Tag: EU

EU Accession and Sustainability Challenges for Ukraine’s Agricultural Sector

Posted on November 18, 2024 | Policy Brief

Combine harvester in a Ukrainian wheat field symbolizing EU accession impacts on agriculture.

Recently the EU opened accession negotiations for Ukraine. Apart from the trade benefits of having access to a large and wealthy EU market, Ukraine’s agricultural producers in particular, will have to comply with and implement a complex and demanding EU acquis in agriculture. Together with the Common Agricultural Policy, this includes regulation of markets and standards in farming practices, animal and plant health, food safety, and environmental and animal welfare. The potential additional compliance costs from EU accession may undercut Ukraine’s agricultural competitiveness and supply growth, crucial for feeding a growing population. However, in this policy brief, we show that these costs are not critical and that there is a potential for agricultural producers to simultaneously increase their output and contract harmful environmental impacts, which in turn can compensate for the additional compliance costs.

Introduction

The European Council granted Ukraine candidate status in June 2022 and eventually opened accession negotiations in December 2023. For the Ukrainian agricultural sector, an EU membership would bring trade benefits from having access to a large and wealthy EU market. At the same time, Ukraine would have to comply with a complex and demanding EU Acquis in agriculture (hereafter called EU agricultural acquis). This, together with the EU Common Agricultural Policy (CAP), includes regulation of markets and standards in the areas of farming practices, animal and plant health, food safety, and environmental and animal welfare (Nivievskyi, 2024).

Complying with these regulations would entail additional costs for agricultural producers, raising concerns about the comparative advantage of Ukrainian agriculture. If these effects are strong enough, it could, in turn, hamper Ukraine’s agricultural supplies growth, crucial for feeding a growing global population.

While the evidence on the expected compliance costs is very scarce (see e.g. EU Commission, 2014), it shows they would be in the range of up to an additional 10 percent of the total costs. This cost increase, however, does not seem to ruin Ukraine’s comparative advantage in agriculture. Moreover, in this policy brief, we demonstrate that producers of grains and oilseeds in Ukraine have the potential to improve their efficiency by increasing their output by almost 20 percent and simultaneously contracting harmful environmental impacts by 16 percent. Such improvements can compensate for additional EU agricultural acquis compliance costs for Ukraine’s agricultural producers.

Relevance

Ukraine’s agricultural sector plays a key role domestically and internationally. It is noticeably dominated by crops, mainly by highly competitive grains and oilseeds. Agriculture alone accounts for about 10 percent of Ukraine’s GDP, but together with upstream (e.g. agricultural machinery) and downstream (e.g. food processing) industries, the entire agri-food sector’s share amounts to roughly 20 percent of GDP. The agri-food sector accounted for 60 percent of Ukraine’s total exports in 2023 with Ukraine’s shares in global corn and wheat trade reaching almost 20 and 10 percent, respectively.

At the same time, agriculture is among the top five sectors of the Ukrainian economy contributing to Nitruos Oxide (N2O) emissions in the country (SSSU, 2018). Since it generates not only desirable outputs but also environmentally undesirable ones (such as GHG emissions, pollution from applied chemical fertilizers and pesticides etc.), the negative outputs should be both considered in the assessment of the sector’s performance.

The existing empirical literature places the main focus on the economic aspects of the agricultural sector’s performance in Ukraine, more specifically on technical efficiency and total factor productivity. A recently published study (Halytsia, Vrachioli, Nivievskyi, Sauer, 2024) we undertake the first attempt to incorporate undesirable outputs of agricultural production in the analysis of Ukrainian agricultural producers’ efficiency and provide empirical evidence on how they perform from a combined economic and environmental perspective. This policy brief summarizes the study’s results.

Data and Methodology

To estimate the environmentally adjusted efficiency of crop producers, we use farm-level accounting data from 2017-2019, collected by the State Statistics Service of Ukraine. The analysis is conducted for cereals (including wheat, barley, maize and others) and sunflower production since they are the major crops in terms of sowing land and output shares and given their importance for Ukrainian agricultural export.

To account for both desirable and undesirable outputs of crop production (environmental bads in our study are N2O emissions originating from the usage of mineral fertilizers and CO2 emissions from fuels’ consumption), the production technology is formalized in the form of a hyperbolic distance function. This gives the maximum linear expansion of a desirable output vector and contraction of an undesirable output vector for a given input vector. Parametric estimation (deploying a so-called stochastic frontier model) of the distance function yielded hyperbolic efficiency estimates that reflect the producers’ ability to expand good outputs and simultaneously contract environmentally undesirable ones to achieve maximum environmentally adjusted economic efficiency.

Empirical Results

The results from the econometric analysis reveal that the average environmentally adjusted economic efficiency estimate for crop producers in Ukraine is 0.84 (efficiency estimates are bounded between 0 and 1). This suggests that, on average, producers of cereals and sunflowers in Ukraine can improve their production results by increasing crop output by 19 percent (1/0.84 = 1.19) while simultaneously contracting undesirable output by 16 percent (1–0.84 = 0.16) in order to be fully efficient, i.e. have their output level on the frontier of the production technology (Figure 1).

The obtained environmentally adjusted economic efficiency level is fairly comparable to the efficiency values estimated in empirical studies for crop producers in other Eastern European countries, more specifically Poland (Gołaś et al, 2020; Stępień et al., 2021).

Figure 1. Graphic synthesis of the study’s findings

Source: Authors’ presentation.

Policy Implications and Recommendations

Performance Improvement

The results from the empirical analysis show that there is room for Ukrainian crop farmers to improve their environmental and economic performance. The following policy interventions can be helpful in facilitating this improvement:

  • establishing clear standards for the quality of chemical fertilizers, promoting organic ones and robust agrochemicals management and monitoring systems
  • promoting the adoption of climate-smart agricultural technologies, such as, for instance, fertigation (which can be especially effective in the steppe agro-climatic zone where most Ukrainian crop production is concentrated and which is noticeably affected by changing climatic conditions)
  • governmental programs for energy saving in agriculture to help reduce the amount of farm CO2 emissions.

Implementation of these measures can contribute to closing the efficiency gap, bring more sustainable agricultural production growth and help farmers compensate for the anticipated costs of EU legislation compliance regarding environment, animal welfare, and food safety.  The latter, in turn, entails not only costs but also a number of benefits. Potential benefits from implementing environmental regulations are, for instance, input savings ( e.g. in fertilizer or pesticide costs), additional revenues (higher prices and increased consumer demand for agricultural products produced sustainably) and extension programs financed through public funds (Mettepenningen et al., 2009).

Data Collection Improvement

Key limitations of this study stem largely from issues related to data availability. More specifically, there is no data available on organic fertilizer application, specification of the types of used pesticides, or details on farm characteristics (such as farm economic size, land type, environmental subsidies, etc.). These data would enable a robust and comprehensive estimation of the environmentally adjusted economic efficiency of agricultural producers, accounting for a broader range of undesirable outputs and incorporating determinants of inefficiency into the analysis.

Currently, the State Statistics Service of Ukraine’s annual statistical survey forms do not contain questions which enable the collection of the above mentioned data. Enhancing farm-level data collection will be necessary to align Ukrainian statistical databases with Eurostat, given Ukraine’s candidate status for EU membership.

The importance of collecting data on farms’ environmental performance is supported by the ongoing transition in the EU from a farm accountancy data network to a farm sustainability data network, which aims to collect rich microeconomic data not only on farms’ income and business activities but also information on their environmental and social sustainability performance.

Conclusion

Over the two decades prior to Russia’s unprovoked full-scale invasion, Ukraine developed into an increasingly important global supplier of staple food.

In this policy brief, we quantify the improvement potential for the performance of crop producers in Ukraine from both economic and environmental perspectives and highlight that potential efficiency improvement could compensate for the additional EU agricultural acquis compliance costs that Ukraine’s agricultural producers are expected to face upon Ukraine becoming a full EU member.

Acknowledgment

This policy brief is based on the academic article Assessing the Environmental Performance of Agricultural Production Using a Parametric Approach: An Application for Crop Producers in Ukraine by Olha Halytsia, Maria Vrachioli, Oleg Nivievskyi and Johannes Sauer, published in Eastern European Economics.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

The 2024 FREE Network Retreat: Economic Research and Capacity Building in Moldova

Posted on October 28, 2024 | Policy Brief

Panel discussion on capacity building in Moldova and research within the FREE Network experience with experts from ISET-PI, BEROC, BICEPS, CenEA, and SITE

The 2024 FREE Network Retreat, held in Chisinau, Moldova on September 11-13, brought together representatives from the FREE Network institutes and other stakeholders, focusing on economic research and capacity building, especially in the context of Moldova’s EU accession efforts. The event featured general sessions on institutional development, special tracks on academic, administrative and communication topics, and a half-day conference on “Economic Research and Capacity Building“. Key discussions addressed challenges such as Moldova’s weak economic research infrastructure, policymaking gaps, and the need for capacity building. Several examples of Moldovan success stories were also highlighted. The event concluded with a call for strengthened collaboration and donor support towards economics education and fostering Moldova’s research and capacity-building landscape.

Introduction

The FREE Network Retreat is an annual event for researchers and administrators from the FREE Network institutes. The 2024 Retreat took place in Chisinau, Moldova, September 11-13 and was attended by representatives from BEROC (Belarus – currently in exile in Lithuania), BICEPS (Latvia), CenEA (Poland), ISET (Georgia), KSE (Ukraine) and SITE (Sweden). In addition, although not being a member of the FREE Network, the New Uzbekistan University in Tashkent and its Greater Eurasia Research Center (GEAR) were represented.

Like at previous retreats, there were two general sessions with a focus on the development of the individual institutes and the Network as a whole, and three tracks of special sessions on academic, administration and communication topics. The Retreat also involved a meeting of the FREE Network’s joint initiative The Forum for Research on Gender in Eastern Europe (FROGEE) – and a special side event on the integration of Ukrainian Refugees in Moldova.

An integral part of this year’s Retreat was the half-day conference, “Economic Research and Capacity Building”. Drawing on the FREE Network’s experience, the conference focused on how capacity building and research can facilitate the transformation of societies and economies, particularly within the Moldovan context, on its path towards EU-accession. In addition, it provided the FREE Network members an opportunity to share their experiences of capacity building, economic research and policymaking with Moldovan stakeholders.

The Conference was open to external participants interested in the topic, particularly policymakers, academics, and think tank representatives. It clearly illustrated the need to strengthen not only economic research and capacity building but also academic education in economics and related fields, improve the quality and access to data, and raise the level of competence in economics within the government and public sector in general.

A summary of the Conference discussions is provided below. For a full overview of the program and participants see the Appendix.

The Opening Session

The opening session started with the general observation that EU integration, in addition to being a political and security issue is primarily an economic issue with a need for economic research and analysis that can inform policy discussions and educate current and future stakeholders. Within this context, all the FREE Network institutes have considerable experience engaging in research and discussions of policy and policy reform within the region. With Moldova not (yet) represented in the FREE Network, the Conference served as a platform for the Network to learn and eventually engage in sustainable partnership(s).

The discussion then shifted to the Moldovan situation and the challenges ahead on the path to EU membership. Several challenges were identified: a lack of economic research, with most existing research being rather weak; missing connections between researchers and policymakers; a shortage of human resources; and generally weak institutions; as well as policies often being based on trial and error rather than evidence-based decision-making.

To address these challenges several actions were suggested including the need to strengthen research and independent economic thinking through capacity building; drawing on the experience of the countries that have joined the EU during the last two decades; developing international research cooperation through networks like the FREE Network; business-friendly practices and treating investors right while at the same time encouraging entrepreneurship and educating society on the importance of private and public investments.

The discussion also addressed activities supporting civil society undertaken by the EU and Sweden, respectively. Examples of activities include building partnerships and strong ecosystems for innovation and entrepreneurship, supporting reforms cutting red tape and improving the business climate in general as well as supporting the Academy of Economic Studies Moldova and the Association of Women in Business.

Research and Capacity Building – the Moldovan Perspective

The discussion started with a presentation of three Moldovan success stories. The first one is a recently launched program on media, gaming development and animation. Currently, 1,000 students are being enrolled. The program attracts Moldovans from all over the country as well as Moldovan students abroad who decided to terminate their studies abroad to go back to Moldova and enrol in the program. The success of the program is a good example of cooperation between industry, higher education institutions and the Ministry of Education opening up to new professions and programs that attract young people.

The second example is taken from the fashion industry. Traditionally Moldova has been a country where sewing takes place thanks to cheap labor. However, in recent years a “pipeline” of talent, design and brands has developed. As a result, the value added in the industry and export revenues as well as wages have increased.

The final example is the Moldovan tech industry. The tech industry has been at the forefront and could be considered the tiger of the Moldovan economy with growth rates of 30-40 percent per year. There are two main reasons behind this success: the rapidly developing Moldovan startup scene combined with a 7 percent single tax mechanism for the tech industry.

The discussion then turned to the role of research in policymaking. The first argument put forward focused on the impact (or rather the lack of impact) of research and analysis on Moldovan policymaking. As the examples above show, the Moldovan economy has the potential to develop – however, the policy discussion does not focus on the transition towards higher-value activities. On the contrary, even though Moldovan research highlights the role of transition to higher value-added, this argument has essentially been ignored in the policy debate that has been mostly characterized by rhetoric on job creation rather than transition to an economy that creates jobs within the high(er) value-added sectors. Unfortunately, this is not the only example of Moldovan policy discussions and decision-making ignoring the research perspective and outcomes. Among other examples mentioned is the recent tax reform experience and programs supporting Small and Medium Sized Enterprises. Currently, reforms are driven either by purely political reasons or by lobbying or by any other vested interests. There is essentially no impact assessment or any economic analysis underpinning the decisions. Due to the fact that policy initiatives neither are based on economic analysis  nor on best practices, they are vulnerable to clientelism or corruption. The importance of rule of law was emphasized in light of Moldova’s anchoring to the EU and with reference to Latvia and the other Baltic states. It is a too important topic to be left to the lawyers and should hence be part of economic capacity building and research.

The second argument referred to access to reliable data needed for quality policy-oriented research. While the data collected by the National Bureau of Statistics in general is good, the main issue lies in accessing it. The Bureau does not have the resources to support researchers. To exacerbate the problem further, there seems to be no willingness among policymakers to address this issue. Given Moldova’s vulnerability to Russian disinformation and the increased pressure on Moldova, the issue of access to reliable data is even more pressing today than a few years ago.

To foster an informed policy debate and decision-making process taking evidence-based research into account, it would be desirable to create a platform to advocate the results of economic policy analysis where, e.g., policy papers and monitoring reports, could be presented and discussed by experts and decision-makers in the public and private sectors as well as the civil society.

The session continued with a discussion on human capital. The successful program attracting Georgians in the diaspora to return and work for the Georgian government, launched during the first decade of the 2000s, served as the point of departure for the discussion. The key to the success in Georgia was that the government was able to pay competitive salaries. This is one of the main challenges facing Moldova. Even though there have been some adjustments in government salaries during recent years, the government is still far from being anywhere close to paying the same salaries as the private sector in general and think tanks in particular. An understanding of this is important not only at the national level but also among donors. It was noted that there have been some adjustments in government salaries, but it has not been enough. Further, while the Moldovan diaspora are starting to return, they, however, have little governmental or political experience, which makes it difficult to involve them in, e.g. policymaking and development of support programs. It would be good to draw on experiences and best practices from other countries in the region – such as the Baltic states and Georgia – and use them as benchmarks, e.g., for the innovation ecosystem, incubators and accelerators.

Research and Capacity Building – the FREE Network Experience

The FREE Network institutes shared their experiences in capacity building and brain gain, developing an economics undergraduate program, research and policy impact, and network building through research.

ISET (Georgia) shared their experience on attracting talented economists in the Georgian diaspora back to Georgian academia, research, and government positions. The starting point was an initiative developed in collaboration with the donor community to establish a world-class economics school in the Caucasus – the International School of Economics (ISET). The school has developed from a small boutique school to a school with three academic programs (undergraduate and graduate) and about 700 enrolled students. ISET graduates are in high demand and are seen in the private and public sectors. The ISET Policy Institute plays a pivotal role in terms of contributing to evidence-based policymaking. Throughout the years more than 50 ISET graduates have been accepted in Ph.D. programs at top universities worldwide. Many of them have returned to Georgia and ISET after completing their Ph.D. Had not it been for opportunities offered by ISET and the Policy Institute, it is very unlikely that they would have returned. The FREE Network and the opportunities offered are a great resource for the ISET as well as for the ISET Policy Institute.

BEROC (Belarus – in exile in Lithuania since 2022) shared their experience on the process of creating and launching an undergraduate program in economics and business. BEROC started as a research center, but the idea to establish a Bachelor program in economics and business had been around for several years. As part of the re-organization and reformation of the European Humanities University (Belarusian, but in exile), the European Commission approached BEROC asking if it could develop an undergraduate program in economics and business for Belarusian students.

The challenge has been two-fold: first, in the current political situation, Belarusian people are “locked within the country” and for them it is much easier to go to Russia for studies. In addition, the cost of living and the tuition fee (although low by Baltic standards) provide additional barriers to potential students. Second, BEROC operates in exile themselves. Nevertheless, a Bachelor program in economics and business will be launched in October 2024 with the support of Belarusian business in exile. Thanks to cooperation with partners within the FREE Network the program is at the global frontier.

BICEPS (Latvia) provided an overview of how research can contribute to the policy agenda. BICEPS’s first policy reports, published more than 15 years ago, focused on the unsustainable Latvian economic growth and inflation levels at the time. These reports reached conclusions that, while correct ex-post, were contrary to those of the Latvian Central Bank. This divergence sparked substantial discussion at both the political level and in the media.

In the early 2010s, BICEPS was commissioned to produce the first-ever Latvian Competitiveness Report. This report has served as a foundation for policymaking and has left a lasting mark on the policy agenda. Furthermore, following BICEPS’s research on the shadow economy and the annual presentation of the shadow economy index, the Ministry of Finance, through public procurement, commissioned a 2021 project to develop a model addressing the impact of the shadow economy.

The Global Entrepreneurship Monitor (GEM) Latvia and the EUROMOD tax-benefit microsimulation model are long-term projects run by BICEPS. Current projects include one focused on the impact of broadening the sugar tax base, a regional Global Entrepreneurship Monitor study, a project on road congestion tolls in cities and the development of sustainable agriculture in Africa.

CenEA (Poland) might be small in terms of people employed, but disproportionally big in terms of impact and presence in the Polish policy discussion. From the very beginning, CenEA has aimed at combining policy with solid economic research. The focus has primarily been in the areas of fiscal policy, ageing and health – with the latter two being major issues in Poland.

For CenEA, the FREE Network has been fundamental, both for funding and for building its credibility and position. CenEA has played an active role in terms of broadening and deepening the cooperation within the FREE Network. It has been very active in developing and coordinating the FROGEE project. The project (financed by the Swedish International Development Cooperation Agency, SIDA) has run for six years and covered a wide range of topics within the field of gender equality. It has resulted in several FREE Policy Briefs, policy and research papers, and several conferences and workshops. In addition, the project has contributed to the development of tools and skills for both senior and junior researchers within the Network. Based on the success of the FROGEE project, new projects and initiatives within the Network have been developed.

SITE (Sweden) has taken the lead on the FREECE (the Forum for Research on Eastern Europe: Climate and Environment) project. The project has been around for eighteen months with a focus on the transition from an economy based on the production and consumption of fossil fuels to an economy based on the production and consumption of zero-carbon renewables. This will be a challenge for everyone, especially for countries throughout Eastern Europe that often rely on the extraction and consumption of fossil fuels for employment as well as for energy needs.

The FREECE project provides several opportunities to engage in policy-relevant research while at the same time filling a gap in the literature.

Initiatives and the Road Ahead

At the current stage of Moldovan economic and political development there is a higher demand for analysis and applied research, rather than general and theoretical research. In other words, policy relevance needs to be in focus. At the same time, such applied analysis and research need to involve well-educated human capital with relevant skills, such as university graduates. This puts focus on the role of universities and how they can reform.

The Moldova School of Economics initiative was launched approximately half a year ago. Among the first activities were public lectures on economic behaviour and public policies. In September, in cooperation with CERGE-EI in Prague, the first short economics course was launched. Currently, there are discussions with the Ministry of Education and the State University on developing the initiative into an actual program. So far, the response has been positive. The vision is to create the Moldova School of Economics into an initiative that reaches out not only to Chisinau and Moldova but to the wider region.

The session on this topic proceeded to discuss how the FREE Network could support Moldovan research and capacity building, focusing on its experience in implementing various projects. One potential starting point would be a summer school involving both the FREE Network and Moldovan economists living abroad. There are already contacts with members of the diaspora who have expressed a willingness to participate as faculty members, without compensation. Additionally, there is a need for shorter courses or executive classes aimed at individuals in ministries. Topics to be covered may include basic macroeconomic analysis, fiscal policy, and economic growth. It is also important to incorporate microeconomic subjects, such as the factors driving innovation and the development of economic clusters.

Concluding Comments

The FREE Network Retreat and conference has shown that many of the issues currently facing Moldova, have at least partly been addressed by the FREE Network members in their respective countries. Looking forward this should provide a good basis for cooperation between the Network and Moldovan partners. Three broadly defined areas for collaboration and partnerships were identified: (i) education and training: at the university level as well as for ministries and government agencies; (ii) creation and development of a good environment for research and policy analysis; (iii) communication and outreach.

The dialogue that has been initiated during the conference should continue and include a discussion on how to attract donors to support long-term cooperation that contributes to the needed strengthening of research and capacity building in Moldova.

Appendix

Conference Programme: Economic Research and Capacity Building

9.30 Conference Opening

  • Torbjörn Becker, Director, Stockholm Institute of Transition Economics
  • Jānis Mažeiks, Ambassador of the European Union to the Republic of Moldova
  • Katarina Fried, Ambassador of Sweden to the Republic of Moldova

10:00 Research and Capacity Building – the Moldovan perspective

  • Doina Nistor, Chief of Party, Moldova Future Technologies Activity
  • Adrian Lupușor, Executive Director, Independent Analytical Center Expert-Grup
  • Kálmán Mizsei, EU Adviser to the Government of Moldova

10:50 Research and Capacity Building: The FREE Network Experience

  • Tamar Sulukhia (ISET, Georgia): Capacity building and brain gain
  • Dzmitry Kruk (BEROC, Belarus – in exile): Development of a new academic programme
  • Marija Krūmiņa (BICEPS, Latvia): Research and policy impact
  • Michal Myck (CenEA, Poland): Network building and the FROGEE experience
  • Julius Andersson (SITE, Sweden): Network building and the FREECE experience

11:30 Initiatives and the Road Ahead

  • Mihnea Constantinescu, Advisor to the Governor National Bank of Moldova
  • Misha Zeldin-Gipsman, the Moldova School of Economics Initiative

12:10 Concluding Comments

  • Torbjörn Becker, Director, SITE
  • Kata Fredheim, Associate Professor, BICEPS and Stockholm School of Economics in Riga

12:20 Lunch and Networking

Conference moderator: Kata Fredheim, BICEPS and SSE Riga.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

 

Active Labor Market Policy in the Baltic-Black Sea Region

Posted on June 3, 2024 | Policy Brief

Image that shows an overhead view of a large, open pedestrian area with people walking and standing around representing active labour market policy.

This brief outlines the characteristics of active labor market policy (ALMP) in four countries in the Baltic-Black Sea region: Belarus, Lithuania, Poland, and Ukraine. An analysis of the financing expenditure structure within this framework reveals significant differences between the countries, even for Poland and Lithuania, where the policies are to be set within a common EU framework. Countries also differed in terms of their ALMP reaction to the economic challenges brought about by the Covid-19 pandemic, as Poland and Lithuania increased their ALMP spending, while Ukraine, and, especially, Belarus, lagged behind. Despite these differences, all four countries are likely to benefit from a range of common recommendations regarding the improvement of ALMP. These include implementing evidence-informed policymaking and conducting counterfactual impact evaluations, facilitated by social partnership. Establishing quantitative benchmarks for active labor market policy expenditures and labor force coverage by active labor market measures is also advised.

Introduction

This policy brief builds on a study aimed at conducting a comparative analysis of labor market regulation policies in Belarus, Ukraine, Lithuania, and Poland. In comparing the structure of labor market policy expenditures, the aim was to identify common features between Poland and Lithuania, both of which are part of the EU and employ advanced labor market regulation approaches. We also assessed Ukraine’s policies, currently being reformed to align with EU standards, contrasting them with Belarus, where economic reforms are hindered by the post-Soviet authoritarian regime.

The analysis of the labor market policies for the considered countries is based on an evaluation of the structure of pertinent measures between 2017 and 2020 (Mazol, 2022). We used the 2015 OECD systematization of measures of active labor market policy, as presented in the first column of Table 1.

Our study reveals substantial differences in active labor market policies within the four considered countries. Still, motivated by OECD’s approach to ALMP, we provide a range of common policy recommendations that are relevant for each country included in the study. Arguably, aligning with the OECD approach would have more value for current EU and OECD members, Poland and Lithuania, and the aspiring member, Ukraine. However, these recommendations also hold value when considering a reformation of the Belarusian labor market policy.

ALMP Expenditures in Belarus, Lithuania, Poland and Ukraine

Labor market policy comprises of active and passive components. Active labor market policy involves funding employment services and providing various forms of assistance to both unemployed individuals and employers. Its primary objective is to enhance qualifications and intensify job search efforts to improve the employment prospects of the unemployed (Bredgaard, 2015). Passive labor market policy (PLMP) encompasses measures to support the incomes of involuntarily unemployed individuals, and financing for early retirement.

Poland and Lithuania are both EU and OECD members, so one would expect their labor market policies to be driven by the EU framework, and, thus, mostly aligned. However, our analysis showed that the structure of their expenditures on active labor market policies in 2017-2019 differed (Mazol, 2022). In Lithuania, the majority of the funding was allocated to employment incentives for recruitment, job maintenance, and job sharing. From 2017 to 2019, the share for these measures was between 18 and 28 percent of all expenditures for state labor market regulation. In Poland, the majority of funding was allocated to measures supporting protected employment and rehabilitation. The spending on these measures fluctuated between 23 and 34 percent of all expenditures for state labor market regulation between 2017 and 2019.

The response to the labor market challenges during the Covid-19 pandemic in Poland and Lithuania resulted in a notable surge in state labor market policy spendings in 2020, amounting to 1.78 percent of GDP and 2.83 percent of GDP, respectively. Both countries sharply increased the total spending on employment incentives (see Table 1 which summarizes the expenditure allocation for 2020). Poland experienced a nine-fold increase in costs for financing these measures (29.4 percent of total expenditures on state labor market regulation). Meanwhile, in Lithuania, financing for employment incentives increased more than tenfold, amounting to 42.5 percent of all expenditures for state labor market regulation. In both countries it became the largest active labor market policy spending area.

Table 1. Financing of state labor market measures in Baltic-Black Sea region countries in 2020 (in millions of Euro).

Source: DGESAI, 2023. Author’s estimations based on World Bank data (World Bank, 2023), National Bank of Belarus data, National Bank of Ukraine data.

In Ukraine, the primary focus for active labor market policy expenditures was, from 2017 to 2020, directed towards public employment services, comprising 18 to 24 percent of total labor market policy expenditures. Notably, despite the Covid-19 pandemic, there were no significant changes in either the structure or the volume of active labor market policy expenditures in Ukraine in 2020. Despite Ukraine’s active efforts to align its economic and social policies with EU standards, the government has underinvested in labor market policy, with expenditures accounting for only 0.33-0.37 percent of GDP between 2017 and 2020. This is significantly below the levels observed in Lithuania and Poland.

In Belarus, labor market policy financing is one of the last priorities for the government. In 2020, financing accounted for about 0.02 percent of GDP, amounts clearly insufficient for having a significant impact on the labor market. Moreover, Belarus stood out as the sole country in the reviewed group to have reduced its funding for labor market policies, including both active and income support measures, during the Covid-19 pandemic. The majority of the financing for labor market policy has been directed towards protected and supported employment and rehabilitation, including job creation initiatives for former prisoners, the youth and individuals with disabilities.

ALMP Improvement Recommendations

As illustrated above, the countries under review do not have a common approach to active labor market policy spendings. Further, countries like Poland and Lithuania took a more flexible stance on addressing labor market challenges caused by the Covid-19 pandemic, by implementing additional financial support for active labor market policies. However, Ukraine and Belarus did not adjust their expenditure structures accordingly. Part of these cross-country differences can be attributed to differing legal framework: Poland and Lithuania are OECD and EU member states, and, thus, subject to corresponding regulations. Ukraine is in turn motivated by the prospects of EU accession, while Belarus currently has no such prosperities to take into account.

Another important source of deviation arises from the differences in current labor market and economic conditions in the respective countries, and the governments’ need to accommodate these. While such a market-specific approach is well-justified, aligning expenditure structures with current labor market conditions necessitates obtaining updated and reliable information about the labor market situation and the effectiveness of specific labor market measures or programs. An effective labor market policy thus requires establishing a reliable system for assessing the efficiency of government measures, i.e., deploying evidence-informed policy making (OECD, 2022).

To achieve this, it is crucial to establish a robust system for monitoring and evaluating the implementation of specific measures. This involves leveraging data from various centralized sources, enhancing IT infrastructure to support data management, and utilizing modern methodologies such as counterfactual impact evaluations (OECD, 2022).

Moreover, an effective labor market regulation policy necessitates the ability to swiftly adapt existing active measures and service delivery methods in response to changes in the labor market. This might entail rapid adjustments in the legal framework, underscoring the importance of close cooperation and coordination among key stakeholders, and a well-functioning administrative structure (Lauringson and Lüske, 2021).

To accomplish this objective, it is vital to foster close collaboration between the government and institutions closely intertwined with the labor market, capable of providing essential information to labor market regulators. One of the most useful tools in this regard appears to be so-called social partnerships – a form of a dialogue between employers, employees, trade unions and public authorities, involving active information exchange and interaction (OECD, 2022).

A reliable system to assess labor market policy and in particular to facilitate their targeting, is an essential component of this approach.

Ukraine and Belarus are underfunding their labor market policies, both in comparison to the levels observed in Poland and Lithuania, and in absolute terms. It is therefore advisable to establish quantitative benchmark indicators to act as guidance for these countries, in order to ensure that any labor market policy implemented is adequately funded. Here, a reasonable approach is to align the costs of implementing labor market measures with the average annual levels for OECD countries (which are 0.5 percent of GDP for active measures and 1.63 percent for total labor market policy expenditures (OECD, 2024). Furthermore, it’s essential to ensure a high level of labor force participation in active labor market regulation measures. A target standard could be set, based on the average annual coverage from active labor market measures, at 5.8 percent of the national economy labor force, as observed in OECD countries (OECD, 2024).

Conclusion

The countries under review demonstrate varying structures of active labor market expenditures. Prior to the Covid-19 pandemic, employment incentives received the most financing in Lithuania. In Poland the largest share of expenditures was instead directed to measures to support protected employment and rehabilitation. In Ukraine, the main expenditures were directed towards financing employment services and unemployment benefits while Belarus primarily allocated funds to protected and supported employment and rehabilitation. Notably, Lithuania and Poland responded to the economic challenges following Covid-19 by significantly increasing spending on employment incentives, while Ukraine and Belarus did not undertake such measures.

Part of the diverging patterns may be attributable to the countries varying legal framework and differences in the countries respective labor market and economic conditions.

While some of the differences in labor market policies are thus justified, ensuring funding at the OECD level for labor market measures, alongside adequate tools for monitoring and evaluating labor market policies, are likely to benefit all four Baltic-Black Sea countries.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Navigating Environmental Policy Consistency Amidst Political Change

Posted on May 6, 2024 | Policy Brief

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Europe, like other parts of the world, currently grapples with the dual challenges of environmental change and democratic backsliding. In a context marked by rising populism, misinformation, and political manipulation, designing credible sustainable climate policies is more important than ever. The 2024 annual Energy Talk, organized by the Stockholm Institute of Transition Economics (SITE), gathered experts to bring insight into these challenges and explore potential solutions for enhancing green politics.

In the last decades, the EU has taken significant steps to tackle climate change. Yet, there is much to be done to achieve climate neutrality by 2050. The rise of right-wing populists in countries like Italy and Slovakia, and economic priorities that overshadow environmental concerns, such as the pause of environmental regulations in France and reduced gasoline taxes in Sweden, are significantly threatening the green transition. The current political landscape, characterized by democratic backsliding and widespread misinformation, poses severe challenges for maintaining green policy continuity in the EU. The discussions at SITEs Energy Talk 2024 highlighted the need to incorporate resilience into policy design to effectively manage political fluctuations and ensure the sustainability and popular support of environmental policies. This policy brief summarizes the main points from the presentations and discussions.

Policy Sustainability

In his presentation, Michaël Aklin, Associate Professor of Economics and Chair of Policy & Sustainability at the Swiss Federal Institute of Technology in Lausanne, emphasized the need for environmental, economic, and social sustainability into climate policy frameworks. This is particularly important, and challenging given that key sectors of the economy are difficult to decarbonize, such as energy production, transportation, and manufacturing. Additionally, the energy demand in Europe is expected to increase drastically (mainly due to electrification), with supply simultaneously declining (in part due to nuclear power phaseout in several member states, such as Germany). Increasing storage capacity, enhancing demand flexibility, and developing transmission infrastructure all require large, long-term investments, and uncompromising public policy. However, these crucial efforts are at risk due to ongoing political uncertainty. Aklin argued that a politics-resilient climate policy design is essential to avoid market fragmentation, decrease cooperation, and ensure the support for green policies.  Currently, industrial policy is seen as the silver bullet, in particular, because it can create economies of scale and ensure political commitment to major projects. However, as Aklin explained, it is not an invincible solution, as such projects may also be undermined by capacity constraints and labour shortages.

Energy Policy Dynamics

Building on Aklin’s insights, Thomas Tangerås, Associate Professor at the Research Institute of Industrial Economics, explored the evolution of Swedish energy policy. Tangerås focused on ongoing shifts in support for nuclear power and renewables, driven by changes in government coalitions. Driven by an ambition to ensure energy security, Sweden historically invested in both hydro and nuclear power stations. In the wake of the Three Mile Island accident, public opinion however shifted and following a referendum in 1980, a nuclear shutdown by 2010 was promised. In the new millennia, the first push for renewables in 2003, was followed by the right-wing government’s nuclear resurgence in 2010, allowing new reactors to replace old ones. In 2016 there was a second renewable push when the left-wing coalition set the goal of 100 percent renewable electricity by 2040 (although with no formal ban on nuclear). This target was however recently reformulated with the election of the right-wing coalition in 2022, which, supported by the far-right party, launched a nuclear renaissance. The revised objective is to achieve 100 percent fossil-free electricity by 2040, with nuclear power playing a crucial role in the clean energy mix.

The back-and-forth energy policy in Sweden has led to high uncertainty. A more consistent policy approach could increase stability and minimize investment risks in the energy sector. Three aspects should be considered to foster a stable and resilient investment climate while mitigating political risks, Tangerås concluded: First, a market-based support system should be established; second, investments must be legally protected, even in the event of policy changes; and third, financial and ownership arrangements must be in place to protect against political expropriation and to facilitate investments, for example, through contractual agreements for advance power sales.

The Path to Net-Zero: A Polish Perspective

Circling back to the need for climate policy to be socially sustainable, Paweł Wróbel, Energy and climate regulatory affairs professional, Founder of GateBrussels, and Managing Director of BalticWind.EU, gave an account of Poland’s recent steps towards the green transition.

Poland is currently on an ambitious path of reaching net-zero, with the new government promising to step up the effort, backing a 90 percent greenhouse gas reduction target for 2040 recently proposed by the EU However, the transition is framed by geopolitical tensions in the region and the subsequent energy security issues as well as high energy prices in the industrial sector. Poland’s green transition is further challenged by social issues given the large share of the population living in coal mining areas (one region, Silesia, accounts for 12 percent of the polish population alone). Still, by 2049, the coal mining is to be phased out and coal in the energy mix is to be phased out even by 2035/2040 – optimistic objectives set by the government in agreement with Polish trade unions.

In order to achieve this, and to facilitate its green transition, Poland has to make use of its large offshore wind potential. This is currently in an exploratory phase and is expected to generate 6 GW by 2030, with a support scheme in place for an addition 12 GW. In addition, progress has been achieved in the adoption of solar power, with prosumers driving the progress in this area. More generally, the private sectors’ share in the energy market is steadily increasing, furthering investments in green technology. However, further investments into storage capacity, transmission, and distribution are crucial as the majority of Polands’ green energy producing regions lie in the north while industries are mainly found in the south.

Paralleling the argument of Aklin, Wróbel also highlighted that Poland’s high industrialization (with about 6 percent of the EU’s industrial production) may slow down the green transition due to the challenges of greening the energy used by this sector. The latter also includes higher energy prices which undermines Poland’s competitiveness on the European market.

Conclusion

The SITE Energy Talk 2024 catalyzed discussions about developing lasting and impactful environmental policies in times of political and economic instability. It also raised questions about how to balance economic growth and climate targets. To achieve its 2050 climate neutrality goals, the EU must implement flexible and sustainable policies supported by strong regulatory and political frameworks – robust enough to withstand economic and political pressures. To ensure democratic processes, it is crucial to address the threat posed by centralised governments decisions, political lock-ins, and large projects (with potential subsequent backlashes). This requires the implementation of fair policies, clearly communicating the benefits of the green transition.

On behalf of the Stockholm Institute of Transition Economics, we would like to thank Michaël Aklin, Thomas Tangerås and Paweł Wróbel for participating in this year’s Energy Talk.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

The EU Gas Purchasing Mechanism: A Game-Changer or a Storm in a Teacup?

Posted on November 6, 2023 | Policy Brief

Image of the LNG tanker in the Baltic Sea representing EU gas purchasing mechanism

Marking a milestone in the tumultuous journey towards a unified energy policy, the European Union (EU) member states have initiated joint procurement of a portion of their gas consumption. This coordinated effort has been facilitated through a gas purchasing mechanism, the AggregateEU, as of May 2023. In this policy brief we discuss the challenges this mechanism faces, given its design characteristics and the altered dynamics of the gas market following the energy crisis.

The necessity for a coordinated approach to energy security within the EU has been recognized at least since 2009, when its legal base was explicitly introduced in Article 194 of the Treaty of Lisbon. However, the de facto implementation of the solidarity principle has been lagging for many years. In response to the 2022 surge in gas prices, the EU has at last taken the solidarity approach to common energy security seriously. One of the most prominent steps is the creation of the AggregateEU mechanism, launched at the end of 2022. This mechanism aggregates the demand of registered buyers from different member states and matches it with competitive bids from external gas suppliers. It aims at improving and diversifying the EU gas supply, avoiding unnecessary buyer competition within the EU and building up the buyer power of EU member states. Furthermore, the mechanism is meant to reduce uncertainty and mitigate price volatility by providing information about accessible energy supplies. The mechanism covers both pipeline natural gas and Liquified Natural Gas (LNG) and organizes tenders every two months. While  EU member states are required to submit demand bids for 15 percent of their 90 percent storage targets for the upcoming 2023-24 season through the mechanism, there is no obligation to sign any contracts based on the resulting match (more details can be found here and here).

The first three rounds of tendering via the mechanism, which took place May-October 2023, matched approximately 34 billion cubic meters of natural gas, exceeding the anticipated initial volumes. This outcome is currently perceived as a great achievement, enabling more vulnerable countries to benefit from coordinated purchases and resulting in increased bargaining power. Driven by this success, the European Commission (EC) has considered making demand aggregation via the mechanism a permanent feature of the EU’s gas market – and even extending it to hydrogen. However, while these agreed trades are a positive development, they may not reflect the mechanism’s overall success. Demand submission obligations may increase the number of demand calls which could project into more matches, but as they are not binding the subsequent agreements may not necessarily result in finalized contracts or lower prices.

In this brief, we argue that the mechanism’s benefits remain uncertain, primarily due to the current state of the EU’s gas market and the design flaws arising from efforts to address disparities in energy security among member states. These considerations call for a direct impact assessment, which however remains impossible due to the EC’s inability (or even reluctancy?) to collect and disclose the contracted outcomes resulting from the mechanism matches. This is especially problematic in light of the EC’s intentions to extend the mechanism’s coverage.

Limited Mechanism Benefits Under New Market Trends

Over the past two years, the EU has undertaken drastic efforts to address the energy security concerns within its gas market caused by the radical reduction in Russia’s natural gas exports to Europe. The EU has managed to sizably improve the diversification of its gas imports (see Figure 1), fill its storage facilities, and lower its gas demand (see McWilliams, Sgaravatti, and Zachmann (2021) and McWilliams and Zachmann (2023)).

Figure 1. Composition of EU natural gas imports.

Source: Authors’ calculations based on McWilliams, Sgaravatti and Zachmann (2021).

As a result, a certain balance of supply and demand has been achieved, and the gas prices in the EU market have fallen to pre-war price levels (though they are still somewhat higher than their earlier long-term trend), as depicted in Figure 2. The ease of market tensions in 2023 has led many to argue that market forces are sufficient to resolve potential problems in the EU gas market and that mechanism costs would not be justified (see, e.g., Eurogas or International Association of Oil and Gas Producers opinions).

However, in the coming years the EU gas market is expected to be relatively tight due to capacity constraints both in the LNG market and for pipeline gas producers (as noted by, e.g., Bloomberg and IEA). This tightness makes the market highly sensitive to shocks, and a twofold increase in exposure to LNG – with its global liquidity – only adds to the problem. A good illustration of this concern is the recent market reaction to the Israel-Palestine war:  the fear of supply disruptions lead to a whopping 55 percent increase in the European gas tariff TTF in the second week of October and to an EC initiative to prolong the emergency gas price cap, initially introduced in February 2023. This despite the EU’s gas storage nearing 98 percent of capacity and relatively low current prices.

Such a “seller market” situation implies that buyers’ ability to exercise buyer power and negotiate down prices may be highly limited when needed the most. Specifically, buyer power would be most effective when buyers have a credible outside option, e.g., the ability to claim that their gas demand needs can be facilitated elsewhere. The tighter the market, the more difficult it would be to find such volumes elsewhere, further limiting buyers’ ability to negotiate down prices. To put it differently: current market conditions may undermine the original purpose of the mechanism.

The current “shock-sensitivity” of the gas market may also give rise to additional concerns regarding the mechanism’s mere purpose – demand aggregation for vulnerable buyers. One of the by-products of demand aggregation is that (pooled) buyers are more likely to face correlated risks, e.g., by purchasing gas from the same producer. If markets are highly shock-sensitive – as they currently seem to be – such aggregation may further increase market volatility, implying that vulnerable buyers would be affected the most.

Figure 2. Natural gas prices in the EU, January 2021-October 2023 (prices in EUR).

Source: https://tradingeconomics.com/commodity/eu-natural-gas

Mechanism Design: Constraints vs. Efficiency

Some design elements of the purchasing mechanism may also challenge the mechanism’s ability to deliver an efficient outcome. First, quantity and price under the matching process are not binding, and buyers and sellers are expected to continue negotiations individually after the matching. This feature was introduced due to the concern that it would be challenging to offer a “one size fits all” binding contract to incorporate all participants of the pooled demand. This, as argued by Le Coq and Paltseva (2012; 2022), was one of the reasons for the previous failure to implement a mutual insurance and solidarity mechanism across the EU. However, the non-binding matching outcome will likely give rise to re-negotiations, price increases, and failure to exercise consolidated “buyer power”.

Moreover, a company can act on behalf of small or financially constrained buyers, purchase gas for them, and become an “Agent-on-behalf” and “Central Buyer”. In the process, companies will inevitably exchange sensitive information. This may limit competition and increase the market power of the “Central Buyer” company. In addition, firms may choose not to participate in the mechanism for at least two reasons. First, they may fear the threat of revealing valuable private information. Second, demand aggregation may discourage market participants with stronger buyer positions from participating, as being pooled with weaker participants would undermine their bargaining power. Both these cases would create a so-called adverse selection effect, where the more performant market participants would choose to avoid the joint purchasing mechanism. As a result, the joint buyer power may be strongly undermined, and the price-suppressing effect seems uncertain. This may explain why some firms, like several large German firms, have opted to sign long-term contracts with gas suppliers directly rather than via the mechanism

Several of these concerns arise not from the mechanism design per se but rather in combination with the inherent asymmetries between EU buyers, including variations in gas demand, risk exposure, etc. To put it differently: it is well justified that a “one size fits all” approach would fail in ensuring broad (and voluntary) mechanism participation; however, the choice of a more flexible solution, as implemented by the AggregateEU mechanism, creates commitment issues and adverse selection, and may undermine an effective use of buyer power.

Impact Assessment: Necessary but Currently Impossible

The new EU gas purchasing system is a significant step towards creating a unified energy policy. However, the design of such a procurement auction raises concerns about its contribution, especially under the new gas market dynamics. The current low gas prices make the immediate cost-benefit tradeoff of the mechanism nonobvious. More importantly, the tightness of the EU gas market in the next few years makes the “seller” power unlikely to be counteracted by the EU’s buyer power. Further, the absence of legal commitment between matched participants, and increased market volatility can lead to repeated ex-post renegotiations. These elements undermine the mechanism’s role and raise doubts about its benefits. Some of the mechanism’s inherent features, such as incentives for abuse of market power, also contribute to potential efficiency loss.

Hence, while the motivation behind this tool is clear, the implementation and potential design flaws may undermine the gains. It is therefore particularly important to understand whether the mechanism is effectively meeting its objectives, especially given the recent initiative to make it a permanent feature of the EU gas market and a key solution for the European Hydrogen Bank in the future. These considerations make a strong call for an impact assessment. An unbiased measure of AggregateEU’s impact would be necessary to assess the benefits of the mechanism (and to weigh them against the bureaucratic implementation costs). Currently, however, the EC has chosen not to collect, let alone disclose, the contractual outcomes resulting from matches. In a recent interview, Matthew Baldwin, deputy director-general at the EC’s energy directorate, said, “The reality is we’ve had relatively little feedback so far because companies are not required to give that to us in terms of the deals”. One may argue that many of the potential deficiencies of the mechanism design – e.g., non-binding matching and adverse selection – are justified by asymmetries across participants and other inherent market features. However, the absence of (appropriately desensitized) data about actual outcomes resulting from mechanism matches is more difficult to justify. The lack of data prevents us from evaluating the AggregateEU’s performance and raises additional concerns about its efficiency. Thus, gathering relevant information and conducting a comprehensive impact assessment based on sensible criteria are essential prerequisites for the future use, and expansion of the AggregateEU mechanism.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes. 

Democracy in the Eye of the Beholder?

Posted on May 29, 2023 | Policy Brief

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There is growing concern that democratic institutions in Eastern Europe are fragile. This brief compares two perspectives on the state of democracy: expert assessments and surveys of the general population. We show that while experts’ perception of some countries’ institutions has worsened in recent years, voters are increasingly satisfied with their own democracies. This trend is broad-based, encompassing almost all new EU member states and all age groups. We provide evidence that over time, survey respondents’ assessment of democracy has become more closely tied to the outcome of elections rather than actual institutional change. Where governments have imposed restrictions on media freedom or judicial independence, their supporters continue to report high levels of satisfaction with the way democracy works.

“Across the world, democracy is backsliding”

UN’s Secretary-General António Guterres, 2022

In recent years, the prevailing narrative around democracy in Eastern Europe has been negative. The reform momentum that propelled countries towards EU membership has not been sustained after accession. Discussions of global democratic backsliding frequently cite countries from the region as examples (Grillo and Prato, 2023; Chiopris et al., 2021; Mechkova et al., 2017). Following restrictions on judicial independence and media freedom, some new EU members have seen their ratings slide on indices that measure the quality of democratic institutions based on expert opinions. This brief contrasts these expert assessments with a different perspective on the state of democracy: that of the voters themselves.

Data from Eurobarometer surveys show that satisfaction with ‘the way democracy works in our country’ has been increasing in the new EU member states. This upward trend is visible for all age groups and in almost all countries – including those where experts’ assessment of democracy has worsened. We document patterns in the data that may help to explain this divergence. Survey responses increasingly reflect an instrumentalist view of democracy; respondents who are aligned politically with the winning party are more likely to feel that democracy is working well. This trend can be observed across the EU, but it is most pronounced in the new EU member states where the governing parties are right-of-centre.

Perceptions of Democracy

Expert Assessments

The quality of democracy is hard to measure. A range of indices classify countries by regime type or provide numerical ratings of institutional quality (the Polity, V-Dem, and Freedom House measures are among the most prominent). These indices have somewhat different objectives and methodologies, but they all rely on subjective judgements by expert coders.

Some academic research casts doubt on the prevailing narrative of a global phenomenon of democratic backsliding. For instance, Treisman (2023) and Lueders and Lust (2018) show that there is little consensus across indices, both in terms of individual countries and the global trend. A recent paper by Little and Meng (2023) contrasts subjective indices with more objective indicators of democratic health (e.g. the rate at which incumbents lose elections). The authors find no evidence for global democratic backsliding using the objective measures and suggest that the pessimistic narratives around democracy may have biased coders’ assessment.

There is less disagreement about the development of democracy in Eastern Europe. Treisman (2023) cites Hungary as the only example of a country that has recently been downgraded both from the status of “liberal democracy” by V-Dem and “free state“ by Freedom House. Little and Meng (2023) highlight three cases where both objective and subjective measures indicate backsliding: Hungary and Poland (as well as Venezuela). Further, Becker (2019) shows that downgrades to V-Dem democracy scores in Bulgaria, Czechia, Hungary, Poland, and Romania are relatively broad-based, driven by declines across multiple sub-categories including freedom of expression and constraints on the executive.

Surveys of Public Opinion

We use individual-level data from the Eurobarometer – a survey of public opinion in the EU Member States and candidate countries conducted by the European Commission. The surveys are conducted at an approximately monthly frequency and comprise of a representative sample (about 1000 face-to-face interviews) for each state. We combine data from 42 surveys, spanning 20 years (2002 to 2022), with a total of 1.3 million respondents. The main question we are interested in is: “On the whole are you very satisfied, rather satisfied, not very satisfied or not at all satisfied with the way democracy works in [our country]?”

At the beginning of the sample period in 2002, around a third of respondents in Eastern European EU countries were satisfied with their respective democracies compared to close to twice as many respondents in Western Europe (Figure 1). Over the past 20 years, the share of Eastern Europeans satisfied with their democracy has grown to around 50 percent, narrowing the gap with Western Europe. Figure 2 shows that this pattern is broad based across age groups. All cohorts of Eastern Europeans are more satisfied with democracy than earlier generations and among the youngest respondents, satisfaction is almost as high as in Western Europe.

Figure 1. Satisfaction with Democracy vs V-Dem Score.

Source: Eurobarometer, V-Dem and authors’ calculations.

Figure 2. Satisfaction with Democracy by Age Group.

Notes: Each point shows the sample mean for a single year cohort. 95 percent confidence intervals in grey.
Source: Eurobarometer, authors’ calculations.

Figure 1 also shows a stark divergence in expert assessment of the state of democracy in Eastern Europe compared to public opinion in the same countries. While the V-Dem democracy scores for Eastern Europe have declined rapidly since the mid-2010s, average satisfaction with the own country’s democracy has increased. A much smaller gap between these two measures has also started to open up in Western Europe over the past couple of years.

In Figure 3, we show the same patterns of satisfaction with democracy and expert opinions for individual countries. Satisfaction with one’s own democracy has increased in almost all Eastern European countries, including in Poland and Hungary which at the same time showed the largest declines in democracy scores.

Figure 3. Satisfaction with Democracy vs V-Dem Score by Country.

Source: Eurobarometer, V-Dem and authors’ calculations.

This divergence in individual survey responses and expert assessments is not altogether surprising. First, the Eurobarometer surveys a sample of the population in each country, while V-Dem (and most other similar democracy indices) relies on country experts. Another likely explanation for the difference is the interpretation of the question. Democracy ratings tend to emphasise institutional aspects of a democracy, for instance, the V-Dem liberal democracy index is designed to capture rule of law and checks on executive power (see, e.g., Becker, 2019). In contrast, the survey responses are likely to reflect both satisfaction with the state of democracy in a country, as well as the outcomes of that democracy.

Satisfaction with Democracy and Political Alignment

In this section, we investigate whether stated satisfaction with democracy depends on the outcomes of elections and the political ideology of the respondents. A common way of measuring political ideology is the placement on a right-left scale, where the right favours a free-market economy and traditional values while the left favours economic redistribution and socially progressive policies. We compare the right-left placement of each country’s governing party as coded by the Chapel Hill Expert Survey (CHES), with the self-identified right-left placement of Eurobarometer respondents. We calculate the ideological distance from the government as the absolute difference between these two scores.

Figure 4. Relationship Between Ideological Distance from Government and Satisfaction with Democracy.

Source: Eurobarometer, Döring, Huber and Manow (2022) and authors’ calculations.
Notes: Each point shows the coefficient from a separate regression of satisfaction with democracy on ideological distance from government, age, gender, year fixed effects and country fixed effects. 95 percent confidence intervals in grey. Coefficient estimates for Eastern and Western EU overlap on the chart for 2019 and 2020.

We find that people are on average less satisfied with their country’s democracy when they are ideologically further from the parties in government (Figure 4). This is consistent with prior evidence (Anderson and Guillory, 1997; Ezrow and Xezonakis, 2011). The alignment effect has become stronger over time – even when taking into account average satisfaction levels for each country and demographic characteristics of the respondents, such as their age and gender. In the past three years, political alignment with the government has become a major factor in explaining satisfaction with democracy, especially in Eastern Europe. Svolik (2019) suggests that voters trade off democratic principles and partisan interests. As political polarisation increases, voters become more willing to accept a government that undermines democratic institutions, as long as it is on ‘their side’ ideologically.

Figure 5. Satisfaction with Democracy and Political Ideology. Western Europe in the Left Panel and Eastern Europe in the Right Panel.

Source: Eurobarometer, Döring, Huber and Manow (2022) and authors’ calculations.
Notes: Respondents with the most left-leaning ideology are at the extreme left of the x-axis, those with the most right-leaning ideology are at the extreme right. The sample covers the period 2002 to 2022 and excludes observations where the government is coded as centrist (scores of 5-6 in the CHES data). 95 percent confidence intervals in grey.

In Figure 5, we break down the effect of political alignment on satisfaction with democracy according to individuals’ political leanings. On the x-axis is the respondents’ left-right placement and on the y-axis there are two series of dots showing satisfaction with democracy depending on whether the government is left of centre (lighter coloured dots) or right of centre (darker coloured dots). As before, being politically aligned with the government increases satisfaction, that is, to the left of the chart, the lighter coloured dots are placed higher than the darker coloured dots and vice versa for the right of the chart. The further from centre a person’s political leanings, the less satisfied they are with a government of the opposite ideology. There is also some evidence of asymmetry across the political spectrum in Eastern Europe, with respondents on the political right reporting much higher levels of satisfaction with right-wing governments compared to voters on the left under a left-wing government.

Conclusion

Over the past decade, there has been increasing concern over democratic backsliding in some of the Eastern European countries that are members of the EU. This is reflected in commonly used democracy indices whose country experts note the worrying trends in countries’ institutions – such as the reduction of freedom of expression, the strengthening of rule of law and constraints on the executive, all hallmarks of a liberal democracy. In this policy brief, we investigate whether this erosion of institutional safeguards affects people’s stated satisfaction with democracy in one’s respective country. We find a broad-based increase in satisfaction with democracy in the Eastern European EU countries, including in the countries that have seen some of the largest declines in liberal democracy ratings. We show that stated satisfaction with democracy reflects less the institutional changes in countries, but more the outcome of democratic elections. Voters who are politically aligned with their government are systematically more likely to report that they are satisfied with the state of democracy in their country. And this effect has become stronger in the most recent years, particularly in the Eastern European EU countries. We also find that this effect is not symmetric across the political spectrum. In the Eastern European EU countries, respondents on the political right are more satisfied with right-wing governments than those on the left are with left-wing governments.

The descriptive patterns outlined in this policy brief illustrate a worrying disconnect in the minds of many voters between institutions and outcomes of the democratic process. The threat of democratic backsliding in Europe and across the globe is predominantly not due to electoral democracies being replaced by autocratic regimes. Rather, genuinely popular (and often populist) governments are democratically elected and, once in power, proceed to undermine and dismantle liberal democratic institutions, such as a free press, an independent judiciary, and a fair electoral system. This process in turn makes it more difficult for opposition parties to win future elections, further cementing the power of the rulers of these illiberal democracies. While the electorate might support these governments now, voters need to be aware that these liberal institutions are designed to safeguard their democratic future.

References

  • Anderson, C. J. and Guillory, C. A. (1997). Political institutions and satisfaction with democracy: A cross-national analysis of consensus and majoritarian systems. American Political Science Review, 91(1), pp.66-81.
  • Becker, T. (2019). Liberal Democracy in Transition – The First 30 Years. FREE Policy Brief.
  • Chiopris, C., Nalepa, M. and Vanberg, G. (2021). A wolf in sheep’s clothing: Citizen uncertainty and democratic backsliding. Working Paper.
  • Döring, H., Huber, C. and Manow, P. (2022). ParlGov 2022 Release. Harvard Dataverse. https://doi.org/10.7910/DVN/UKILBE
  • Eurobarometer (multiple waves: 2002-2022), European Commission. Brussels
  • Ezrow, L. and Xezonakis, G. (2011). Citizen satisfaction with democracy and parties’ policy offerings. Comparative Political Studies, 44(9), pp.1152-1178.
  • Grillo, E. and Prato, C. (2023). Reference points and democratic backsliding. American Journal of Political Science, 67(1), pp.71-88.
  • Little, A. and Meng, A. (2023). Subjective and Objective Measurement of Democratic Backsliding. Available at SSRN 4327307.
  • Lueders, H. and Lust, E. (2018). Multiple measurements, elusive agreement, and unstable outcomes in the study of regime change. The Journal of Politics, 80(2), pp.736-741.
  • Mechkova, V., Luhrmann, A. and Lindberg, S. I. (2017). How much democratic backsliding?. Journal of. Democracy, 28, pp.162-169.
  • Svolik, M. W. (2019). Polarization versus democracy. Journal of Democracy, 30(3), pp.20-32.
  • Treisman, D. (2023). How great is the current danger to democracy? assessing the risk with historical data. Comparative Political Studies, https://doi.org/10.1177/00104140231168363.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Environmental Enforcement in the EU: Insights from Administrative Cases in the US

Posted on May 23, 2023 | Policy Brief

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In March 2023, the European Parliament’s legal affairs committee voted unanimously in favor of a proposed update to the EU Directive on environmental crimes (Directive 2008/99/EC). The update seeks to step up enforcement of environmental legislation across Members States through criminal law aimed at severely punishing very serious environmental offenses. We argue that, while laudable in its goal of strengthening enforcement of environmental regulation at the EU level, the current effort might be insufficient since moderately serious offenses might remain largely unpunished. To address this shortcoming, we propose harmonizing administrative law as well. We consider additional benefits from relying on administrative law in terms of flexibility of punishment design, based on the US experience of using environmentally beneficial projects performed in affected areas as a form of punishment in administrative environmental settlements. We discuss evidence on the merits and potential limitations of the US approach based on Campa and Muehlenbachs (2022) and conclude that such an approach is worth considering in the EU context.

While the EU has set aggressive pollution reduction targets across its Member States (European Commission, 2021a), for example pledging to reduce deaths due to particulate matters to 55 percent of 2005 levels by 2030 (European Commission, 2023a), much work remains to be done. As documented in Lehne (2021), in 2020 all countries in Europe reported PM2.5 concentrations above the World Health Organization (WHO) guideline of 5mg/m3. Six countries, including three EU Member States (Italy, Croatia, and Poland) reported levels above the EU’s annual limit value of 25mg/m3. Further, Bulgaria, Poland, Portugal, Croatia, and Romania did not meet national targets for PM2.5 reduction (European Environment Agency, 2023). Main contributors to PM2.5 pollution are transportation and industrial activity, including energy production. High concentrations of these particles are known to increase physical and mental health risks (Persico, 2022; Persico et al., 2016), and risk of premature deaths (Fuller et al., 2022).

Environmental concerns across EU Member States are also not limited to air pollution. Across the EU, 28 percent of groundwater sources are affected by pollution from agriculture, 14 percent from industrial contamination, and 7.5 percent from mining waste (Kampa et al., 2021). The persistent pollution problems in the EU and their unequal distribution across regions despite growing EU-level environmental legislation underscores the importance of law enforcement. While all EU Member States are theoretically subject to the same overarching environmental standards and regulations, the enforcement of environmental laws differs widely across countries. To address this issue, the EU Commission (henceforth EC) has recently taken steps to further harmonize environmental enforcement across EU Member States.

In this brief we consider the EC’s proposal and argue that, while commendable in the goal of strengthening enforcement of environmental regulation at the EU level, it is also quite limited in terms of enforcement tools that it considers. Specifically, we discuss potential advantages of leveraging administrative law tools to enforce environmental regulation, whereas the EC approach is currently focused on criminal law. We consider the higher probability of prosecution and the enhanced flexibility in the type of penalties allowed by administrative enforcement actions. Finally, we discuss results from Campa and Muehlenbachs (2022), which studies the use of administrative penalties for environmental violations in the US and draws some lessons for environmental enforcement in other jurisdictions.

Strengthening Environmental Enforcement at the EU Level

While environmental regulation is a shared competence of the EU, enforcement has historically been left to national environmental authorities (European Parliament, 2016). In the face of a lack of institutional capacity at the national level, a result of this arrangement are generally low levels of environmental enforcement, widely heterogeneous across Member States (Mazur, 2011). EU institutions have tried unsuccessfully over time to address this challenge and harmonize enforcement across EU Member States. An early attempt was made in 2001, when the EU put in place minimum standards for environmental inspections that Member States carry out, though these were only non-binding guidelines, and Member States could not be sanctioned for flouting them (European Parliament, 2001). Mandatory standards were then introduced in 2008, with the EU Directive on environmental crimes (Directive 2008/99/EC), which forced national governments to apply criminal sanctions to those causing “substantial damage” to the environment. However, it has typically been difficult for the EC to sanction non-abiding Member States. Moreover, the obligation is limited to areas where the EU has competence and does not include minimum penalties.

In another attempt to step up their enforcement efforts, in 2016 the EC began publishing the annual Environmental Implementation Review, where each country is evaluated on its environmental affairs and enforcement (European Commission, 2023b). Although this does not improve the EC’s ability to efficiently sanction Member States, it does increase scrutiny and visibility. In 2021, the EC tabled a proposal to update the 2008 Directive on environmental crimes (European Commission, 2021b). The proposal acknowledged the insufficient number of environmental criminal cases successfully investigated and prosecuted as well as the large discrepancies in the transposition of the 2008 Directive across Member States. Against this background, the EC proposed to enlarge the scope of the 2008 Directive, establish minimum penalties, foster cross-border investigation and prosecution, and promote data collection and dissemination on criminal enforcement actions. In March 2023, the European Parliament’s legal affairs committee voted in support of the EC proposal, extending the list of offenses that would be criminally charged and increasing the size of the minimum penalties.

Environmental Enforcement, Administrative Law and “In-kind” Punishment

The efforts of EU institutions to improve and harmonize enforcement are exclusively focused on criminal law instruments. The EC’s 2021 proposal specifically links poor enforcement in Member States to their reliance on administrative law, which limits fines and thus allegedly reduces the deterrence value of enforcement actions. Indeed, sufficiently high fines are considered crucial to deter future violations (see, e.g., Aguzzoni et al., 2013). However, we argue that reliance on administrative law also has some advantages. In particular, we consider two potential benefits of administrative law based on existing studies, namely higher probability of case initiation and more flexibility in terms of penalty design.

Probability of Case Initiation

One of the shortcomings of the current enforcement framework highlighted by the EC is the very low number of environmental criminal cases that are ultimately prosecuted. Research on enforcement tends to link the low frequency of observed criminal cases to the high cost of criminal proceedings, especially relative to more informal administrative procedures (Faure and Svatikova, 2012). The cost dimension is especially relevant for cases that are moderately serious, but that nevertheless in aggregate contribute significantly to environmental degradation. The probability of catching violations is also relevant, together with the size of the penalty. A very large penalty for a criminal case that is highly unlikely to be prosecuted might be less deterring than a moderate penalty associated with very high probability of prosecution.

“In-kind” Penalties

Federal environmental regulations in the US are enforced through a combination of administrative and criminal law. The Environmental Protection Agency (EPA) initiates administrative cases or refers them to the Department of Justice when the gravity of the violation is large. Administrative cases result in settlements where the defendant can be ordered to pay a fine, which can vary from a few thousand to a few million dollars and which is determined according to various factors, such as the magnitude of environmental harm, the firm’s economic gain from violation, its violation history, and its ability to pay. Additionally, when a fine is established, defendants are given the opportunity to volunteer to pay for an environmentally beneficial project in the affected area. The EPA encourages these projects especially in areas subject to environmental justice concerns, namely those characterized by a large share of minority and low-income households.

Campa and Muehlenbachs (2022) study the implications of using these projects in environmental enforcement cases in the US. The study reveals a large preference among the public for this “in-kind” form of penalty versus traditional fines, based on a survey of US residents. Moreover, a randomized survey experiment reveals that these environmental projects elevate the profile of the firm among the public as compared to a firm that only pays a fine, even when the penalties stem from the same violation. Similarly, the stock-market response to the announcement of these projects is positive, whereas announcing a settlement with a large penalty causes a drop in the stock-market price of the defendant. In terms of implications for environmental justice, the data analysis shows that the whitest and richest communities are the most likely to receive these projects, but the second largest share goes to communities where there are highest concentrations of minorities and low-income households.

Overall, the study finds that punishing firms through environmental projects can be beneficial for political economy reasons, given the large preference for this enforcement tool among the public and likely among firms, since firms seem to benefit from undertaking the projects. Moreover, while the targeting of environmental justice communities in the US is not perfect, tweaking the US arrangement could guarantee that the projects predominantly benefit those communities most harmed by environmental violations.

For EU adoption of environmental projects enforcement, a caveat is that the perception of these projects might be different among the public in the EU. Nonetheless, large-scale surveys modelled on those presented in Campa and Muehlenbachs (2022) can help in understanding public views in different regions. Moreover, the paper emphasizes that on the one hand, by benefiting defendants, the environmental projects might ultimately be a more lenient punishment than fines, with implications for deterrence and future environmental quality. On the other hand, environmental quality might also improve as a direct effect of the projects being implemented and due to improved monitoring in affected communities (Dimitri et al., 2006). Overall, the study finds that future environmental quality might be more likely to improve following fines rather than environmental projects. However, it cautions the reader on data limitations that causes the result to not be conclusive enough and calls for further research.

Conclusion

The persistence of environmental problems in the EU, as well as the striking differences in pollution levels across EU Member States, underscores the need for more and better environmental regulation. However, even in the presence of comprehensive and strict environmental rules, the protection of the environment is still inadequate if a proper enforcement mechanism is not in place. As observed in OECD (2009), proper enforcement ensures deterrence. Successful deterrence provides the best protection for the environment, while reducing the resources necessary to administer laws by addressing non-compliance before it occurs. EU institutions have recently taken important steps to improve and further harmonize enforcement of environmental regulation across Member States, with proposed updates to the existing Directive on the matter scheduled for Member-State discussion in upcoming months.

Specifically, the EU is seeking to step up the use of criminal law to prosecute environmental offenses across Member States, with mandatory penalties and increased cross-border coordination. We argue that the focus on criminal law has some drawbacks, which could be addressed by also harmonizing administrative enforcement across EU Member States. Researchers have previously argued that reliance on administrative law might increase the likelihood that offenses are investigated and prosecuted. We also present evidence from the use of administrative law in the US, where defendants in environmental cases can settle to pay part of their penalty “in-kind”, i.e. by performing environmental projects in areas affected by the alleged violations. The evidence suggests that the use of these projects is worth considering in other jurisdictions, including the EU, because they might be preferred by the public and could help addressing environmental justice concerns. An important caveat is that their implications for environmental protection are not clear, and more research should address this important aspect. On the subject, the existing evidence on environmental enforcement in the US, such as that presented in Campa and Muehlenbachs (2022), is established thanks to the availability of rich data sources kept by the US’ EPA. The EC’s recent proposal to systematically collect and disseminate data on environmental crimes is thus particularly welcome and should not be overlooked in the upcoming negotiations with Member States on the final content of the proposed Directive.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Exploring the Impact from the Russian Gas Squeeze on the EU’s Greenhouse Gas Reduction Efforts

Posted on March 14, 2023 | Policy Brief

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Throughout 2022, the reduction in Russian gas imports to the EU and the resilience of European energy markets have been subject of significant public discourse and policy-making. Of particular concern has been the EU’s ability to maintain its environmental goals, as substitution from Russian pipeline gas to liquified natural gas and other fuels such as coal, could result in increased emissions. This brief aims to reevaluate the consequences from the loss of Russian gas and the EU’s response to it on greenhouse gas emissions in the region. Our analysis suggests that the energy crisis did not result in a rise in emissions in 2022. While some of the factors that contributed to this outcome – such as a mild winter – may have been coincidental, the adjustments caused by the 2022 gas squeeze are likely to support rather than jeopardize the EU’s green transition.

Energy markets in Europe experienced a tumultuous 2022, with the Russian squeeze on natural gas exported to the region bringing a major shock to its energy supply. Much attention has been devoted to the effects of the succeeding spiking and highly fluctuating energy prices on households’ budget and on the production sector, with numerous policy initiatives aimed at mitigating these effects (see, e.g.,  Reuters or Sgaravatti et al., 2021). Another widely discussed concern has revolved the consequences of the gas crisis – such as switching to coal – on the EU’s climate policy objectives (see e.g. Bloomberg or Financial Times). In this brief, we analyze and discuss to what extent this concern turned out to be valid, now that 2022 has come to an end.

We consider greenhouse gas (GHG) emissions stemming from the main strategies that allowed the EU to weather the gas crisis throughout 2022 – namely the substitution from Russian gas to other energy sources. These strategies include increased imports of liquified natural gas (LNG), a lower gas demand, and an increased reliance on coal, oil, and other energy sources. We also discuss the implications of the crisis for climate mitigation in the EU and try to draw lessons for the future.

Substitution to LNG and Pipeline Gas from Other Suppliers

Prior to 2022, Russian natural gas largely reached Europe by pipeline (92.4 percent in 2021 according to Eurostat). More than half of these pipeline imports, 86 billion cubic meters (bcm), were lost during the 2022 Russian gas supply squeeze, predominantly through the shut-down of both the Yamal and the Nordstream pipelines. 57 percent of this “missing” supply was met through an increase in LNG imports from several countries, the largest contributor being the U.S. Another 27 percent of the “missing Russian gas” was substituted by an increase in pipeline gas imports from other suppliers, with the UK (20 percent) and Norway (7 percent) taking the lead.  A substantial part of the replaced gas was stored, rather than combusted. With this in mind, here we concentrate on the upstream emissions associated with this change – i.e., emissions that occurred during the extraction, processing, and transportation. The change in the combustion emissions is postponed to the next section.

There is an ongoing debate in the literature on whether the greenhouse gas pollution intensity of LNG is higher or lower than that of gas delivered through pipelines – prior to final use. In comparison to pipeline gas, LNG is associated with emissions resulting from energy-intensive liquefaction and regassification processes in upstream operations as well as with fuel combustion from transportation on ocean tankers. For both LNG and pipeline gas it is also crucial to consider fugitive methane emissions, as methane has up to 87 times greater global warming potential than carbon dioxide in the first 20 years after emission, and up to 36 times greater in the first 100 years. One source of methane emissions is leaks from the natural gas industry (both “intentional” and accidental) since methane is the primary component of natural gas. Both LNG and pipeline gas infrastructure are subject to such leaks, and the size and frequency of these leaks during transportation varies greatly depending on the technologies used, age of infrastructure, etc. Further, the risk of these leaks may also be different depending on the technology of gas extraction.

Currently there is limited knowledge about the size of greenhouse gas emissions, including methane emissions resulting from leaks, from specific gas projects. Until recently, most estimates were based partially on self-reported data and partially on “emission factors” data. Modern and more reliable methods, for instance satellite-based measures for methane emissions, suggest that the resulting figures are greatly underestimated (see, e.g., Stern, 2022; IEA; ESA) but the coverage of these new estimates is currently limited.

As a result, there is considerable disagreement in the literature on the emissions arising from Russian pipeline gas imports vs. LNG imports to the EU. For example, Rystad (2022) argues that the average LNG imports to Europe have a CO2 emission intensity that is more than 2.5 times higher than that from pipeline gas from Russia (although they do not explicitly state whether these figures include fugitive methane emissions). On the contrary, Roman-White et al. (2019) suggest that the life-cycle GHG emission intensity of EU LNG imports (from New Orleans) is lower than EU gas imports from Russia (via the Yamal pipeline).

For the purposes of this exercise, we choose to rely on middle-ground estimates by DBI and Sphera, which assess GHG emission intensity along different Russian gas import routes (DBI, 2016) and across different LNG suppliers to the EU (Thinkstep –  Sphera, 2020). This allows us to account for substantial heterogeneity across routes.

We also account for the change in upstream emissions associated with the switch from imports of pipeline Russian gas to pipeline gas imports from Norway and the UK. For this, we approximate the GHG emission intensity of the new flows using the estimate suggested by Thinkstep –  Sphera (2017).

The results of our assessment are presented in the top three rows of Table 1. They suggest that a substitution from Russian gas imports to LNG imports and pipeline imports from other sources resulted in an increase in upstream GHG emissions by approximately 14 million tons (Mt) of CO2eq. Details on calculations and assumptions are found in the online Appendix.

Table 1. Change in EU GHG emissions resulting from Russian gas squeeze.

Source: Authors’ own calculations based on DBI (2016), McWilliams et al. (2023), Sphera (2017; 2020), and IEA (2022). See the online Appendix for more details on assumptions, calculations, and sources. Note: Billion cubic meters (bcm) and terawatt-hours (TWh).

The Decline in Gas Demand and the Switch to Other Fuels

A decrease in gas use in the EU constituted another response to the Russian gas squeeze. Gas demand in the EU is estimated to have declined by 10 percent (50 bcm or 500 TWh) in 2022 with respect to 2021 (IEA, 2022). Part of this decline was facilitated by switching from gas to other polluting fuels, such as oil and coal. The extent to which switching occurred however differed across the three main uses of gas; power generation, industrial production, and residential and commercial use. Below we discuss them separately.

Power Generation

At the onset of the 2022 energy crisis, a prevalent expectation was that there would be significant gas-to-coal switching in power generation. However, gas demand for power generation, which accounts for 31.4 percent of the gas demand from EU countries (European Council), increased by only 0.8 percent in 2022 (EMBER, 2022, p.29), implying that there was no direct substitution from gas-fired to coal-fired generation.

One of the reasons to why there was no major switching to coal in spite of the increase in gas prices is that CO2 emissions are priced in the Emissions Trading System (ETS) program, and the average carbon price has been growing recently, reaching an average of around €80/ton in 2022.  Given that coal has a higher emission intensity than gas, the carbon price increases the relative cost of coal versus gas for power generators.

Instead, the decline in demand came from industry, residential and commercial use, which together account for nearly 57 percent of the EU’s gas demand (European Council).

Industry Use

For the industry, IEA calculations (2022) suggest a demand drop of 25 bcm, which would correspond to approximately 50 Mt CO2eq. However, half of the industrial gas reduction came from gas to oil switching. Based on our estimates, this switch implies an additional 41 Mt CO2eq emissions, considering both upstream emissions and emissions from use in furnaces (assuming this to be the prevalent use of the oil that substituted gas, see McWilliams et al., 2023). The remaining half of the industrial demand decline resulted from energy-efficiency improvements, lower output, and import of gas-intensive inputs where possible (ibid.). These changes are either neutral in terms of life-cycle emission impact (import increases) or emission-reducing (efficiency improvements and lower output).

Residential and Commercial Use

Residential and commercial use represented the remaining part of the 500 TWh gas demand decline. In this case, lower gas demand is unlikely to imply massive fuel switching to other fossil fuels, simply because of the lack of short-term alternatives. For example, European households use gas mostly for space heating and cooking, and albeit both higher use of coal for home-heating (BBC) and a surge in installations of heat pumps (Bruegel, 2023 and EMBER, 2023) have been reported, the net change in emissions resulting from these two opposite developments is likely relatively minor as compared to other considered sizeable changes.

The Rise of Coal

As observed, there was no direct switch from gas to coal in European power generation. However, coal generation in the EU did increase by 6 percent in 2023 (IEA, 2022), to help close the gap in electricity supply created by the temporary shut-down of nuclear plants in France and the reduced performance of hydro. In our calculations we assume that in a counterfactual world with no Russian gas squeeze, gas-fired electricity would have covered most of the gap that was instead covered by coal. Therefore, we estimate that, as an indirect result of the Russian gas squeeze in 2022, CO2eq emissions increased by 27 Mt, specifically because of the ramp-up in coal generation (see the second section in Table 1).

Gas Shortage and the EU’s Climate Objectives

In recent years, the EU has made substantial progress in climate change mitigation. Despite widely expressed concerns, it achieved its 2020 targets – reducing emission by 20 percent by 2020, from the 1990 level. However, its current target of a 55 percent net GHG emission reduction by 2030, requires average yearly cuts of 134 Mt CO2eq, from the 2021 level. This is an ambitious target: while the emission cut between 2018 and 2019 exceeded this level, the average yearly cut between 2018 and 2021 however fell short (Eurostat).

The question is if the Russian gas squeeze can significantly undermine the EU’s ability to achieve these climate goals?

First, based on our assessment above, the changes prompted by the Russian squeeze – namely a move from pipeline-gas to LNG, a decline in gas demand and an increase in coal and oil use – made 2022 emissions decline by 18 Mt CO2eq. This suggests that the energy shock prompted overall emission-reducing adjustments in the short run. One important question that arises from this is therefore how permanent these adjustments are.

The increased reliance on LNG (and other gas suppliers) is likely to be permanent as a return to imports from Russia is hardly imaginable and as the 2022 surge in LNG imports entailed significant investments and contractual obligations. According to our estimates, overall, this shift is going to cause a relatively modest increase in yearly CO2eq emissions, approximately 10 percent of the needed emission reduction outlined above. Moreover, this is accounting for emissions throughout the EU’s entire supply chain – which is increasingly advocated for, but not currently applied in the typical emission accounting. It is, of course, important to make sure that ongoing LNG investments do not result in “carbon lock-ins”, postponing the green transition.

The decline in gas demand is a welcome development for climate mitigation if it is permanent. Part of the decline, from improved energy efficiency or installation of heat pumps, is indeed permanent. However, European households also responded temporarily (to warmer than usual winter and high gas prices (for instance by reducing their thermostats). Their behavior in the near future will therefore depend on the development of both these variables.

Overall, our assessment is that the Russian gas squeeze did force some adjustments in demand that might translate into a permanent decline in greenhouse gas emissions.

The question however remains of how the shortage of gas can be met in a scenario with higher gas demand due to, for instance, colder winters. In terms of climate objectives, it is of paramount importance that coal-powered generation does not increase (which would happen if, for instance, the price of gas continues to raise due to shortages). In this sense some lessons can be learned from the response to the shortage in electricity supply following the exceptional under-performance of nuclear and hydro in 2022. Wind and solar, which provide the lowest-cost source of new electricity production, in combination with declines in electricity demand, were able to cover 5/6 of the 2022 shortage created by the nuclear and hydro shock (EMBER, 2023), thus relegating coal to a residual contribution. We expect this pattern to emerge also in the future in the presence of other crises. However, we also caution that the lower production of electricity was at least partially caused by the dramatic heatwaves and droughts experienced throughout the summer in Europe. These events are likely to happen more often in the face of climate change. European policy-makers should therefore carefully assess the capacity of the EU energy system to address potentially multiple and frequent shocks with minimal to no-reliance on coal, in a scenario where also reliance on gas needs to be in constant decline given the Russian gas squeeze and unreliability.

Finally, the dramatic circumstances of 2022 led the EU to adopt the REPowerEU plan, which outlines financial and legal measures to, among other things, speed up the development of renewable energy projects and induce energy-saving behavior.

The outlined observations lead us to conclude that the Russian gas squeeze is ultimately unlikely to sizably reduce the chances of the EU reaching its climate goals, suggesting that the 2022 concerns in this regard were somewhat exaggerated. Nonetheless, learning from the costly lessons of the 2022 energy crisis is crucial for efficient policy making in the future.

References

Online Appendix

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

What More Besides Weapons Does Ukraine Need to Survive as a Nation?

Posted on February 24, 2023 | Videos

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As of today, Russia’s aggression against Ukraine has persisted for a year. While several countries have helped Ukraine with military, financial and humanitarian aid, Ukraine requires additional assistance to endure the conflict with Russia. What other forms of support and aid are needed for Ukraine’s survival? And how can the EU and Sweden support Ukraine’s victory?

The Royal Swedish Academy of Engineering Sciences (IVA) hosted a seminar in which Ukraine’s needs were discussed from an economic and political science perspective by several leading economists, including:

  • Nataliia Shapoval, Director of the KSE Institute at the Kyiv School of Economics (KSE)
  • Torbjörn Becker, IVA member and Director of the Stockholm Institute of Transition Economics at the Stockholm School of Economics (SITE)
  • Fredrik Löjdquist, Director of the Centre for Eastern European Studies (SCEEUS)
  • Maria Perrotta Berlin, Assistant Professor at the Stockholm Institute of Transition Economics.

Nataliia Shapoval, Chairman of the KSE Institute at the Kyiv School of Economics, joined the seminar from Kyiv to share her views. According to Shapoval,

“Tougher sanctions across the board, hefty sanctions on energy, additional sanctions on trade, and more control over financial transactions with Russia are required by the outside world right now.”

As Russia’s war of aggression against Ukraine has lasted for a year, seminar experts advocated for tougher sanctions against Russia and discussed Ukraine’s needs from an economic and political science perspective.

About IVA

The Royal Swedish Academy of Engineering Sciences (IVA) is an independent academy with a mission “…to promote engineering and economic sciences and the advancement of business and industry for the benefit of society.” Read more: IVA website 

Disclaimer: Opinions expressed during events and conferences are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

How to Sustain Support for Ukraine and Overcome Financial and Political Challenges | SITE Development Day 2022

Posted on January 9, 2023 | Policy Brief

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The Russian war on Ukraine has turmoiled Europe into its first war in decades and while the effects of the war are harshly felt in Ukraine with lives lost and damages amounting, Europe and the rest of the world are also being severely affected. This policy brief shortly summarizes the presentations and discussions at the SITE Development Day Conference, held on December 6, 2022. The main focus of the conference was how to maintain and organize support for Ukraine in the short and long run, with the current situation in Belarus and the region and the ongoing energy crisis in Europe, also being addressed. 

War in Ukraine, Oppression in Belarus

Starting off the conference, Sviatlana Tsikhanouskaya, Leader of the Belarusian Democratic Forces, delivered a powerful speech on the necessity of understanding the role of Belarus in the ongoing war in Ukraine. Tsikhanouskaya argued that Putin’s war on Ukraine was partly a result of the failed Belarusian revolution of 2020. The following oppression, torture, and mass arrestations of Belarusians is a consequence of Lukashenka’s and Putin’s fear of a free Belarus, a Belarus that is no longer in the hands of Putin – who sees not only Belarus but also Ukraine as colonies in his Russian empire. Amidst the fight for Ukraine, we must also fight for a free Belarus, Tsikhanouskaya added. Not only Belarusians fighting alongside Ukrainians against Russia in Ukraine, but also other parts of the Belarusian opposition need support from the free and democratic world and the EU. The massive crackdowns on opponents of the Belarusian regime today and the war on Ukraine are not only acts of violence, but they are also acts against democracy and freedom. The world must therefore continue to give support to those fighting in both Belarus and Ukraine. Ukraine will never be free unless Belarus is free, Tsikhanouskaya concluded.

Johan Forssell, Minister of Foreign Trade and International Development Cooperation continued Tsikhanouskaya’s words on how the Russian attack must be seen and treated as a war on democracy and the free world. Belarus, Moldova and especially Ukraine will receive further support from Sweden, Forssell continued, adding that the Swedish support to Ukraine has more than doubled since the invasion in February 2022. Support must however not be given only in economic terms and consequently Sweden fully supports Ukraine on its path to EU-membership, which will be especially emphasized during Sweden’s upcoming EU-presidency.  Support for the rule of law, democracy and freedom will continue to be essential and, in the forthcoming reconstruction of Ukraine, these aspects – alongside long term sustainable and green solutions – must be integrated, Forssell continued. Forssell also mentioned the importance of reducing the global spillover effects from the war. In particular, Forssell mentioned how the war has struck countries on the African continent, already hit with drought, especially hard with increased food prices and increased inflation, displaying the vital role Ukrainian grain exports play.

Andrij Plachotnjuk, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Kingdom of Sweden, further talked about the need for rebuilding a better Ukraine, emphasizing the importance of involvement from Kiyv School of Economics (KSE) and other intellectuals and businesses in this process. Plachotnjuk also pinpointed what many others would come to repeat during the day; that resources, time and efforts devoted to supporting Ukraine must be maintained and persevered in the longer perspective.

Economic Impacts From the War and How the EU and Sweden Can Provide Support

During the first half of the conference, the Ukrainian economy and how it can be supported by the European Union was also discussed. On link from Kiyv, Tymofiy Mylovanov, President of the Kyiv School of Economics, shared the experiences of the University during wartime and presented the work KSE has undertaken so far – and how this contributes to an understanding of the damages and associated costs. Since the invasion, KSE has supported the government in three key areas; 1) Monitoring the Russian economy, 2) Analyzing what sanctions are relevant and effective, and 3) Estimating the cost of damages from the war. For the latter, KSE is collaborating with the World Bank using established methods of damage assessment including crowd sourced information on damages complemented with images taken by satellites and drones. According to Mylovanov, the damage assessment is crucial in order to counter Russia’s claims of a small conflict and to remind the international community of the high price Ukraine is paying to hold off Russia.

The economic impact from the war was further accentuated during the presentation by Yulia Markuts, Head of the Centre of Public Finance and Governance Analysis at the Kyiv School of Economics. Markuts explained how the Ukrainian national budget as of today is a “wartime budget”. Since February 2022, the budget has been reoriented with defense and security spending having increased 9 times compared to 2021, whereas only the most pressing social expenditures have been implemented. This in a situation where the Ukrainian GDP has simultaneously decreased by 30 percent. Although there has been a substantial inflow of foreign aid, in the form of grants and loans, the Ukrainian budget deficit for 2023 is estimated to 21 percent. Part of the uncertainty surrounding the Ukrainian budget stems from the fact that the inflow from the donor community is irregular, prompting the government to cover budget deficits through the National Bank which fuels inflation and undermines the exchange rate. Apart from the large budget posts concerning military spending, major infrastructural damages are putting further pressure on the Ukrainian budget in the year to come, Markuts continued. As of November 2022, the damages caused by Russia to infrastructure in Ukraine amounted to 135,9 billion US Dollars, with the largest damages having occurred in the Kiyv and Donetsk regions, as depicted in Figure 1.

Figure 1. Ukrainian regions most affected by war damages, as of November 2022.

Source: Kiyv School of Economics

The infrastructural damages constitute a large part of the estimated needed recovery support for Ukraine, together with losses to the state and businesses amounting to over one trillion US Dollars. However, such estimates do not cover the suffering the Ukrainian people have encountered from the war.

The large need for steady support was discussed by Fredrik Löjdquist, Centre Director of the Stockholm Centre for Eastern European Studies (SCEEUS), who argued the money needs to be seen as an investment rather than a cost, and that we at all times need to keep in mind what the consequences would be if the support for Ukraine were to fizzle out. Löjdquist, together with Cecilia Thorfinn, Team leader of the Communications Unit at the Representation of the European Commission in Sweden, also emphasized how the reconstruction should be tailored to fit the standards within the European Union, given Ukraine’s candidacy status. Thorfinn further stressed that the reconstruction must be a collective effort from the international community, although led by Ukraine. The EU is today to a large extent providing their financial support to Ukraine through the European Investment Bank (EIB). Jean-Erik de Zagon, Head of the Representation to Ukraine at the EIB, briefly presented their efforts thus far in Ukraine, efforts that have mainly been aimed at rebuilding key infrastructure. Since the war, the EIB has deployed an emergency package of 668 million Euro and 1,59 billion for the infrastructure financing gap. While all member states need to come together to ensure continued support for Ukraine, the EIB is ready to continue playing a key role in the rebuilding of Ukraine and to provide technical assistance in the upcoming reconstruction, de Zagon said. This can be especially fruitful as the EIB already has ample knowledge on how to carry out projects in Ukraine.

During a panel discussion on how Swedish support has, can and should continuously be deployed, Jan Ruth, Deputy Head of the Unit for Europe and Latin America at Sida, explained Sida’s engagement in Ukraine and the agency’s ambition to implement a solid waste management project. The project, in line with the need for a green and environmentally friendly rebuild, is today especially urgent given the massive destructions to Ukrainian buildings which has generated large amounts of construction waste. Karin Kronhöffer, Director of Strategy and Communication at Swedfund, also accentuated the need for sustainability in the rebuild. Swedfund invests within the three sectors of energy and climate, financial inclusion, and sustainable enterprises, and hash previously invested within the energy sector in Ukraine. Swedfund is also currently engaged in a pre-feasibility study in Ukraine which would allow for a national emergency response mechanism. Representing the business side, Andreas Flodström, CEO and founder of Beetroot, shared some experiences from founding and operating a tech company in Ukraine for the last 10 years. According to Flodström there will, apart from a huge need in investments in infrastructure, also be a large need for technical skills in the rebuild. Keeping this in mind, bootcamp style educations are a necessity as they provide Ukrainians with essential skills to rebuild their country.

A recurring theme in both panel discussions was how the reconstruction requires both public and private foreign investments. Early on, as the war continues, public investments will play the dominant part, but when the situation becomes more stable, initiatives to encourage private investments will be important. The potential of using public resources to facilitate private investments through credit guarantees and other risk mitigation strategies was brought up both at the European and the Swedish level, something which has also been emphasized by the new Swedish government.

Impacts From the War Outside of Ukraine – Energy Crisis and Other Consequences in the Region

The conference also covered the effects of the war outside of Ukraine, initially keying in on the consequences from the war on energy supply and prices in Europe. Chloé Le Coq, Professor of Economics, University Paris-Pantheon-Assas (CRED) & SITE, gave a presentation of the current situation and the short- and long-term implications. Le Coq explained that while the energy market is in fact functioning – displaying price increases in times of scarcity – the high prices might lead to some consumers being unable to pay while some energy producers are making unprecedented profits. The EU has successfully undertaken measures such as filling its gas storage to about 95 percent (goal of 80 percent), reducing electricity usage in its member countries, and by capping market revenues and introducing a windfall tax. While the EU is thus appearing to fare well in the short run, the reality is that EU has increased its coal dependency and paid eight times more in 2022 to fill its gas storage (primarily due to the imports of more costly Liquified Natural Gas, LNG). In the long run, these trends are concerning given the negative environmental externalities from coal usage and the market uncertainty when it comes to the accessibility and pricing of LNG. Uncertainties and new regulation also hinder investments signals into new low-carbon technologies, Le Coq concluded. Bringing an industrial perspective to the topic, Pär Hermerèn, Senior advisor at Jernkontoret, highlighted how the energy crisis is amplified by the increased electricity demand due to the green transition. Given the double or triple upcoming demand for electricity, Hermerèn, referred back to the investment signals, saying Sweden might run the risk of losing market shares or even seeing investment opportunities leave Sweden. This aspect was also highlighted by Lars Andersson, Senior advisor at Swedenergy, who, like Hermerèn, also saw the Swedish government’s shift towards nuclear energy solutions. Andersson stated the short-term solution, from a Swedish perspective, to be investments into wind power, urging policy makers to be clear on their intentions in the wind power market.

Other major impacts from the war relate to migration, a deteriorating Belarusian economy and security concerns in Georgia. Regarding the latter, Yaroslava Babych, Lead economist at ISET Policy Institute, Georgia, shared the major developments in Georgia post the invasion. While the Georgian economic growth is very strong at 12 percent, it is mainly driven by the influx of Russian money following the migration of about 80 000 Russians to Georgia. This has led to a surge in living costs and an appreciation of the local currency (the Lari) of 12,6 percent which may negatively affect Georgian exports. Additionally, it may trigger tensions given the recent history between the countries and the generally negative attitudes towards Russians in Georgia. Michal Myck, Director at CenEa, Poland, also presented migration as a key challenge. While the in- and outflow of Ukrainian refugees to Poland is today balanced, the majority of those seeking refuge in Poland are women and children and typically not included in the workforce. To ensure successful integration and to avoid massive human capital losses for Ukraine, Myck argued education is key, pointing to the lower school enrollment rates among refugee children living closer to the Ukrainian border. Apart from the challenges posed by the large influx of Ukrainian in the last year, the Polish economy is also hit by high energy prices, fuel shortages and increasing inflation. Lev Lvovskiy, Research fellow at BEROC, Belarus, painted a similar but grimmer picture of the current economic situation in Belarus. Following the invasion, all trade with Ukraine has been cut off, while trade with Russia has increased. Belarus is facing sanctions not only following the war, but also from 2020, and the country is in recession with GDP levels dropping every month since the invasion. Given the political and economic situation, the IT sector has shrunk, companies oriented towards the EU has left the country and real salaries have decreased by 5 percent. At the same time, the policy response is to introduce price controls and press banknotes.

Consequences of War: An Academic Perspective

The later part of the afternoon was kicked off by a brief overview of the FREE Network’s research initiatives on the links between war and certain development indicators. Pamela Campa, Associate Professor at SITE, presented current knowledge on the connection between war and gender, with a focus on gender-based violence. Sexual violence is highly prevalent in armed conflict and has been reported from both sides in the Donetsk and Luhansk regions since 2014 and during the ongoing war, with nearly only Russian soldiers as perpetrators. Apart from the direct threats of sexual violence during ongoing conflict and fleeing women and children risking falling victims to trafficking, intimate partner violence (IPV) has been found to increase post conflict, following increased levels of trauma and post-traumatic stress disorder (PTSD). While Ukrainian policy reforms have so far strengthened the response to domestic violence there is still a need for more effective criminalization of domestic violence, as the current limit for prosecution is 6 months from the date crime is committed. An effective transitional justice system and expertise on how to support victims of sexual violence in conflict, alongside economic safety measures undertaken to support women and children fleeing, are key policy concepts Campa argued. Coming back to the broader topic of gender and war, Campa highlighted the need for involvement of women in peace talks and negotiations, something research suggests matter for both equality, representativeness, and efficiency.

Providing insights into the relationship between the environment and war, Julius Andersson, Assistant Professor at SITE, initially summarized how climate change may cause conflict along four channels: political instability and crime rates increasing as a consequence of higher temperatures, scarcity of natural resources and environmental migration. Conflict might however also cause environmental degradation in the form of loss of biodiversity, pollution and making land uninhabitable. As for the negative impact from the war in Ukraine, Andersson highlighted how fires from the war has caused deforestation affecting the ecosystems, that rivers in conflict struck areas in Ukraine and the Sea of Azov are being polluted from wrecked industries (including the Azovstal steelworks) and lastly that there is a real threat of radiation given the four major nuclear plants in Ukraine being targeted by Russian forces. Coming back to a topic mentioned earlier during the day, Andersson also emphasized potential conflict spillovers into other parts of the world due to the war’s impact on food and fertilizer prices.

Concluding the session, Jonathan Lehne, Assistant Professor at SITE, reviewed how war and democracy is tied to one another, highlighting that while studies have found that democracies per se are not necessarily less conflict prone, it is still the case that democratic countries almost never fight each other. As for the microlevel takeaways from previous research, it appears as if individuals and communities having experienced violence and casualties actually reap a democratic dividend in some respects, such as greater voting participation. On the other hand, while areas with a large refugee influx also experience an increased voter turnout, voting for right-wing parties also increase with politicians exploiting this in their communication.

Book Launch – Reconstruction of Ukraine: Principles and Policies

The Development Day was also guested by Ilona Sologoub, Scientific Editor at VoxUkraine, Tatyana Deryugina, Associate Professor of Finance at the University of Illinois at Urbana-Champaign, and Torbjörn Becker, Director of SITE, who presented their newly released book “Reconstruction of Ukraine: Principles and policies”. Sologoub started off by giving an overview of the mainly economic topics covered in the book and pointing out that the main purpose of the book is to inform policy makers about the present situation and to suggest needed reforms and investments. Becker outlined the four key principles recommended to stem corruption during reconstruction; 1) Remove opportunities for corruption and rent extraction, 2) Focus on transparency and monitoring of the whole reconstruction effort, 3) Make information and education an integral part of the anti-corruption effort, and 4) Set up legal institutions that are trusted when corruption does occur. Deryugina focused on the energy sector and related back to what had previously been discussed throughout the day, the need to “build-back-better”. Deryugina mentioned that Ukraine, previously heavily reliant on coal and gas imports from Russia, now have the opportunity to steer away from low energy efficiency and bottleneck issues, towards becoming a European natural gas hub. The book is available for free here. There will also be a book launch on the 11th of January 2023 at Handelshögskolan.

Concluding Remarks

Via link from Kiyv, Nataliia Shapoval, Head of KSE Institute and Vice President for Policy Research at Kyiv School of Economics closed the conference by emphasizing the urgency of continued education of Ukrainians in Ukraine and elsewhere to avoid loss of Ukrainian human capital. Shapoval also stressed how universities can act as thinktanks, support policy makers in Ukraine and Europe to come up with effective sanctions against Russia and provide a deeper understanding of the current situation – a situation which will linger and in which Ukraine needs continued full support.

This year’s SITE Development Day conference gave an opportunity to discuss the need for continued support for Ukraine and the implications from the war in a global, European, and Swedish perspective. Representatives from the political, public, private and academic sectors contributed with their insights into the challenges and possibilities at hand, providing greater understanding of how the support can be sustained, with the goal of a soon end to the war and a successful rebuild of Ukraine.

List of Participants in Order of Appearance

  • Anders Olofsgård, Deputy Director at SITE
  • Sviatlana Tsikhanouskaya, Leader of the Belarusian Democratic Forces
  • Johan Forssell, Minister of Foreign Trade and International Development Cooperation
  • Andrij Plachotnjuk, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Kingdom of Sweden
  • Tymofiy Mylovanov, President of the Kyiv School of Economics (on link from Kyiv)
  • Yuliya Markuts, Head of the Centre of Public Finance and Governance Analysis, Kyiv School of Economics
  • Jean-Erik de Zagon, Head of the Representation to Ukraine at the European Investment Bank
  • Cecilia Thorfinn, Team leader of the Communications Unit at the Representation of the European Commission in Sweden
  • Fredrik Löjdquist, Centre Director of the Stockholm Centre for Eastern European Studies (SCEEUS)
  • Jan Ruth, Deputy Head of the Unit for Europe and Latin America at Sida
  • Karin Kronhöffer, Director of Strategy and Communication at Swedfund
  • Andreas Flodström, CEO and founder of Beetroot
  • Chloé Le Coq, Professor of Economics, University Paris-Pantheon-Assas (CRED) & SITE
  • Lars Andersson, Senior advisor at Swedenergy
  • Pär Hermerèn, Senior advisor at Jernkontoret
  • Ilona Sologoub, VoxUkraine scientific editor (on link)
  • Tatyana Deryugina, Associate Professor of Finance at the University of Illinois at Urbana-Champaign (on link)
  • Torbjörn Becker, Director at SITE
  • Michal Myck, Director at CenEa, Poland
  • Yaroslava Babych, Lead economist at ISET Policy Institute, Georgia
  • Lev Lvovskiy, Research fellow at BEROC, Belarus
  • Pamela Campa, Associate Professor at SITE
  • Julius Andersson, Assistant Professor at SITE
  • Jonathan Lehne, Assistant Professor at SITE
  • Nataliia Shapoval, Head of KSE Institute and Vice President for Policy Research at Kyiv School of Economics (on link)

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.