Transforming the Ukrainian Market for Industrial Energy Efficiency

Panel: Panel 2: Technologies and Products (innovation, marketing, market transformation)

Authors:
Meredydd Evans, Pacific Northwest National Laboratory
Sriram Somasundaram, Pacific Northwest National Laboratory

Abstract

Industry in Ukraine is among the world’s most energy intensive. Energy was plentiful and cheap in Soviet times and little effort was made to conserve it. Rising energy prices have had a major impact on profits and production, which also creates a tremendous market potential for energy efficient products and services. Yet Ukrainian industry has not implemented significant energy efficiency measures in recent years.

The Ukrainian government has placed energy efficiency and industrial development at the top of its priorities. Energy efficiency can help Ukraine improve its security, economy and environment. Ukraine’s energy imports represent a key national security issue because Ukraine imports over half its energy from Russia, making it vulnerable to that nation’s demands. Energy efficiency can provide jobs and can help make Ukrainian industry more competitive internationally. Industrial production has plummeted as a result of economic collapse and inefficiency; some of this production and energy demand may never return because of economic restructuring. Ukraine would like to minimise the drop in production to reduce the nation’s economic pains. Energy efficiency can also help protect the environment, both in Ukraine and globally. In short, Ukraine has many good reasons for improving its market for industrial energy efficiency.

This paper examines the forces influencing energy efficiency decision making in the industrial sector and suggests effective means of changing old energy habits and buying patterns. Important aspects of this issue include ownership, organisational structure, financial performance, compensation, barter, and taxation. Tax policy provides an incentive to conduct business through barter deals because such transactions can evade high taxes. Thus, a plant may not want to reduce energy purchased through barter agreements because barter can serve as a tax shelter. The paper also describes efforts at several Ukrainian manufacturers to improve energy efficiency. Specifically, the paper draws on work conducted at a glass plant, a coke and chemical manufacturer, a steel cable factory, a food processing plant, and a small metallurgical facility and provides case studies of three of these. The last section of the paper outlines strategies for encouraging industrial plants to become more efficient, based on the experience at these plants.