Ukraine’s Path to Green Investments: The Need for Emission Trading Systems (ETS)

Ukraine is on the journey towards European integration, and a crucial component of this integration is gaining access to European markets, including the carbon market.

While the EU has been actively implementing its Emission Trading System (EU ETS) for nearly two decades, Ukraine lags significantly in this regard.

The European Business Association (EBA) presented a study outlining the concept of establishing an ETS in Ukraine, emphasizing the need to start now. The introduction of ETS in Ukraine holds several benefits, including emissions control, enhanced energy efficiency, and the attraction of green investments.

Additionally, it aligns with Ukraine’s obligations under its association agreement with the EU. Let’s look at key elements, such as the stages of launching ETS, what the system should cover, the upper limit of emissions, allocation of emission quotas, and management structures.

Emission Trading Systems (ETS): A Path to Green Investments

The European integration of Ukraine involves closer ties with European markets, including the carbon market.

The European Union (EU) has been implementing its Emission Trading System (EU ETS) since 2005, while Ukraine is still in the early stages of defining its emissions trading system.

Importance of ETS in Ukraine

The significance of implementing an Emission Trading System (ETS) in Ukraine cannot be overstated. ETS serves as a crucial mechanism through which companies purchase emission allowances, enabling them to engage in economic activities while concurrently incentivizing the reduction of carbon emissions, thereby promoting decarbonization.

The European Business Association (EBA) highlights a compelling statistic that underscores the global relevance of ETS: a remarkable 55% of the world’s economy is generated by countries that have successfully instituted operational ETS systems. This impressive figure underscores the wide-reaching influence and effectiveness of emissions trading mechanisms on both economic growth and environmental sustainability.

These ETS systems collectively contribute to the reduction of approximately 17% of global greenhouse gas emissions (read more about greenhouse gas emissions in Ukraine), underscoring their pivotal role in addressing climate change and achieving sustainable development. For Ukraine, embracing ETS not only aligns with international climate commitments but also offers a unique opportunity to integrate into the global green economy while promoting economic growth with an emphasis on environmental responsibility.

Stages of Launching ETS in Ukraine

To successfully launch the Emission Trading System (ETS) in Ukraine, the European Business Association (EBA) recommends a well-structured three-stage plan.

The initial stage primarily focuses on testing procedures and laying the groundwork for the system.

Subsequently, the second stage involves the gradual introduction of an economically justified price mechanism while assessing its impact.

Finally, the third stage, spanning a more extended period, focuses on adapting to European Union ETS (EU ETS) prices.

This strategic approach ensures a gradual and well-prepared integration with the EU ETS by as early as 2038, enabling Ukraine to align its emissions trading system with international standards and sustainable practices.

What ETS Should Cover

In Ukraine, the primary industries responsible for CO2 emissions are the energy industry and the processing industry, making them prime candidates for inclusion in the ETS. Later stages can include aviation, maritime, and road transport.

Setting the Upper Limit of Emissions

The European Business Association (EBA) recommends determining the upper limit of emissions in Ukraine based on the nation’s updated nationally determined contribution.

This strategy takes into account post-war economic recovery, ensuring that emission targets remain realistic and achievable.

By adapting to the specific circumstances of Ukraine’s transition, this approach fosters a balanced and attainable emissions reduction plan.

Allocation of Emission Quotas

To maintain flexibility and equity within the ETS, the EBA proposes a dual approach to allocating emission quotas. A combination of free distribution and auctioning ensures that both established and emerging industries have the opportunity to participate in emissions reduction.

The use of benchmarks, derived from the emissions of the most efficient industry players, further enhances fairness.

Additionally, introducing adjusting coefficients allows for dynamic adjustments, ensuring that the system remains responsive to changing conditions and evolving emission reduction needs. This approach promotes a well-balanced and adaptable ETS in Ukraine.

Determining the Price of Emission Quotas

The European Business Association (EBA) advocates a phased approach to establish the price of emission quotas within the Ukrainian Emission Trading System (ETS). Initially, a flexible pricing mechanism, such as an economically justified price, can be employed to initiate the system.

As the ETS matures, the pricing should gradually align with the European Union ETS (EU ETS) to maintain consistency and facilitate seamless integration. This staged pricing strategy allows businesses and industries to adapt gradually while fostering market stability and sustainability in emissions trading.

Management Structure of the Ukrainian ETS

Debates surrounding the administration of Ukraine’s Emission Trading System (ETS) have led to various proposed models. The EBA recommends a two-pronged approach, where the Ministry of Economy plays a significant role, focusing on the economic aspects and objectives of the ETS.

Simultaneously, a separate institution dedicated to ETS administration ensures that the system operates efficiently and independently.

The critical oversight of the ETS’s overall functionality is entrusted to a specialized Supervisory Committee, which maintains a system of checks and balances, safeguarding against potential misuse and ensuring compliance with green transformation goals.

This multi-tiered management structure aims to strike a balance between effective ETS operation and sustainable economic development.

Targeted Use of ETS Funds

Effective use of funds generated from the Emission Trading System (ETS) is vital to promote green transformation and environmental sustainability. The European Business Association (EBA) underscores the importance of directing these funds to the climate fund, which can support a range of green transformation projects.

Allocating resources for compensating interest rates on loans for green projects and offering credit guarantees for environmentally responsible initiatives can stimulate further investment in sustainability.

By focusing on the targeted use of ETS-generated funds, Ukraine can ensure that these financial resources have a direct and meaningful impact on achieving its green goals and fostering a transition towards a more sustainable and environmentally responsible economy.

Ukraine Will Continue on its Path to Sustainability

Ukraine’s path to green investments and European integration includes the establishment of an Emission Trading System.

While the specifics are still under discussion, the overarching goal is to create a mechanism that facilitates green transformation and aligns Ukraine’s efforts with the European Union’s climate initiatives.

The introduction of ETS not only contributes to emissions control but also attracts investments that are increasingly focused on green goals.

Leave a Comment