Executive Summary

The outgoing Honcharuk government left a mixed legacy. On the climate side, the Ukraine Green Deal announced in early 2020 provides strategic guidance to investors and policymakers towards a sustainable energy and climate system. But to become effective this concept will still need to be underpinned by significant measures. The National Energy and Climate Plan – that is to be completed in the second half of 2020 – should help to identify concrete policy measures. One important quick measure can be redesigning the current carbon tax into an upstream tax on fuels. A tax of about 1 EUR/t proposed by the Ministry could help to collect some UAH 6 bn.

The new gas contract with Russia can also be seen as a success as it provided significant short-term benefits to Ukraine and avoided a month-long “gas war” that would have been detrimental for Russia-Ukraine, Russia-EU and EU-Ukraine relations.

On the other hand, there was limited progress on many other urgent matters. Coal sector reform did not progress and the electricity market remains a tightly-regulated mechanism in need of repeated quick-fixes such as Ukrenergo’s pursuit to operate storage facilities. Also, energy efficiency programs remain stuck and privatisations (Centrenergo) did not proceed. A new issue is investment-uncertainty over a discussed restructuring of feed-in tariffs for renewables. Given the quickly increasing cost, investors and government so far unsuccessfully tried to achieve a mediated compromise and there is a risk that unilateral actions will destroy credibility and significantly increase the cost of future foreign investments.