HIGHLIGHTS

• Target year for the Coal Exit proposed but not legitimised
• Law on Industrial Pollution Regulation not passed
• Amendments Needed to Raise the Carbon Tax Passed; CBAM negotiations with EU are Ongoing

 

NARRATIVE

1. A target for the coal exit by 2035 by state, and by 2040 by private mining facilities was proposed by Ukraine at COP26 under Powering Past Coal Alliance. However, the target was not previously discussed with the wider public and has not been mentioned in any strategic document. So, the goal and an end date still need clarification.

   Ukraine still produces up to 30% of its energy through thermal plants which work mostly using coal. Despite the pledge at COP26 there is still a need for issuing an updated energy strategy, and a state target program for the transformation of coal regions. Ukraine also needs a plan for the restructuring of the coal industry, which is currently lacking but is extremely important, especially considering that the previous three restructuring plans during the last 15 years were unsuccessful.

2. The absence of the law on industrial pollution regulation, which could stimulate and guide the industrial facilities in modernizing their equipment and provide a mechanism for ensuring the citizen’s right to a clean environment. Despite being worked on during the last few years, it is being iteratively sent for refinement. Currently, there are several versions of it under examination by the committee.
3. The carbon-related taxes – Carbon Border Adjustment Mechanism (CBAM) and Carbon Tax can stimulate emission reduction.

CBAM (introduced as a part of the EU ‘Fit for 55’ package) is an EU mechanism aimed at counteracting carbon leakage caused by carbon-intensive production facilities outside of the EU that produce products that EU countries import. For Ukrainian producers, this means that if their facilities are not modernized, they will lose their competitiveness in the European market. Ukrainian products traded on the EU market are known to be highly carbon-intensive and account for 20% of Ukrainian exports. However, the CBAM has a mechanism for establishing special exemption agreements with countries, such as Ukraine, who have carbon pricing mechanisms in place.

The Ukrainian Carbon Tax was finally raised at the end of 2021 with corresponding amendments to the Tax Code being passed. Previously, Ukraine’s low Carbon Tax rate allowed industrial facilities to avoid modernization. From January 1, 2022 the amendments take force, which raise the Carbon Tax from 10 hryvnias per ton (0.35 USD) to 30 hryvnias per ton (1.06 USD). That is still a small change, although it is expected to be raised further. The amendments also require the Carbon Tax to be used for emission reduction activities to help achieve Ukraine’s updated Paris Agreement NDC.

The updated Nationally Determined Contribution (NDC) proposes an emission reduction goal of 65% by 2030 compared to the 1990 baseline, which is a 7% reduction compared to 2019. This reduction is aimed at keeping Ukraine on the path to net-zero GHG emissions by 2060 and limiting the rise in global warming to 1.5 degrees Celsius. A plan for implementing the updated NDC is expected to be finished in mid-2022.

However, the current target is insufficient. For example, according to Climate Action Tracker current Ukrainian targets and laws are consistent with 3-4 degrees Celsius warming. Many countries around the globe focus on reaching carbon neutrality by 2050 despite currently having more significant levels of emissions than Ukraine. So, if other countries followed the Ukrainian approach, we would be heading for 2-3 degrees warming. Of course, the limitations for Ukraine are imposed by the ongoing conflict with Russia, economic recession, difficulty finding sufficient financing even for the current target and limited changes due to lack of the political will. Still, Ukraine should be more ambitious in its Paris Agreement pledge. Expected GDP rate growth due to structural macroeconomic reforms may make Ukraine more capable of putting forward more ambitious pledges.

This Post was submitted by Climate Scorecard Ukraine Country Manager Anastasiia Bushovska