The only financial instrument that Ukraine has to stimulate the reduction of greenhouse gas emissions is a carbon tax. It is the lowest carbon tax in the world at 10 UAH (0.40 USD – March, 2020). The tax applies only to objects that emit more than 500 tons of carbon dioxide per year. This tax is 2.5 times lower than in Poland and 315 times lower than in Denmark. The emission tax was established in 2012, and was kept at 0.41 kop (0,014 USD- in December, 2018).
After the new Parliament was elected in 2019, a bill that provides for an increase in tax to 40 UAH (1.62 USD – March, 2020) was registered, but it has not yet been submitted for consideration.
According to its association with the EU, Ukraine should implement “Directive 2003/87/EU of the European Parliament and the Council of 13 October 2003 establishing a scheme for GHG emission allowances trading within the community and amending Council Directive 96/61/EU”. The Directive provides establishment of an emissions trading system. Ukraine implemented the Directive in December 2019 by its Law of Ukraine “On Monitoring, Reporting and Verification of GHG emissions”. The Law enables full, consistent, transparent, and accurate monitoring and reporting of greenhouse gas emissions in Ukraine. Before, enterprises considered emissions by individual methods and there was no possibility of verification of reports.
Ukraine’s Paris Agreement NDC suggests that GDP growth is one of the main criteria for reducing greenhouse gas emissions. One of the risks of introducing carbon pricing instruments is an increase in the cost of production, which the Ukrainian government is afraid of. For example, the high price of CO2 emissions from industrial processes will cause a reduction in production because the cost of production affects the demand and supply of goods whose production is associated with high specific emissions. As of now the government has chosen to focus its policies more on economic development than environmental protection.
In 2019, with the support of the World Bank, the Ministry of Ecology and Natural Resources of Ukraine, a model was used to determine if a carbon tax or carbon price would work better for Ukraine to reduce emissions.
The modeling focused primarily on the economic growth of the country, on which the price of CO2 emissions was based. In the scenario of high economic growth, the price of the carbon price will increase to USD 152 during 2020s. In the scenario of high economic growth in 2020, the price of the quota in carbon price will increase to USD 152 / t CO2, and the carbon tax to USD 16 / t CO2. In contrast, if the economy grows low, the carbon price will be USD 3 / t CO2. Under the scenario of an improved carbon tax, the baseline level of emissions in 2030 in industries, together, will be less than 40% of the 1990 level; this level was declared to the Ukrainian INDC in 2016.
The model did not include a stringent emission limitation and the price of CO2 emissions remains unchanged. The international High-Level Commission on Carbon Prices recommends that the price of emissions should be between 40 USD and 80 USD t/per year by 2020 and 50 USD to 100 USD per 1 ton by 2030.
Activity Rating: * Falling Behind
Ukraine has the lowest carbon tax. The goal of creating an ETS does not provide for reduction, since national policies do not include emission reductions until 2030, which is why it will not have a sufficient effect.
Dear Ministry of Energy and Environment Protection of Ukraine,
You have made commitments to the Paris Agreement as well as other international agreements. Climate Scorecard expects you to reconsider the main goals of your commitments and strengthen your commitments to reducing Ukraine’s CO2 emissions. To do this, it is important to raise the emission tax as well as to consider the development of the ETS as a tool to stimulate the reduction of greenhouse gas emissions.
This Post was submitted by Climate Scorecard Ukraine Country Manager Yevheniia Zasiadko