One of the requirements of the Association Agreement with the EU is the introduction of the Greenhouse Gas Emissions Trading System (ETS) in Ukraine. The Ministry of Environmental Protection supports the implementation of this requirement and has expressed its intention to submit the ETS bill to the Verkhovna Rada this year and to begin the pilot phase of the ETS in 2025, moving to full-scale operation. At first glance everything looks perfect. Ukraine is moving along the path of European integration, and the government strongly supports this move. However, when you start to consider it in more detail, serious doubts arise about the reality of the stated ambitions.
The main directive on the functioning of the EU ETS (Directive 2003/87/EC) was adopted on 13 October 2003, and the system began operation only in 2005 (i.e. in the pilot phase). This means that it took at least five years for the European Union to launch the first phase of the EU ETS.
Of course, Ukraine can take advantage of certain ideas and best practices from European legislation. Moreover, given the prospect of EU membership, Ukraine should build its own ETS taking into account the principles set out in the EU ETS. However, the problem is that European law cannot simply be copied, especially the law currently in force under EU ETS stage 4.
The EU ETS was launched in the EU in 2005 and is very different from what is currently in place. And in the future, the EU ETS will also change as the EU corrects mistakes and modernizes its own ETS to take account of changing climate targets.
The launch of the ETS in Ukraine will, from the first stage, be as close as possible to the current EU ETS, but with certain deviations taking into account the characteristics of the Ukrainian economy, and at least answering the following questions: An answer is required.
- What is the scope (types of economic activities, types of greenhouse gases)?
- How do I set emissions limits in my system?
- What are the quota distribution rules in ETS?
- Which platforms will be the organizers of the primary and secondary market auctions for greenhouse quotas?
- Who will be the ETS regulator in Ukraine?
- Who performs administrative functions for ETS, particularly those related to the registry?
- Will the ETS include a mechanism for government intervention to affect quota prices?
A portion of the EU ETS allowance is allocated free of charge to companies based on benchmarks (emissions from the most efficient plants in their industry). If a benchmark is introduced in the Ukraine ETS, a logical question arises: what data should be used to calculate the benchmark?
It took two operational phases (2005-2012) before the European Union collected enough data and conducted research to justify some elements of the current EU ETS. The EU introduced the EU ETS without an established emissions monitoring, reporting and verification (MRV) system. This system was introduced in parallel with the launch of the EU ETS. The lack of up-to-date information on carbon emissions at the launch of the EU ETS created problems that threw the system out of balance. These issues had to be resolved by further changes to the EU ETS parameters.
Ukraine had the opportunity to follow a more rational path of introducing its own ETS, since it was assumed that the MRV system would be introduced first, and then the ETS would be created on its basis. On January 1, 2021, the Law of Ukraine “On the Principles of Monitoring, Reporting and Verification of Greenhouse Gas Emissions” entered into force. The first verified data on carbon emissions (2021 data) was expected to be available in 2022, but this did not happen. At the moment, the MRV system is not functioning properly and there is a lack of complete emissions data, which is very important to substantiate the design elements of the Ukrainian ETS. We believe that at least three years of full-scale MRV operations are required to collect sufficient data.
In addition to justifying the ETS parameters, they also need to be harmonized and implemented with relevant regulations, which also takes time. Ukraine also lacks sufficient expertise to potentially support and manage the ETS. To develop such experts, ETS-approved rules are required and are currently under development.
The ETS is a separately regulated market. Its creation requires solving many extraordinary tasks. Forcing the launch of the ETS increases the risk of distortions in the operation of the system in the future, which could result in the ETS not being able to fulfill its functions, having negative economic consequences, or not being recognized by its European partners. there’s a possibility that. Therefore, the construction of the Ukrainian ETS should be a long-term gradual process and be based on a roadmap for harmonizing the Ukrainian ETS and the EU ETS. Only then can we design an ETS that truly contributes to Ukraine’s European integration and the achievement of climate goals.
Publication source: https://eba.com.ua/naskilky-shvydko-ukrayina-mozhe-zapustyty-vlasnu-systemu-torgivli-parnykovymy-vykydamy/