Global and regional externalities of the Ukrainian energy sector

Abstract

PurposeThe purpose of this paper is to develop a methodology for assessing the effects of global and regional externalities that create traditional power generation industries and to propose a transition to a tariff strategy taking into account these consequences. The main purpose of the research is to analyze the current wholesale electricity tariffs in the energy market of Ukraine and propose their assessment taking into account external effects for other sectors of the economy.Design/methodology/approachAt the first stage, according to observations for 2004–2019 on the amount of pollution and the cost of agricultural products in some regions of Ukraine, which is provided in 2010 prices, the impact of hazardous emissions on the cost of agricultural products was analyzed in each region. The use of panel regression allowed to combine spatial and temporal studies (12 separate areas and time interval 2004–2019). To assess the external effects of heat generation, panel regression was used, which made it possible to combine spatial and temporal data on the impact of pollution on the efficiency of agricultural production and add regional losses of agricultural business to the cost of heat generation. This paper uses optimization models to maximize the function of public utility of electricity generation, making allowances for externalities.FindingsThis research assesses the negative externalities of Ukraine's energy and confirms the need for a global transition to a low-carbon economy primarily through climate finance. The analysis revealed the presence of various influences of the factor of regional air pollution and time. The hypothesis of the existence of a negative impact of local air pollution on agricultural production has been confirmed. An increase in emissions by 1,000 tons leads to an average decrease in regional agricultural production by UAH 84 million (at the prices of 2010).Originality/valueThe optimization problem of the ratio of different types of generation is set on the basis of maximizing the function of social utility of electricity generation, taking into account external effects. The authors presented an optimization model of electricity generation, which corresponded to the state of the energy market for 2019, provides an opportunity to assess the contribution of the inverse external effects of each electricity sector and to estimate external tariffs for each electricity generation sector.