8 Until March 2015 consumers faced a fairly complicated one-part, increasing block rate tariff scheme based on annual consumption with a mid-year assessment.<sup>7</sup> This scheme was replaced in April 2015 by a two-block system during the heating season, with the block cutoff set at 200 m<sup>3</sup> per month, and uniform pricing (and a dramatically higher rate per m<sup>3</sup> ) the rest of the year. A consumer who used exactly 200 m<sup>3</sup> would have paid (1.089 × 200)=217.80 Ukrainian hryvnias (UAH) in March 2015, but (200 × 3.6)=720 UAH in April 2015. A consumer using 400 m<sup>3</sup> would have paid (200 × 1.089+200 × 1.788) =575.40 UAH in March 2015, but (200 × 3.6+200 × 7.188)=2,517.60 UAH in April 2015.

In April 2016, the block system was dropped, and a uniform pricing scheme introduced. The rate was set at 6.879 UAH/m<sup>3</sup> , seven times as much as what our 200-m<sup>3</sup> /month customer would have paid only 13 months earlier.<sup>8</sup> In April 2017, the tariff was slightly raised to 6.958 UAH/m<sup>3</sup> . This tariff remained in place until October 2018, and in November 2018 was replaced by 8.549 UAH/m<sup>3</sup> . The rates were reduced in 2019 and 2020 and starting from August 2020 consumers were allowed the choice of their gas supplier.<sup>9</sup>

> 7 To illustrate, initially there were a total of four blocks—from zero to 2,500 m<sup>3</sup> /year, from 2,500 to 6,000 m<sup>3</sup> /year, from 6,000 to 12,000 m<sup>3</sup> /year, and more than 12,000 m<sup>3</sup> /year. Suppose that a household in one year used 2,000 m<sup>3</sup> . At the beginning of the next year, the household would be charged the first-block rate for each m<sup>3</sup> consumed in each month. At the end of June, the utility would re-evaluate this household. If the household had used less than 60% of the block cutoff (namely, 0.60⋅2500=1500 m<sup>3</sup> ), it would continue to be charged the first-block rates. If it had exceeded that cutoff (having consumed, for example, 1,850 m<sup>3</sup> ), it would be bumped up to the second-block rate. At the end of the year, if the consumer had managed to stay below 2,500 m<sup>3</sup> , it would be assigned the first-block rate starting the next January, while if it had consumed between 2,500 and 6,000 m<sup>3</sup> over the year, it would be assigned the second block rate. This scheme was slightly simplified, and rates raised somewhat, in May 2014, when the regulator did away with the upper block, as can be seen in table 1. In April 2015, the scheme was replaced by a twoblock system. The cutoff between the first and second block was set at 200 m<sup>3</sup> _per month_ . The block system was dropped entirely in April 2016.

> 8 <mark>- The exchange rate was 28.77 UAH per euro on April 15, 2016 (see https://freecurrencyrates.com/en/exchange</mark> <u><mark>rate-history/EUR-UAH/2016/nbk).</mark></u>

9 The tariffs are inclusive of 20% Value Added Tax (VAT). In 2018, for example, when the price of gas was stable and averaged about 7.25 UAH/m3, the VAT was on average 2.21 UAH/m3. This amount is roughly comparable to a hypothetical carbon tax of $25/ton CO2, which would translate to 1.17 UAH/m<sup>3</sup> , since one cubic meter of natural gas contains about 1.68 kg of CO2. Ukraine does have a carbon tax, but the rate is only 10 UAH/ton CO2, and the tax is levied only on entities that emit more than 100 tons of CO2 per year.