Fuelling economic development in the CEE region requires an increase in the supply of energy resources

Since the collapse of communism the region of Central and Eastern Europe has faced significant changes. After a period of sharp decline the region’s economy is growing now and this growth is likely to continue in the future. However, the welfare of countries in the Central and Eastern Europe is different. While some countries has achieved comparatively good results in the economic reform and experienced steady growth in the last years, others have just recently started to recover after the long recession period. This study will focus on economic transition in Ukraine, which economy is likely to start recovering this year.

According to OECD data the level of energy intensity in Ukraine is among the highest in the world. Thus, if the country’s economy will grow the total primary energy supply could grow as well. Since energy production is the main source of pollution in the world (Urge-Vorsatz 2000), the economic growth may lead to increasing the impact on the environment. The main question of this study is whether it is possible for a country in transition to reach high development level without significant increase in fuel consumption and, thus, rising impact on environment.

According to the data from the Energy Efficiency and Alternative Power Sources in Ukraine by V. Didkovsky, Ukraine is a country with a huge economic potential – taking only 2,7 per cent of the territory of the former Soviet Union it possesses about 17 per cent of its industrial potential (Didkovsky 1996). However, since proclaiming independence in 1991 Ukraine has experienced sharp economic decline. As stated in OECD report "Ukraine's GDP has fallen by over 55 per cent between 1990-95. Total primary demand … has declined by about 35 per cent".

Figure 1

Figure 1 shows the dynamics of change of the total primary energy supply (TPES) per capita during the sharp economical decline in Ukraine compared to European OECD countries. Energy intensity in Ukraine is several times higher compared to European OECD countries. Thus, the energy which is produced in Ukraine now is more than enough for the welfare level of a developed European country. Starting at a very high level in 1990 the TPES per capita level was growing in the following years. Energy intensity increased while economy was collapsing. The increase in TPES per capita may be explained by the fact that Ukraine has outdated and low efficient technology in power generation as well as in heavy industry, which caused a lot of energy losses (OECD 1996).

After a decade of economic stagnation since 1990 Ukraine is likely to achieve the economic growth this year. In the interview to UA Today daily Yuri Yekhanurov, the deputy prime minister of Ukraine revealed that in the first nine months of the year 2000 the growth of country's GDP was about 5 per cent compared to the similar period of the previous year. Yekhanurov said that government projection for the GDP growth for the whole year 2000 is 3,5 per cent with industrial output increase by 9 per cent (UA Today 2000).

Year	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000*
GDP, percent change	-2.4	-13.5	-16.8	-14.2	-23	-8	-10	-3	-1.9	-0.4	3.5

Figure 2

2000* - official estimate

Figure 2 shows the dynamics of GDP change in Ukraine for the last ten years with an official projection for the year 2000 (OECD 1996, CASE Ukraine 2000). Using data from the table it is possible to estimate the total GDP decline since 1990 as 63.6 per cent. Calculation, based on assumption that the growth will continue in the future at the constant rate of 3.5% of GDP per year shows that to achieve the level of development of 1989 Ukraine needs about 28 years. Though the rate of economy growth could be higher, it is obvious that in the nearest years no additional power supply will be necessary for Ukraine.

One of the most important problems concerned with the power production and consumption in Ukraine is the outdated and highly inefficient equipment which causes huge losses. As stated in the Energy Efficiency and Alternative Power Sources

Figure 3

in Ukraine, the country’s potential in energy saving is enormous – about 65

per cent of total primary energy consumed, with 80 per cent of the savings available in industry. Introduction of more efficient technologies is also necessary due to political reasons. Ukraine is highly dependent on imported fuel and huge external debts have been produced in the last years because of inability of heavy industry to pay for the consumed power (Didkovsky 1996). As Didkovsky stresses, “further increases in external debts pose a real threat which may severely damage economy and could destroy the country’s independence.”

Probably the best way to improve efficiency of energy use is the privatisation of heavy industry and energy production and distribution companies, which will attract investments and enable use modern efficient equipment (OECD 1996). Though the part of heavy industry in Ukraine is privatised, the electric power generation and transmission sector is still under the state control (OECD 1996). The deep reform of energy sector and introduction of more efficient technology is still necessary for the future sustainable development of the Ukrainian economy.

Though the reforms on national level are very important, energy savings in households can significantly contribute to minimising power consumption in the local communities. Weizsacker et al. shows that the potential of energy saving by improving the household consumption can be up to 75 per cent with no reduction in living standards. In the 1970-s the United States experienced the so-called “decoupling effect” when GNP growth was not followed by equal rise in energy consumption (Urge-Vorsatz 2000). However, the concept of energy decoupling effect was criticised by T. Prugh in Natural Capital and Human Economic Survival. Prugh argues that while the electricity consumption is diminishing the direct use of fossil fuel is growing more rapidly (Prugh et al. 1995). Though the most significant decoupling effect in the USA case was observed for the electricity consumption (50 per cent less than estimations based on GNP increase rate), the primary energy use was 36 per cent less than estimated by official projections (Urge-Vorsatz 2000). Therefore, the economic growth is not always causing increase in fuel consumption. Thus, promotion of the experience of energy saving from the West along with environmental education could increase the overall resource use efficiency in Ukraine.