Blog entry

Open letter to the European Commission: environmental reforms and civil society engagement are key for Ukraine’s reconstruction and European accession

Read the open letter to the European Commission, signed by Ukrainian and international civil society organisations.

Ukraine has the potential to become a prosperous European state provided that environmental issues are integrated and prioritised in Ukraine’s post-war reconstruction. In order to ensure that recovery at the national and local levels is inclusive, the drafting of Ukraine’s Recovery Plan as the country’s long-term roadmap must be more systematic, transparent and participatory. The Multi-agency Donor Coordination Platform, launched by the European Commission in late January 2023 to support Ukraine’s reconstruction, needs to ensure proper civic engagement in its steering committee.

Key environmental reforms on hold

Since the war started, the implementation of key environmental reforms has mostly been put on hold. The recent adoption of the law on waste management and the law on the national register of emissions and pollutant release are steps in the right direction. However, other reforms in line with the European Green Deal, which are crucial for the green reconstruction of Ukraine (for example, the law on Emerald sites, pollution prevention and control, etc.), have been suspended.

At the same time, threats to the quality of the environment and nature in Ukraine are becoming more and more serious.

Martial law has significantly limited access to information and participatory tools key to the quality work of civil society organisations and civic engagement in environmental impact assessment and strategic environmental assessment. If this continues, Ukraine’s progress on environmental reforms will lack its main driver, eventually hampering the European integration of the country.

In response to electricity shortages, the Ukrainian government and its international partners have focused their efforts on finding emergency solutions. Although generators that use fossil fuels have become a suitable quick fix, they are not sustainable from a long-term perspective. Supplying renewable energy equipment and financial support to scale up renewable energy production in Ukrainian communities and cities would provide a resilient source of energy for years to come.

Civil society should have a say in Ukraine’s reconstruction planning

The draft of Ukraine’s Recovery Plan presented by Ukraine’s authorities in July 2022 at the Lugano conference included controversial projects such as the construction of mobile nuclear reactors; the promotion of the use of peat and wood as ‘green’ fuel at new power plants; and forestry, agriculture and hydropower projects that may lead to the destruction of natural ecosystems.

One important deficiency of the plan is its perception of environmental protection as a sector on its own, where projects are anticipated to be implemented in isolation by a responsible ministry. However, environmental priorities should be integrated into projects in all sectors. Despite their attempts to reach out to the responsible governmental bodies and continue work on the national plan,

civil society organisations were not included in the discussions about further improvement of the plan.

It is important to ensure that the international Multi-agency Donor Coordination Platform not only brings donors together, but also sets common rules and standards for transparency and accountability. Civil society is best placed to provide the checks and balances for programming, financing and implementing the reconstruction in Ukraine, and thus,civil society representatives should be included in the steering committee for the platform.

During the EU-Ukraine Summit, which takes place on 3 February 2023 in Kyiv, civil society organisations asked the European Commission to:

Enforce an environmental agenda for Ukraine in line with the country’s Association Agreement and the EU accession process.
Better engage Ukrainian and international civil society organisations, as well as other socioeconomic partners, in the overall decision-making processes for Ukraine’s reconstruction and in the development of the key documents (such as Ukraine’s Recovery Plan).
Adjust the EU’s emergency support provided to Ukraine to ensure it has long-term ‘green’ reconstruction and sustainable development as priorities (for example, in the energy sector by supplying decentralised renewable energy solutions).
Ensure that representatives from civil society and local hromadas (basic administrative units) are involved in the steering committee for the Multi-agency Donor Coordination Platform.

EBRD investments in Ukrainian agro-giant MHP under investigation

The article was originally published in Euractiv.sk.

Dominated by large-scale monoculture production and centralised logistics and processing facilities, Ukraine’s agricultural production has become an easy target for the Russian aggressor. It has become clear to both national and international communities that the current methods of food production and distribution within the country and around the world must change to make food supplies more reliable and sustainable.

The investigation into the potential harms caused by MHP’s operations should not pass unnoticed, as it can provide valuable lessons for future post-war reconstruction. It highlights the importance of compliance with environmental standards and the proper involvement of civil society, while also demonstrating the need for adaptive, sustainable and decentralised agri-food systems.

The role of international finance in undermining local communities and global food security

Since the Euromaidan Revolution in 2014, European and multilateral development banks have invested generously in agro-holdings owned by some of Ukraine’s wealthiest businesspeople. Among their clients are Ukraine’s agri-giants, led by MHP, one of the major industrial poultry producers in the country and Europe.

Although the banks’ investments were hailed as supporting global food security, they have caused an imbalance in the agri-sector and injustice among local communities. Accumulating large financial, land and natural resources, these large-scale producers have become not only powerful players on the market, but have also gained significant political influence. While MHP has enjoyed state subsidies, tax avoidance and trade with the EU within the Free Trade Agreement, weak regulation in Ukraine has often translated into unchecked environmental and social problems for rural communities.

Moreover, the massive destruction caused by the Russian invasion has revealed that, despite being ostensibly powerful, centralised, large-scale agriculture structures with long supply chains can easily fail those dependent on them. It is obvious that new governance models are needed to ensure that rural communities and the environment remain safe and benefit from developments in the sector.

In its post-war reconstruction, Ukraine and other stakeholders should prioritise the development and maintenance of more adaptive, sustainable and decentralised agri-food systems. The green principles for Ukraine’s reconstruction developed by civil society organisations emphasise the diversification of small and medium-sized farms, sustainable solutions for agricultural production, the circular economy and a transparent and fair land market. Furthermore, agricultural development should move in sync with a new strategy for the rural development of Ukraine that aims to turn rural areas into attractive places for people to live.

MHP’s mishaps back in the spotlight

Since the launch of an MHP construction project in 2010, villagers from the Vinnytsia region have been complaining about the company’s rapid expansion, which has resulted in a high concentration of industrial poultry facilities in their vicinity. The locals have linked MHP’s expanding operations to existing and potential problems, including a decrease in water levels in the village’s wells and deterioration of groundwater quality, pollution of water bodies, contamination of soil and air, and damage to infrastructure due to intensive traffic from heavy vehicles on village roads.

In 2018, after years of unresolved grievances, complainants from three villages submitted requests for dispute resolution with MHP to the accountability mechanisms of the European Bank for Reconstruction and Development (EBRD) and the International Financial Corporation (IFC). Three years later, the dialogue had produced no agreement since MHP decided to withdraw from the process.

In October 2022, the EBRD’s independent project accountability mechanism opened an investigation to check whether the Bank had complied with its own social and environmental standards when investing in MHP’s expansion. The decision to open an investigation has put the case back in the spotlight and given the residents of Olyanytsya, Zaozerne and Kleban new hope that their voices will be heard.

Soil, air and water pollution funded by international public finance

Reflecting on the grievances, the assessment report that launched the investigation acknowledged the risks of pollution caused by MHP’s operations, as well as impacts on soil, air and water, and thus impacts on residents’ health. The report also took note of the increasing traffic through villages, which locals consider a major disturbance and the cause of cracks appearing on houses.

Over the years, the communities and NGOs have had to conduct their own studies to evaluate MHP’s potential impacts on the environment, something that should have been done by the company through a proper environmental and social impact assessment before the project started. As part of these efforts, a community science initiative on water monitoring in Ukraine’s rural areas revealed in 2021 that water in wells in the three villages often exceeded safety standards for nitrates and other ammonia compounds by two to three times. Such pollution typically occurs in agricultural regions with poor management of fertilisers, manure and farming waste.

The report also noted the lack of follow-through on mitigation measures to lower risks for the environment and local communities. For instance, the company’s initial promise to develop protective barriers made of trees around chicken facilities in Kleban has never been fulfilled.

Lessons for banks to craft a more sustainable agri-sector

The EBRD’s accountability mechanism will now investigate the situation and decide whether MHP projects have violated the EBRD’s environmental and social policies. If non-compliance is found, the investigators will make recommendations and the EBRD will have to propose a plan to mitigate the damage.

Whatever the result of the investigation, the MHP case is a reminder of why international investors need to think about crafting a more sustainable future for Ukraine’s agriculture sector.

280 million euros of North Macedonia’s public money going up in smoke

As the energy crisis unfolded across Europe, the countries in the Western Balkans were hit hard by the sudden increase in the prices of fuels and imported electricity. Electricity import-dependent North Macedonia was particularly vulnerable in this situation and had to make a decision fast – to speed up energy savings, renewables, electrification of the heating sector, improvements of the transmission network and modern energy storage solutions, or to increase the use of fossil fuels in order to provide short-term relief to the energy system. The government’s answer was worrying, but not at all unexpected.

In November 2021, the government of North Macedonia adopted a decree proclaiming an energy crisis in the electricity production and distribution sector, followed in January 2022 by a decree proclaiming an energy crisis in heating production and distribution. The decrees, which are still in force, give power to the energy system operators to use any means necessary to maintain electricity and heating distribution and allow for the government to finance their operations in order to achieve this goal.

Based on these two decisions, the authorities started pumping huge amounts of public money into the state-owned energy generation company AD ESM, mainly for imports of coal and heavy oil, to cover some of the losses caused by electricity imports, and to allow increased production and lower energy prices. From 11 November 2021 to 30 December 2022, just a little over a year, AD ESM received a total of EUR 280 million in direct support for its operations.

State budget support for AD ESM (amounts are in Macedonian Denars)

Most of the money was spent on fossil fuel imports, with some used to keep old facilities operational. To make things even worse, most of the money was spent in a non-transparent way. For example, in December 2021 a contract worth almost EUR 19 million was signed between AD ESM and a construction company, Markovski Kompani, for expansion of the lignite mines near Bitola without a tender procedure.

This state aid allowed the TEC Negotino heavy oil plant to be put into operation again for the first time since 2009. It also allowed for the lignite-fired Oslomej plant to quadruple its operating hours, which were previously kept at a minimum. According to the country’s energy strategy, the plant was supposed to be shut down in 2021. In addition, AD ESM bought diesel generators for the district heating for the capital, Skopje, as a back-up option in case of fossil gas shortages. AD ESM also prepared preliminary studies for the opening of a new coal mine near the Bitola power plant.

None of these facilities that are now working at full steam are fitted with any pollution reduction equipment, nor are there plans to do so. North Macedonia has committed to phase out coal by 2027, but has failed to explain what it will do about the pollution from its coal plants in the meantime. The resurrection of the Negotino and Oslomej plants make this even more serious.

EUR 280 million for a small developing country is a serious amount — almost 10 per cent of the country’s annual budget for 2022 — that can make or break the energy transformation. If the long-term development of the energy sector, the international obligations of the country, and most of all, the protection of the environment and the impacts of public health were taken into account, it is certain that this amount could be put to better use. Instead, the government decided to quite literally burn this money and to cause one of the most polluted winters in years.

The way North Macedonia’s authorities are handling the energy crisis is misguided on many levels and is sending the wrong message to others. Some private companies are starting to use heavy oil for heating again, and one is even trying to get a permit to install a 40 MW heavy oil power plant for its own use and already submitted an EIA study for the project. People are switching to the cheapest available fuel, using waste wood products that contain paints, varnishes and glue, for their households. This is only adding to the already terrible environmental conditions all over the country.

Not everything is grim, and there is significant interest from private investors in building photovoltaic plants. In 2022, the Energy Regulatory Commission issued licences for 86.8 MW of photovoltaics. However, many of those are still not operational since the procedure remains complicated and the development of the transmission network is not following the need for new connections. So, maybe this is where the government’s efforts and investments should be focused.

The excuse that the crisis caught the authorities unprepared is no longer relevant. Short term solutions are no longer acceptable and 2023 has to be the year when things are turned in the right direction before more public money goes up in smoke.

Solar-powered district heating is the breath of fresh air Pljevlja residents deserve

Inhaling the air in Pljevlja, Montenegro, can threaten your health. Since December, extremely harmful air pollution in Pljevlja caused by the burning of coal in the thermal power plant and individual furnaces has lasted for at least 33 days, with concentrations of PM10 particulate matter up to 12 times higher than the amount allowed in one day. And while Pljevlja records hazardous concentrations of pollution this heating season, the authorities are announcing and implementing ineffective measures that cannot significantly improve air quality.

Last week, the government of Montenegro announced that it would undertake urgent and long-term measures, such as reducing electricity bills in winter months and establishing a coal-based district heating project in Pljevlja, supposedly in the public interest. However, some of these measures could be better, and others are simply counterproductive.

To address pollution caused by coal-based heating in Pljevlja, the only correct, feasible and long-term solution is developing a single heating system powered by diversified renewable energy sources. This is also confirmed by a report on the identification and analysis of potential sustainable solutions for heating in Pljevlja, which was prepared by Planenergi, an independent expert organisation for district heating from Denmark. The government should urgently help Pljevlja and other such municipalities in Montenegro to design and develop complex district heating projects in micro-grids based on solar and other sustainable renewable sources, with the support of seasonal storage and heat pumps.

To develop clean heating systems, some governments in Western Balkan countries help cities by obtaining technical assistance and finance. They do this through a combination of their own budget allocations, funds from the Western Balkans Investment Framework (WBIF), bilateral donations and loans from banks such as the European Bank for Reconstruction and Development (EBRD), Germany’s KfW Bankengruppe, and others.

Thus, in December 2022, the government of Kosovo secured a financing package worth EUR 80 million from these funds, partially for the construction of a 30 megawatt (MW) solar power plant and cleaner heating for 38,000 citizens of Pristina, thereby providing a cheap and sustainable solution to help reduce the city’s chronic pollution, as well as improve energy security for citizens in the future.

Furthermore, the EBRD’s Renewable District Energy in the Western Balkans (ReDEWeB) programme has provided technical assistance for developing heating projects based on solar energy and large heat pump technology for more than 20 cities in the Western Balkans, including Novi Sad, Kragujevac, and Sarajevo. These are easily available resources that the region’s forward-thinking governments are already using widely. At the same time, Montenegro still does not have a single district heating project on its list of priority projects.

There will inevitably need to be some kind of heating system in Pljevlja. But dangerously and irresponsibly declaring the municipality’s existing heating project to be a matter of public interest could entrench decades of coal burning in Pljevlja, causing even more terminal illnesses among citizens, creating economic difficulties, and jeopardizing the achievement of Montenegro’s climate goals.

There is no time to lose. The government and the municipality should embark on a detailed heating project free of fossil fuels and request the largest possible amount of non-refundable aid from the WBIF. This would ensure the timely inclusion of clean heating in Pljevlja’s system of networks, whose construction is expected to begin soon.

With respect to short-term measures, there needs to be clarification on what effect is expected from the proposed electricity subsidies if it is known that most households are heated with coal and pellets and consequently do not have adequate electric heating devices.

A heating project based on coal cannot be a long-term, sustainable solution when it is clear that the use of coal globally will end in the near future, either for economic or environmental reasons.

Investments in renewable energy sources are becoming increasingly intensive, and all these investments are developing at an accelerated rate. The main reason for this is the price competitiveness of renewable sources. Of course, there are also all the harmful effects of burning coal on people’s health and the climate crisis.

With this in mind, CEE Bankwatch Network and Eco-team Montenegro call on the government of Montenegro to finally abandon these old-fashioned approaches that endanger citizens’ health and prolong the agony of Pljevlja’s dependence on coal. Instead, they should use the available resources to develop modern heating systems that will provide what’s really needed: clean air and long-term sustainability.

How many elephants does it take to build a gas pipeline?

The European Investment Bank (EIB) already signed a loan for the Greece – North Macedonia fossil gas interconnector project in 2021, but the European Bank for Reconstruction and Development (EBRD) only announced it was considering the project in autumn 2022, when it published reams of environmental and social assessment studies, along with other project documentation such as a stakeholder engagement plan.

Although it is welcome that the EBRD publishes more project-level documentation than the notoriously untransparent EIB, the environmental impact assessment (EIA) process and public consultation for this project has been messy from the start.

Limited public consultations on the first EIA

The first EIA and a Social Impact Assessment for the project were developed under an EU-funded technical assistance project. But the authorities in North Macedonia failed to carry out the mandatory public consultation once the draft EIA was published.

Consultations aimed at local people were organised in towns near the planned pipeline, but no-one who lived in other parts of the country and no national experts or civil society organisations were invited to comment, despite the magnitude of the project. The EIA was uploaded on an obscure part of the Ministry’s website but there was no information about how to submit written comments or by when to do so. It was only much later that interested NGOs realised by chance that the study had already been approved.

Despite referring to both EIB and EBRD rules, the first EIA ended up not meeting EBRD standards and the Bank commissioned a series of supplementary studies, including an Environmental and Social Impact Assessment (ESIA), a biodiversity study and others.

Supplementary studies leave us none the wiser

Despite running to thousands of pages, these studies still do not acknowledge the elephant in the room – the greenhouse gas emissions from burning the gas transported by the pipeline. These have been estimated at approximately 3 million MtCO2eq/year by the Environmental Law Alliance Worldwide.

The pipeline would not exist in a vacuum – without being connected to facilities or distribution networks that will use its gas, it would be useless. The emissions from the downstream burning of the gas therefore must be calculated, at least as part of the project’s cumulative impacts.

In addition, when fossil gas is extracted and transported, it leaks into the air as methane, a much more powerful greenhouse gas than carbon dioxide. These upstream fugitive emissions also need to be assessed. No matter what level of detail all other topics are covered in, if these elephants in the room remain unaddressed, the ESIA is a charade.

Compliance with the EBRD’s own gas criteria not analysed

Let’s be clear – the EBRD should not be funding gas at all, anywhere. Unfortunately, the Bank does not yet acknowledge this, and only has a set of insufficient criteria for gas projects in its 2019-2023 Energy Strategy.

But oddly, the studies do not examine whether these have been met. They do not prove that:

The gas will displace less carbon-intensive sources. The studies steer clear of any real discussion on how the gas will be used, except vague references to ‘households’, ‘industry’ etc. Even if it does partly replace coal, that does not prove that its emissions would be lower, as explained in this study.
In fact, North Macedonia’s renewable energy use in the heating and cooling sector is almost completely dependent on the use of biomass in households and amounts to around 30 per cent of the final energy consumption in the country.
Biomass has a number of disadvantages, including air pollution, and should gradually be replaced with cleaner forms of heating such as heat pumps and renewables-based district heating. But replacing it with gas is not a solution. This merely switches from one carbon-emitting source to another and decreases North Macedonia’s chances of reaching its 2030 renewable and climate targets.
The pipeline will be able to transport renewable gas, in the unlikely event that such amounts of renewable gas are ever available.
The greenhouse gas emissions of the gas pipeline are consistent with North Macedonia’s Enhanced Nationally Determined Contribution, which pledges to reduce national emissions to 6.06 MtCO2eq by 2030.
Emissions of around three million tonnes would constitute nearly 50 per cent of this target. So the pipeline would likely prevent the country from achieving it.
And North Macedonia would have to further decrease its emissions beyond 2030 as well, not maintain them.
North Macedonia has a credible commitment to move towards decarbonization, and that the project is an essential part of ‘a credible low-carbon strategy.’ Instead, they promote increased fossil gas use as something positive, without providing any evidence.

Death by EIA documentation – and for what exactly?

Ultimately, if eight lengthy studies cannot correctly identify a gas pipeline’s main environmental impacts and analyse its compliance with EBRD policies, then what is the point of this exercise, apart from greenwashing and wasting people’s time?

If the EBRD wants to be seen as a climate leader it has to stop playing dumb on the greenhouse gas emissions from its projects. A fossil gas pipeline either delivers gas and causes emissions, or it doesn’t, and it’s a stranded asset. The Bank can’t have it both ways.

With the upcoming revision of its Energy Strategy this year, the EBRD has yet another opportunity to finally systematically stop financing fossil fuels. It must do so.

In the meantime, it must also demonstrate in the case of the Greece – North Macedonia pipeline that it is serious about its existing commitments and refuse to finance a project that would account for half the country’s 2030 greenhouse gas emissions.

REPowerEU deal is a blow to a more climate-oriented energy policy in central and eastern Europe

REPowerEU negotiations had implications for several EU instruments, from the Recovery and Resilience Facility to agricultural and cohesion funds, to the Emissions Trading System (ETS) and even the new Brexit fund. It turns out these discussions were more a budget talk than a negotiation of the necessary measures to deal with the climate and energy crises, with the EU officials responsible for economic and budgetary affairs at the helm. In the end, the EU came up with a typical budget compromise aiming mostly at reshuffling existing funds.

Indeed, the agreement deals mostly with unused funds, in particular the loans from the recovery package. Although Member States originally did not want to request such loans, the energy crisis and inflation have made this a necessity. In a more creative way, only a little fresh money is foreseen, by frontloading allowances from the ETS and transferring money from the Innovation Fund and other funds if the Member States want so. Thus, the EU claims that new REPowerEU investments will be possible without adding new contributions to the Member States or raising money on the market.

Still, this is a substantial amount of money – EUR 225 billion left from the loans, EUR 20 billion from new grants and potentially more. The main question now is how to make use of it to address the energy crisis and ensure security of supply while not compromising the ambitious climate target, or even while speeding up the clean energy transition to get us closer to the target.

And here the agreement sends a mixed signal to Member States. While emphasis is put on some of the needed investments to boost the green transition, with a clarified list of eligible measures (from building renovation to decarbonising transport and industry, addressing energy poverty, deploying renewables and investing in grids), it is still possible for Member States to use the money for measures that contradict the climate policy. The REPowerEU plan is not a new climate strategy, and although it includes elements to accelerate the energy transition, the main idea is to stop using Russian fossil fuels, not all fossil fuels. And at the end of the day, with the REPowerEU chapters, Member States will have the chance to use EU funds for fossil fuels projects which have been thus far excluded from EU public support as a main contributor to the climate crisis.

How did this happen? The EU allowed this by applying a specific fossil derogation to the new ‘do no significant harm’ principle, which was supposed to ensure Member States could not use the recovery package for unsustainable investments. The negotiators did put some limits on these investments: fossil gas will have to be supported by loans only (up to 30 per cent), not grants, and be operational by 2026; oil is eligible only in three countries. Every time this fossil exception is used, Member State must clearly justify that the projects are absolutely needed. But allowing them to be operationalised by 2026 and providing up to 30 per cent in loans means that fossil gas can become substantial in a country’s energy mix and not just a short-term solution. In this sense, it’s not only a regression on the phase-out of fossil fuels from the EU budget and programmes, but also a major blow to climate policy and the Paris agreement. The year 2021, according to the International Energy Agency, should have been the last year when new fossil fuel projects are financed if we want to save our planet.

The deal can have serious consequences for central and eastern European countries. It seems many derogations are just fit for these countries, since most of them are counting on gas as part of their coal phase-out: gas will be used to produce electricity, heat homes and supply their industries. Moreover, the three countries eligible for oil are all in this region (the Czech Republic, Hungary, and Slovakia). Allowing so much money for fossils in these countries will be done at the expense of much-needed investments in renewables, energy efficiency and savings, especially in the building sector. Central and eastern European governments might just take this opportunity to continue investing in fossil fuels, or even resurrect old projects that are not in line with climate goals. No wonder the draft REPowerEU chapter in the Czech Republic contains investments in pipelines and storage systems. In some countries, there are unconfirmed reports that the REPowerEU chapters might be used to support other potential liquified ‘natural’ gas (LNG) terminals and cross-border fossil infrastructure.

The parties must have a real debate on the design of the new chapters, including wide consultations with stakeholders, much more so than was done for the recovery and resilience plans. Here the rules governing the preparation of the chapters have been improved, with clearer standards to abide by and set a dialogue with local authorities, civil society and social partners, among others. If the new investments are properly prepared in partnership with the public, there is a chance that those REPowerEU chapters will allow stakeholders to be part of the solutions that need to be prioritised while also unlocking more renewables and energy saving.

The last condition leading to proper use of the money relates to the transparency of allocated funds, and here some progress has been made. Member States will finally need to create a user-friendly and easy-to-use portal that lists the 100 biggest recipients of funds from the recovery plans and REPowerEU chapters. But although this is a positive step, it is also a slap in the face for the public, which should have the right to access information about all public fund beneficiaries, not only the biggest ones. The Council of the EU’s argument that publishing a more extensive set of data is an ‘administrative burden’ should not be taken lightly and could mean that these funds follow the well-known modus operandi of taking decisions behind closed doors. Improving transparency is necessary to avoid the misuse of public money.

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