The agreement will take full affect only after it is signed by the Environment Ministry
Ukrainian enterprises continue to try to cash in on carbon emissions trading under the international Kyoto agreement, with an eye also on the other benefits of improving energy efficiency at their industrial production facilities.
On Feb. 13, Ukraine’s foreign-owned mini steel mill in Donetsk Region, ISTIL, inked a deal to sell the European Bank for Reconstruction and Development (EBRD) its surplus greenhouse gas emissions.
However, the agreement will take full effect only after it is signed by the Environment Ministry, which has almost 50 other joint implementation projects lined up for its approval.
ISTIL’s joint implementation project with the EBRD is one of the ways that carbon-billowing industrialized nations meet the limits set out by the Kyoto protocol, which entered into force two years ago as an attempt by the international community to slow down climate change.
According to the joint implementation project, ISTIL, founded by Pakistani businessmen who studied metallurgy on Ukrainian turf during Soviet days, will invest $45 million into energy efficiency as part of an $85 million loan issued by the EBRD.
If the government approves the project, ISTIL will get about $4 million from the EBRD in return for 650,000 emission reduction units, which are equivalent to the tons of cut greenhouse gas emissions expected at the steel mill over the next five years.
Iryna Stavchuk, climate change coordinator at the National Environmental Center in Ukraine, said ISTIL’s carbon trading deal with the EBRD is one of almost 50 joint implementation projects in queue for approval by the government.
“The joint implementation projects are happening despite, rather than thanks to, government efforts,” she said.
Many Ukrainian companies that need to make their facilities more energy-efficient are not aware of the Kyoto mechanism and don’t even suspect that they can make money on it, according to Stavchuk. Therefore, many investments are going to other countries more prepared to host them, she added.
“Governments in developing countries such as India, China or Brazil, work [actively] with their industries and create special portfolios for the plants and companies that are eager to participate in so-called clean development mechanisms.”
“Meanwhile, foreign companies often have to come to Ukraine independently to look for a plant and convince its management to take part in a joint implementation project,” Stavchuk added.
Stavchuk said carbon-trading deals often wait up to a year for government approval, which is supposed to be given in a month, due to poor management at the Environment Ministry, which is responsible for granting approval.
“More joint implementation projects could happen if the government eliminated legislative barriers throughout different sectors,” she added.
According to global carbon-market consultancy Point Carbon, only five joint implementation projects in Ukraine have received final approval from the government.
Point Carbon estimates that Ukrainian industry could raise $780 million by selling 130 million tons of greenhouse gas reductions per year, which is equal to 130 million emission reduction units.
“However, if the government delays the approvals and doesn’t eliminate other barriers, Ukraine may miss its chance to get this money, since emission reductions can be sold only between 2008 and 2012 [the first commitment period of the Kyoto protocol],” said Stavchuk.
Among the five joint implementation projects that received a green light from the government, state-owned Zasyadko mine, based in Donetsk Region, has sold 3.8 million tons of methane emission reduction units for $3.2 million to the Japanese government, which represented the interests of companies in that country. Kyoto rules require countries to represent the interests of their companies in such carbon trading deals. The deal at Zasyadko, which is controlled by Ukrainian deputy Ukhim Zvyagilsky, followed modernization efforts at the mine.
The other four joint implementation projects that received approval include an electric power plant in Lviv Region, which sold emission reduction units to Austria; purchase of units from a landfill gas utilization facility in Kharkiv by Denmark; methane conversion at a coal mine in Donetsk Region; and a project at a cement plant in Khmelnytsky Region, which sold units to an Irish company that owns the plant, itself.Waiting along with ISTIL for governmental approval to cash in on the Kyoto agreement are Donbasenergo, a thermal power plant, and UkrHidroEnergo, a state-owned company that manages six hydroelectric power stations.
