🇺🇦 A Green New Deal is taking shape—in Ukraine 🏗

Just ask Japan

and

Sep 08, 2022

Hothouse is original climate journalism with a way to act. As a climate solutions newsletter, we dig into the evidence, figure out what works, and deliver the news to your inbox. This issue is a special dispatch on how Ukraine could be at the forefront of the green revolution. Subscribe here.

Ukraine is leading the free world at the moment. Few believed they would last more than a few days after the Russian invasion. But the country’s existence is no longer in question. Moscow, not Kyiv, is on the defensive. A recent survey found 98% of Ukrainians say that their country will win the war. It is a matter of how, not whether, to rebuild.

At the start of the war, Ukraine’s president Volodymyr Zelensky said his citizens, caught between a Soviet past and European future, were giving their lives to join the West and he needed its help. “My citizens are paying the ultimate price to defend freedom,” he said. "We are fighting for our rights, for our freedoms, for life, for our life, and now we are fighting for survival. And this is the highest of our motivation. But we are fighting also to be equal members of Europe."

Europe may soon need Ukraine’s help. When Ukraine rises from the rubble, it will be a very different country. If the spirit of a green new deal takes shape anywhere in the world, it is likely to be in this former Soviet republic that has defied the odds.

Thanks to our reader Peter Henig who put us in touch with one of Ukraine’s young optimists investing in its clean energy future. Her story, and Ukraine’s, is the subject of this month’s issue. If you feel moved, we’ve rounded up options to donate to Ukraine’s recovery: Assist Ukraine, Americares, and many others.

Thanks for joining Hothouse.

Mike Coren

A Green New Deal is taking shape in Ukraine

By Michael Coren

Like millions of her fellow citizens, Nataliya Katser-Buchkovska fled Kyiv this February as bombs rained down on the Ukrainian capital. The former member of Ukraine’s parliament drove her two young children to the border to escape, a journey that would take her across Hungary, Austria, and, finally, to friends in London.

“I'm on a Russian sanctions list,” she said over a video call from her friend's flat in London. The sanctions designation is shared by young politicians and activists that backed the European-leaning government after the country’s Maidan Revolution eight years ago.“I was really frightened because of the invasion,” she said. “Now, I need to start everything from scratch.”

That spring morning, Katser-Buchkovska was enrolling her children in a local school as she juggled calls to clean energy developers and bankers. “Because we're displaced now, I’m busy with some very ordinary, ordinary routines,” she said. “But I hope I will be able to work as I used to.”

Katser-Buchkovska, 39, was among the first young politicians to join parliament in 2014 after protesters ousted the country’s pro-Russian leader. The lawyer with a degree from the Harvard Kennedy School dove into the yeoman's work of drafting energy legislation—49 bills and 19 laws in all, with titles such as “On the National Commission on Energy and Utilities.” That world helped reform the country’s energy market and open it up for new renewable energy and natural gas.

By the time she left parliament in 2019, Ukraine’s renewables sector had exploded. About 10% of fossil-fuel generation was replaced by renewables in the preceding give year, a feat for a country that had seen little growth for more than two decades. In 2020, she founded the Ukrainian Sustainable Fund with Ostap Semerak, the former Minister of Ecology and Natural Resources of Ukraine to invest in clean energy projects.

Today, she has bigger plans. “I want to design the green recovery fund for Ukraine,” she says. “The war is still ongoing and we don't know when it will end, but if we wait, it will be too late.”

Talk of rebuilding seems premature. Energy projects have been canceled. Nervous investors are selling their stakes at huge discounts. But, ironically, all this may accelerate Ukraine’s transition from fossil fuels. Multiple groups are already working on so-called Marshall Plans for Ukraine, the US-led rescue plan that financed Europe’s rise from the ashes after World War II. None are likely to rely on oil and gas. Much of the country’s fossil fuel reserves are inaccessible, annexed by Russia, and the vast majority of new energy investment us now going to wind and solar power.

Military analysts who predicted Kyiv would fall within days now talk of Ukraine winning its war against Russia. There is room to imagine one of Europe’s most carbon-intensive countries becoming one of its most efficient. Ukranian President Volodymyr Zelenskyy has proposed a $750 billion reconstruction plan, roughly three times larger than the original Marshall Plan, to do something just like that.

“I think, for us, [the energy] transition is not an option. It should be done in a green and sustainable way with more technology, not just coming back to this post-Soviet reality,” Katser-Buchkovska says. “When the war will stop—and I really believe that we will win—we'll all be busy rebuilding Ukraine.”

Back in the USSR

For now, Ukraine remains a product of its Soviet past. The former industrial heartland of the USSR still mostly runs off coal, gas, and nuclear power, more than half of it once supplied by Russia and Belarus. Aging Soviet nuclear reactors, the largest of which have fallen into the hands of the Russian military, supply much of the rest. Only 5% of the country’s energy comes from renewables despite Ukraine’s ratification of the Paris climate agreement.

Russia’s invasion was the culmination of a decade of assaults on the country’s energy independence. In 2014, Ukraine lost its coal supplies after pro-Russian separatists seized nearly every Ukrainian coal mine in the Donbas region, the site of today’s fierce fighting. In 2015, Putin halted gas sales to Ukraine. Shelling destroyed natural gas infrastructure. This year, Russian troops seized the 5.7 gigawatt Zaporizhzhia nuclear power plant, the largest in Europe. Ukraine's ambitions to double the capacity of its 15 reactors by 2040 are now probably shattered.

Of course, the war is transforming the world, not just Ukraine. The West’s strict sanctions on Russia have thrown energy markets into chaos. Europe once bought 40% of its gas and 30% of its oil from Russia. Now nearly shut off, it faces crippling prices, gas shortages, and rationing this winter. The rescue packages for Ukraine in Germany and the UK alone exceed $200 billion—money spent papering over price spikes rather than investing in cheaper, secure energy.

Out of this chaos, however, may emerge from what has eluded Europe and the US during the last crisis: A green economic recovery from an economic disaster.

Trillions of dollars in green pandemic recovery funds were floated by policymakers during the coronavirus pandemic. Most of it foundered. In Europe, governments spent roughly twice as much on fossil fuels as they did on clean energy in pandemic rescue funds. The $2.43 trillion “Build Back Better” proposal championed by US President Joe Biden collapsed in Congress (although its successor, the slimmed-down Inflation Reduction Act, may deliver on some of its promises).

It became clear that even lockdowns and an economic recession would barely dent global emissions. Global CO2 emissions last year essentially returned to their 2019 record high, and have since resumed their steady rise. Drastic emission cuts demands investing in new infrastructure and retiring the old as quickly as possible.

That’s exceedingly hard to do. Yet history suggests Ukraine may be one of the few countries to do it. Just ask Japan.

The Japanese economic miracle

In 1944, Allied bombers pounded Japan’s industry. Factories, railroads, and refineries were reduced to rubble under the constant bombardment. More than half a million lives—and almost all of the economic gains Japan had won since 1868—were lost.

But the devastation of World War II also gave the country a chance to reinvent itself. Japan already possessed a few advantages: a premier postwar education system, the world's highest literacy rate, and a disciplined, highly-educated workforce. It was the decision to rebuild the nation’s factories and heavy industry with modern technology that gave it an economic edge that soon allowed it to challenge the economies of nations that had so recently defeated it.

Soon after its humiliating defeat, billions of dollars were invested in the electric power, coal, iron and steel, chemical fertilizer industries. Ten years later, Japan's production matched and then exceeded prewar levels, according to US Department of Defense research. Between 1953 and 1965, Japan’s GDP broke new records, expanding by more than 9% per year. Today, it’s the third largest economy after the US and China. Billions of people own a Japanese device or vehicle.

Ukraine may be in an evern beter position than Japan, says Jeff Rissman, who leads industry decarbonization for the nonpartisan energy and climate policy firm Energy Innovation. Ukraine already boasts a full range of heavy industries including aviation, iron, and steel. Ukraine’s national railways pays for businesses to disassemble and relocate their factories from Russian-occupied areas to safer areas in the west of the country. Ukraine is already well integrated into Europe after spending years harmonizing its policies in hopes of EU membership (Ukraine’s candidacy to enter the EU was formally accepted this summer). And Western nations are now poised to lend their support, dollars, and technologies.

“When investors feel safe to invest in Ukraine, which I feel will be sooner than we expect, we can come back with clean energy,” argues Katser-Buchkovska, who has presented a plan for a $300 million private equity fund to financiers at Goldman Sachs, JP Morgan, and the European Bank for Reconstruction and Development. “The opportunities are huge because many project owners want to sell assets at a big discount. That lowers the price of entry for those that can stomach the risk. I believe after our victory, with all this support, this industry will grow even faster."

Europe’s Ukranian Future

Rebuilding Ukraine is about more than money, says Rissman. The 2009 American Recovery and Reinvestment Act stands out as one of the best examples. By clean energy standards, it was massive: $90 billion, more than 10 times larger than previous clean energy bills. It placed thousands of bets on energy efficiency, grid modernization, transportation, and renewable energy technologies across the country, many of which paid off. But money was only part of the equation.

Policy proved crucial in attracting private investment, and dislodging entrenched fossil fuel industries. Rissman, who has studied clear energy transitions around the world (his book on this comes out in 2023), says those that succeed strike the balance between carrots and sticks. While hundreds of behind-the-scenes policies can accelerate a clean energy transition, three are most important: technology efficiency standards, government procurement, and public R&D to commercialize promising technologies. Those tools prime the financial pump, attract millions of dollars for new industries, while forcing inefficient technologies into retirement.

“I think we can be confident that these policies work because they have worked in the past,” says Rissman, who noted the stakes are even higher for Ukraine. “If they invest in dirty industries, they end up cutting themselves out of the most important market for their products. That could be devastating in the long term.”

Steel is one example. It’s the stuff of the energy transition: wind turbines, solar plants, power transmission lines and new electric vehicles are made of it, meaning prices (and demand) will almost certainly rise in the coming years. It’s also responsible for about 7% of global CO2 emissions thanks to burning coke (a form of coal) in blast furnaces. Until recently, Ukraine and Russia supplied more than 60% of the imported raw iron to make steel in the US. Replacing this with hydrogen and electricity virtually eliminates those emissions while producing "green steel,” an increasingly coveted commodity as manufacturers look to lower the emissions.

“The global steel industry is beginning a titanic pivot from coal to hydrogen, this transition will cause both great disruption, and great opportunity,” says Kobad Bhavnagri, head of industrial decarbonization at Bloomberg NEF. “Companies and investors don’t yet appreciate the scale of the changes ahead.”

The little country that could?

While Ukraine’s opportunity is clear, it may not be up to the task. Outmanned and outgunned, Ukraine has managed to defend its key cities, but is struggling to expel Russian forces from its southern region, where much of the country’s key industrial infrastructure and minerals exist. And the nation will also need to rebuild on a scale unprecedented in the modern era despite dire finances. An estimated €100 billion in infrastructure was destroyed by June. Replacing this is likely to cost far more, the OECD estimates. At the same time, Ukraine is running a $5 billion monthly deficit as it seeks to ensure its survival, resurrect its economy, and help 15 million of its 44 million people displaced by the war.

Even if the money arrives, ensuring it is spent effectively will be a challenge. Ukraine struggled with corruption and moribound state industries before the war. Hundreds of billions of dollars in reconstruction funds could make this worse if the national government doesn’t embrace sweeping reforms. “Any approach to reconstruction will have to recognise that Ukraine’s economic transition to a competitive market economy is not yet complete,” the OECD notes in its reconstruction analysis.

But a “green new deal” may offer Ukraine, and the world, a way out. National and economic security in Ukraine that relies on fossil fuels (and even nuclear) is no longer tenable. Rebuilding a green industrial base could be the mass public works program that puts Ukrainians back to work, says Bella Tonkonogy, a climate finance expert at the Climate Policy think tank, and provides a model for the rest of the world.

Unlike fossil fuel projects, renewables are ideal for mass employment. Most of the costs of fossil fuel energy are for fuel, while renewable energy costs are primarily steel and concrete. For example, $100 million spent on new solar panels or wind turbines tends to generate more jobs than an equivalent amount spent on coal power since it requires so much more labor and infrastructure. Ukraine could double down on this global trend while simultaneously attracting badly needed funding and a massive market for lower-carbon products.

Politicians are already vying to lead the reconstruction of Ukraine (or at least been seen doing so). Former UK prime minister Boris Johnson promised to lead the rebuilding of Kyiv. Greece has pledged to rebuild parts of war-torn Mariupol, including the bombed-out maternity hospital. The EU, reversing its historical role, has argued a new Marshall Plan is needed by the block, vowing to get the money out as quickly as possible. The US has already committed more than $40 billion in assistance, likely a downpayment on a country that is now a key ally against Russian aggression and a future supplier for the clean energy economy.

“I think when we need 10 Marshall Plans for Ukraine and 100 funds like mine, so it's a huge field,” says Katser-Buchkovska. “I wish it would be a big competition to rebuild Ukraine.”

Hothouse