Ukraine makes hard pitch for green reconstruction cash

The destruction of the Soviet-era Kakhovka dam has shone a spotlight on the toll that Russia’s war in Ukraine has taken on the environment. The explosion earlier this month unleashed floods and a drinking water crisis, and could prevent tens of thousands of hectares of fertile land from being properly irrigated as temperatures soar this summer.

Aware of the pull environmental issues increasingly have on investors’ hearts and minds, Volodymyr Zelenskyy’s inner circle has decided to put the climate at the centre of Ukraine’s pitch for reconstruction investments. 

One of the Ukrainian president’s top aides, former steel executive Rostyslav Shurma, told me and my colleague Camilla Hodgson that the country planned to become a world-leader in low-carbon steel, produced using solar and wind energy.

This green-tinged approach to reconstruction would capitalise on some of the country’s bulletproof natural resources, including iron ore basins, as well as areas of high wind speeds and abundant sunshine.

The sums involved are ambitious. Ukraine would need $200bn of investment to become a world leader in low-carbon steel and renewable energy, Shurma told us, on top of the $14bn in funds for critical and priority reconstruction that the World Bank has estimated it would need this year alone.

Also today, Camilla scrutinises a much touted statistic on clean water shortfalls. (Kenza Bryan) 

Nato membership is best ‘risk insurance’ for green funding, says Zelenskyy adviser

With no end in sight for Ukraine’s existential conflict, and a major counteroffensive still nascent, asking for billions of dollars in reconstruction money might seem like pie-in-the-sky thinking.

But at a conference in London this week on the country’s postwar recovery, Ukraine will argue that the world must start building a serious strategy to deploy public and private sector reconstruction funds — with a major emphasis on green industry and infrastructure.

At the centre of the government’s vision is low-carbon steel production (see our recent Moral Money report from northern Sweden, or our latest film, for a lowdown on this nascent industry).

Even with missiles still flying, the country could rely on its rich network of iron ore mines to attract green investment opportunities, said Rostyslav Shurma, deputy chief of staff to Ukrainian president Volodymyr Zelenskyy. “This is a huge open pit . . . the only thing that can destroy this is the nuclear weapon,” he said, describing the mines.

Regaining Crimea would be a “big” but not “major” part of the plan to build low-carbon steel facilities — which would be powered by wind turbines and solar panels — close to the mines. The captured peninsula had no “substantial” iron-ore deposits and only one of the country’s six zones of high wind speed, he said. Solar energy potential was reasonably well distributed across the country.

To top off the commodity’s green credentials, Zelenskyy’s government is determined to move the steel using ships run on zero-carbon fuel and trains run on an increasingly electrified network. Repeated aerial attacks on Ukrainian infrastructure mean this could take some time.

Shurma claimed that half of the $14bn needed urgently for reconstruction this year had already been committed from sources inside Ukraine. And as the FT reports today, BlackRock and JPMorgan are already helping Ukraine set up a reconstruction bank to attract private investment.

But unlocking large-scale foreign investment into clean energy projects before the war is up seems unlikely.

This is partly because the maths of insuring these projects do not stack up (the insurance policy would cost as much as the investment, Shurma said). Once the war is over, Ukraine anticipates the bulk of its reconstruction funding will come from confiscated Russian assets.

Another crucial milestone for unlocking investment would be membership of the EU and of Nato, Shurma argued — a powerful deterrent to Russian aggression, but which could take years to negotiate.

“I think that in reality this type of [green] project will [only] be really possible to start and fundamentally fund after the war will be over and the security guarantees for Ukraine will be provided,” he said. “And preferably the best security guarantees and the best war risk insurance is membership [of] Nato.”

Some foreign investment in feasibility studies was expected much earlier than this, he later added.

Projects to connect Ukraine’s electricity grid with Slovakia, Poland, Romania and Hungary were already under way, he said. But if Ukraine managed to produce the world’s cheapest low-carbon steel as planned, and also negotiated its way into the EU, could it be faced with a protectionist backlash?

It has already faced such a backlash on one commodity: grain. The EU reluctantly extended a bar on imports of Ukrainian grain — already applied for certain eastern European countries — to Poland last week, after local farmers complained of being undercut.

“Long-term wisdom” will win over “short-term domestic populism”, Shurma argued, adding the EU would be won over by the lure of “truly competitive” steel. (Kenza Bryan and Camilla Hodgson)

Why a much-touted water shortfall stat looks leaky

Around the time of the UN water summit in March, news stories sounded warnings about the looming shortage of fresh water.

Several pointed to a major report by the Global Commission on the Economics of Water research group that was unveiled at the conference. The report made headlines with a striking statistic: the world faced a projected “40 per cent shortfall” in fresh water by 2030.

But after the summit, Jefferies analysts pointed out that the figure seemed to date back to a 2009 report by the consultancy McKinsey. (It had, in the interim, also appeared in a string of UN and World Bank papers.)

2009


The year consultants first came up with a 40 per cent projected shortfall of fresh water

Moral Money followed a trail of citations from one paper to another, and confirmed what Jefferies had suspected: the 40 per cent figure always traced back to the McKinsey research.

Although old, the statistic remains broadly accurate, water experts said. But the nearly 15-year-old figure highlights the challenge of drawing conclusions about global fresh water supplies given the localised nature of water systems.

While the figure was “recycled over and over”, it was important to recognise “how difficult it is to come up with such metrics in the first place”, noted Richard Connor, editor-in-chief of the UN World Water Development report. 

The 2009 findings had assumed an “average economic growth scenario” and “no efficiency gains” in the years to 2030. Colin Chartres, chief executive of The Crawford Fund food and nutrition charity, said it was “impossible to generalise” about water efficiency gains, “as each country is at a different point on the journey and has different physical and socio-economic circumstances”.

Declan Conway, a water and climate change researcher at the Grantham Research Institute in London, said that if the McKinsey analysis was redone today, “I suspect the messaging wouldn’t change very much”.

But the “problem” with a global view was that “it hides areas where there’s plenty of water and areas where it is scarce,” he said. “These kinds of legendary statistics fly around, and we take them for granted, but you need to look at them every now and again.”

The co-chairs of the Global Commission said the group had used the statistic for “illustrative purposes”. The researchers had not “made fresh estimates” about the potential shortfall, since the figure was “not critical to our main argument”, which stressed the need for countries to take a more holistic approach to water management.

However, they added that “future studies of this particular shortfall should do so . . . Good and continuously re-estimated data on water is essential for policymaking.” (Camilla Hodgson)

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