevertheless, government expenses will still be needed to accompany green bond financing.
  • Our financing approach to support steel companies investing in new technologies andupgrades of their existing installations includes a modernisation fund and a credit from a multilateral development bank backed by a potential increase in carbon taxproceedsto front-load the fund.Then, the fund could provide grants to cover part of theinvestment into green modernisation projects with the company financing the other part of its project itself.
  • To cover the expenses for Ukraine’s ENTSO-E integration, Ukrenergo has to apply on-balance sheet financing with loans from international credit donors and higher tariffs with which Ukrenergo refinances itself.
Manuel von Mettenheim, Stanislav Dubko

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Policy Notes provide a very concise overview of one specific topic. They often build on earlier more substantive work. Some Policy Notes were also published as part of the Quarterly Monitoring Reports.