The creation of an emissions trading system requires the solution of many questions for which there are no unequivocal answers
One of the requirements of the Association Agreement with the EU is the introduction of a greenhouse gas emission allowance trading (ETS) scheme in Ukraine. The Ministry of Environmental Protection supports the implementation of this requirement and has declared its intention to submit a bill on the ETS to the Verkhovna Rada this year, launch the pilot phase of the ETS in 2025 and move to full operation of the ETS. the system in 2026. At first glance, everything seems perfect – Ukraine is moving forward in line with its European integration path and the government strongly supports this movement. However, when you start to analyze it in more detail, serious questions arise about the realism of the stated ambitions.
The main guideline on the functioning of the EU ETS (Directive 2003/87/EC) was adopted on October 13, 2003, and only in 2005 did the system begin to operate (or rather, the pilot phase). In other words, the European Union took at least 5 years to launch the first phase of the EU ETS.
Of course, Ukraine can use certain ideas and best practices from European legislation. Furthermore, given the prospects 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 we cannot simply copy European legislation, especially that which is currently in force in the fourth phase of the EU ETS.
The EU ETS, which was launched in the EU in 2005, is significantly different from the one currently in force. And in the future, the EU ETS will change as the EU modernizes its own ETS, correcting errors and taking into account changes in climate objectives.
The launch of an ETS in Ukraine, which from the first stage would be as close as possible to the current EU ETS, but with some deviations to take into account the specificities of the Ukrainian economy, requires answers to at least the following questions:
- What is the scope of coverage (types of economic activity, types of greenhouse gases)?
- How to set the upper limit of emissions in the system?
- What will be the rules for distributing quotas in the SCE?
- Which platform will organize auctions on the primary and secondary market for greenhouse gas quotas?
- Who will be the ETS regulator in Ukraine?
- Who will perform administrative functions at ETS, particularly with regard to registration?
- Will the ETS include mechanisms for government interventions to influence quota prices?
Part of the EU ETS licenses are allocated free of charge to companies based on benchmarks (emissions from the most efficient factories in the sector). If reference values are introduced into the Ukrainian ETS, a logical question arises: what data should be used to calculate them?
The European Union needed two phases of its operation (2005-2012) to collect sufficient data and carry out 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 time of the launch of the EU ETS created problems that made the system unbalanced. These problems had to be resolved through 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” came 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 working as it should and we do not have complete emissions data, which is very important to inform the design elements of the Ukrainian ETS. In our opinion, at least three years of full MRV operation are needed to collect sufficient data.
In addition to justifying the ETS parameters, they also need to be harmonized and implemented in the relevant regulations, which also takes time. Ukraine also does not have enough experts who could potentially support and administer the ETS. To train these specialists, it is necessary to approve standards for the ETS, which are in the development phase.
The ETS is a separate regulated market. Its creation requires solving many extraordinary tasks. Forcing the launch of the ETS increases the risks of future distortions in the functioning of this system, which could result in it not fulfilling its functions, harming the economy or not being recognized by European partners. Therefore, the construction of the Ukrainian ETS is a long-term, phased process that should be based on a roadmap to harmonize the Ukrainian ETS with the EU ETS. Only then can we design an ETS that truly contributes to Ukraine's European integration and the achievement of our climate goals.
Publication source: https://eba.com.ua/naskilky-shvydko-ukrayina-mozhe-zapustyty-vlasnu-systemu-torgivli-parnykovymy-vykydamy/
