Environmental impacts of the war in Ukraine and prospects for a green reconstruction

 Background and key issues

The newly independent Ukraine in 1991 inherited from the Soviet Union an economic structure dominated by energy-, resource- and pollution-intensive sectors, with outdated technologies in the mining and metallurgical sectors, energy-inefficient housing and outdated transport systems. Large shares of Ukraine’s electricity supply, steel industry and district heating systems relied heavily on coal and natural gas, imported largely from Russia. As a result, Ukraine’s energy- and CO2-intensity has been the highest among its neighbours and well above that of the European Union member states.1 Due to the large share of the population exposed to air pollution from heavy industry and rapidly growing transport based on an ageing vehicle fleet, mortality linked to air pollution in Ukraine was high compared with the OECD countries.2 Ukraine’s relatively abundant water resources have been under pressure from industrial, agricultural and household pollution. Agricultural land has continued to degrade while the area covered by forests has decreased.

Since the Revolution of Dignity and the signing of the European Union-Ukraine Association Agreement in 2014, Ukraine has accelerated its efforts to tackle these environmental challenges. The country has taken many steps to restore and preserve its natural capital, to integrate environmental concerns into economic development and to accelerate the transition towards a green and low-carbon economy. A recently adopted “Strategy of the State Environmental Policy of Ukraine for the Period till 2030" and its Action Plan to 2025 set more ambitious targets for pollution reduction and more efficient use of natural resources, and the updated Nationally Determined Contribution commits the country to reduce GHG emissions until 2030.3 Plans to end coal mining in a socially responsible manner have been launched, accompanied by efforts to improve the energy efficiency of buildings.4 Ukraine has also made substantial progress in partial liberalisation of gas tariffs and reducing environmentally harmful fossil-fuel subsidies. Comprehensive systems for measuring progress in implementing environmental policies and greening Ukraine’s economy have also been established.5 Ukraine’s efforts to shift to a greener economy have been supported by international partners, including the OECD.6

Important steps have been taken to reform Ukraine’s environmental governance while the reform of environmental legislation has followed closely the EU environmental acquis in line with the provisions of the Association Agreement. Efforts have been made to engage sectoral Ministries and businesses in the green transition. An inter-ministerial body to implement the European Green Deal in Ukraine, headed by the Deputy Prime Minister, has been an important mechanism for inter-sectoral co-ordination on the green agenda.

These reform efforts have started to bring tangible results. The energy, CO2 and water productivity of the economy increased by 51, 42 and 28% respectively, during 2010-19/20, while connection to sewerage networks doubled to 64% of the population.7 The share of renewables in total primary energy supply more than doubled over this period, as did the share of renewables in final energy consumption, which accounted for 7.4% of the total in 2019. The share of protected areas has been on the rise, reaching nearly 7% of the total country area in 2020 (Figure 1).

 

Figure 1. Selected green growth indicators

 

Source: OECD.stat, EU4Environment (2022 forthcoming), “Towards green transformation of Ukraine: State of Play in 2021 Monitoring progress based on the OECD green growth indicators”.

This economic and environmental progress has been under attack since the start of the large-scale aggression by Russia, setting back hopes for an independent, green and sustainable Ukraine. Tens of thousands of lives have been lost and the associated humanitarian crisis has led to a large number of besieged and displaced people both within Ukraine and abroad.8 The economic impacts have also been significant. Recent estimates of the damage to infrastructure, housing and non-residential buildings exceed USD 100 billion, with vast destruction of homes, roads and railways, as well as agricultural land and other productive capacity of the country.9

 What are the impacts?

The environment, natural resource base and infrastructure have not been spared by the war. The shelling of forests, land and marine ecosystems, industrial facilities, transport infrastructure and houses, as well as water, sanitation and waste management infrastructure, has caused widespread and severe damage, with immediate and longer-term consequences for human health and eco-systems (Box 1).

While environmental damage is evident, its extent is difficult to measure.13 Pollution caused by military activities goes unreported, as monitoring systems have been disrupted or destroyed, and such damages continue to accumulate. From the first days of the war, the government launched several tools to document the environmental damage. This includes a dashboard with data on the impact of the war on the environment, “EcoZagroza”,14 and the work of the State Environmental Inspection, which recorded over 250 cases of crimes against the environment and over 1200 cases of damage to the environment from the aggression.15 Special units have been collecting evidence, including photos, video and satellite images and, where possible, air and soil samples for laboratory tests. Work has begun to develop methodologies for calculating the monetary values of the damage to the environment.

 What is the outlook?

Post-war reconstruction will be a monumental task and will require comprehensive, well co-ordinated and well-funded effort. Ukraine has already set up the National Council for Recovery from the War, which is preparing a Post-war Recovery and Development Plan for Ukraine. The development of the Plan builds on remarkable co-operation and institutional capacity demonstrated by the Ukrainian authorities at all levels, municipalities, businesses as well as civil society.

The Post-war Recovery and Development Plan is being developed following the green economy and low-emission development principles. A Working Group on "Environmental Safety", which was established to develop proposals for the Plan, identified five priority areas: i) reforming public environmental administration; ii) climate mitigation and adaptation policy; iii) environmental safety and effective waste management; iv) sustainable use of natural resources; and v) conservation of natural ecosystems, preservation of biological diversity and restoration and development of protected areas.

The Plan includes short and long-term priorities, which reflect inputs from an extensive process of stakeholder consultations. The post war development effort should indeed build on Ukrainian stakeholders’ ownership, engaging all relevant national and sub-national authorities, experts and representatives of the business sector and citizens. Close co-operation and co-ordination with supporting countries, international organisations and international financial institutions are also needed to mobilise the necessary expertise and financial resources for the reconstruction that are in line with environmental priorities identified above.

In the short term, Ukraine should focus on eliminating and reducing immediate risks to human health and the environment from the impacts of the war. Preparing and carrying out a comprehensive environmental clean-up effort, especially related to collection, safe disposal and treatment of the vast amount of military and other waste, will help to reduce immediate health risks. At the same time, there will be an urgent need to repair and re-build more efficient environmental infrastructure to ensure the supply of safe drinking water, adequate sanitation and appropriate collection, storage and treatment of waste. The existing and potential impacts on human health should guide the prioritisation of actions.

In the longer term, the post war economic development process should be used for a fundamental transformation of Ukraine towards a green and net-zero economy. The reconstruction should not recreate the pre-war economy, which was fossil fuel based, energy inefficient and pollution intensive. Priority should be given to adjusting the economic structure by building more energy-efficient and less polluting industries and transport systems. Rebuilding of the housing stock, schools and hospitals should also improve their energy efficiency and use low-carbon materials (Figure 2).16 It will be important to clearly formulate and explicitly pronounce these objectives of moving away from the reliance on fossil fuels and incorporating long-term green transition and sustainability as the key approaches for all aspect of the post-war economic development. This vision should cover not just the areas most affected by war, but the entire territory of Ukraine.

 

Figure 2. Examples of “green” reconstruction options for damaged/destroyed assets

Note: TPP refers to thermal power plants, BF-BOF to the conventional blast furnace (basic oxygen furnace, coal-based route of primary steel production) , whereas DRI-EAF refers to a potentially zero-carbon route based on direct iron reduction and electric arc furnaces, using hydrogen and electricity.

Source: Saha D. et al (2022), Economic reasons for a green reconstruction programme for Ukraine reforms.

Environmental protection policies and regulations are also crucial in facilitating green transformation of the economy. They should be made more agile, risk-based, outcomes-focused, data-driven and coherent, with simpler procedures, to ensure that environmental objectives are effectively achieved, and that administrative burden and barriers are minimised.17 The European Union-Ukraine Association Agreement in 2014 contained a comprehensive list of actions to take in this regard. The most recent decision of the European Council to grant the status of candidate country to Ukraine provides an important opportunity to accelerate progress to align the Ukraine legal framework with the EU acquis communautaire and improve regulatory delivery.

To encourage energy and material efficiency and to reduce pollution, an important step will be to reform the construction and operational regulations and standards, especially for large polluters, in line with good practice in the European Union and OECD countries.18 A wider and comprehensive use of streamlined environmental evaluation procedures, such as Strategic Environmental Assessments of policies, plans and programmes and Environmental Impact Assessments of individual projects can help to consider and develop alternatives with less pressures on the environment. Effective supervision and regulatory delivery are also needed to ensure effectiveness.19

Reformed technical regulations should be supported by market-based mechanisms following the OECD Polluter-Pays Principle.20 Priority should be given to introducing and reforming existing environmentally related taxes and charges, removing environmentally harmful fossil fuel subsidies, introducing emission trading schemes, and other market-based instruments that provide economic incentives to comply with, and where possible go beyond, environmental requirements. OECD analysis and recommendations on the use of market-based instruments should be useful in this regard.

Sustainable finance for coherent and strategic green investment plans will be critical. In this context, financial flows towards reconstruction investment should be duly monitored and analysed to ensure that they also contribute to achieving environmental and green objectives. The use of the EU taxonomy for sustainable activities and the OECD analysis of mobilising green finance and investment can be a useful benchmark. The development of a pipeline of bankable green investment projects can help to mobilise domestic and international private finance and international public funding.21 Reviewing enabling regulatory environments, appropriately using economic instruments and building the capacity for investment project preparation can all support this objective.

There is a need to continue modernising the environmental institutions at the national and sub-national levels in order to ensure high administrative capacity to plan and implement environmentally sustainable reconstruction efforts.22 The establishment of ad hoc or permanent inter-ministerial and inter-sectoral committees, working groups or task forces with the participation of the environmental authorities should help to ensure that environmental and green growth principles are reflected in coherent sectoral strategies, policies, and action plans. The engagement of civil society is also important for the success of the post-war transformation.

The reconstruction and green transformation of Ukraine will face challenges. For example, there may be pressures to rebuild quickly with existing technologies, especially where the upfront investment costs of greener alternatives are thought to be higher. Ukraine may also face difficulties in raising sufficient funds for environmentally sustainable reconstruction, as well as challenges related to transparency and effectiveness of their use. Finally, the lack of qualified staff will affect institutional capacity as many Ukrainian experts have been displaced, many of them permanently.

“Green” reconstruction should not be seen as a desirable but optional “extra”, but as an economic necessity for the future development of Ukraine.23 The green transition will ensure the greater economic efficiency and competitiveness of Ukraine in the European and global markets. The reconstruction offers Ukraine an opportunity to leapfrog to greener technologies, reduce the reliance on fossil fuels, and strive towards a net-zero economy. 24