Ukraine has nearly halved its carbon emissions since the 1990s, more than any other country worldwide, according to the UN Human Development report
Ukraine has nearly halved its carbon emissions since the 1990s, more than any other country world wide, according to the UN 2007/2008 Human Development report.
The Nov. 27 report highlights Ukraine among several transitions countries in the CIS for their drastic emissions reduction over the past decade – results of a combination of market transformations and economic blight. In terms of climate security, this is a significant achievement, considering that many developed countries have fallen short of their Kyoto targets and their emissions continue growing.
Although it is ranked 18th of the 30 biggest CO2 emitters in the world, Ukraine has experienced a minus 45 percent cumulative growth rate from 1990-2004. Its 1990 share of global carbon dioxide emissions was 2.6 percent. By 2004, that number had decreased to 1.1 percent and its emissions rate was -55.3 percent of its 1990 levels.
Clear skies ahead?
Ukraine’s carbon emissions have steadily decreased by an average 3.8 percent annually, but the report emphasized that the country’s emissions achievements were due to the economic recession that hit countries of the former Soviet Union in the 1990s, rather than innovation or increased efficiently.
The report also highlighted Ukraine’s ongoing struggle with Russia over the price of natural gas. Over the past 10 to 15 years, Ukraine has steadily replaced coal with cheaper and less polluting natural gas, 80 percent of which is imported from Russia. However, since Russia interrupted Ukraine’s gas supplies in early 2006 and doubled import prices, the Ukrainian government has been considering a shift back toward coal.
“The case demonstrates the way in which national energy security may conflict with global climate security goals,” the report said.
“The reductions owe less to reform than to a change in energy mix: imports of natural gas from the Russian Federation have halved the share of coal,” the report explained.
“The energy reform process has yet to take off. Energy prices remain heavily subsidized, creating disincentives for efficiency gains in industry.”
Ukraine’s government has created an influential agency, known as the Blue Ribbon Commission, which has called for far-reaching reforms, with proposals ranging from cost-recovery pricing to the creation of an independent energy regulator and the withdrawal of subsidies.
“Progress towards implementation has been slow, but has gathered pace following an interruption of gas supplies from the Russian Federation in 2006,” the report states.
Proposals range from cost-recovery pricing to the creation of an independent energy regulator and withdrawal of subsidies.
Transition countries
The Kyoto protocol calls for greenhouse gas emission (GHGs) cuts of 5 percent from 1990 levels for the wealthy countries (known as Annex 1 countries) that ratified it.
Overall GHGs for Annex I countries were 3 percent below 1990 levels in 2004, according to the report. However, “overall emissions have been on a rising trend since 1999, raising questions about whether the overall target will be achieved,” and “there are large variations in country performance.”
The report traces much of the overall decline – in some cases in excess of 30 percent – to deep emission reductions in transition economies. However, emissions are now rising with economic recovery.
Turning emissions into money
For purposes of Kyoto protocol targets, Ukraine’s emission reductions translate into a potential goldmine for the country.
Ukraine’s Economy Ministry estimates Ukraine’s surplus headroom of tradable carbon units, quantified by Assigned Amount Units (AAUs) at 2.225 billion and proposes holding 50 percent of this surplus in reserve during the first commitment period, making the total volume that could be traded under this scenario 1.125 billion. Even selling a small fraction of this number, if done properly, could generate billions of dollars.
Ukraine ranks second-best country for green investment schemes, known as Joint Investments (JIs) and AAUs, behind Romania, in ratings issued Dec. 5 by Point Carbon, a leading carbon-market consultancy based in Oslo, Norway. The ratings are meant to assess how attractive a country is for potential investors and JI project participants.
As there is currently no active market or limited forward trading, there is no market price. A market price for trading will be established in 2008. Valuation of Ukraine’s surplus will depend on several factors, including credibility of the green investment scheme (GIS) and the balance between supply and demand.
To ensure the integrity of the Kyoto protocol, buying countries require sellers to use proceeds from trade on emission reduction measures at home through transparent and credible mechanisms, known as GIS schemes, which are regulated by national legislation.
Ukraine’s Environmental Ministry issued a statement Nov. 5 announcing that Ukraine had joined the International Transactions Log (ITL) and passed tests of the national registry’s compliance with international requirements, calling them the country’s “last barriers to receiving the right to implement Kyoto protocol mechanisms.”
According to the United Nations Framework Convention on Climate Change (UNFCCC), the ITL, put in place in April this year, is an essential component of the trading infrastructure, forming the central hub of the settlement system that delivers traded allowances from sellers to buyers.
“With billions of euros at stake on the carbon market, it is critical that registry security is on par with systems in equivalent markets,” said UNFCC executive secretary Yvo de Boer in a press release issued in April.
Cashing in
Yevgen Groza, director for Ukraine and Belarus of the GreenStream carbon consulting firm, called the news an “exaggeration.”
“The fact is that Ukraine did not make a final ITL connection at that time, but just ran the last compatibility tests. It’s a good step forward, but CO2 units still aren’t being transferred out of Ukraine for now,” Groza elaborated.
Companies will have to pay an as yet undetermined fee to the government to make a credit transfer via the registry.
“If you compare different CO2 units, then the registry is similar to a bank, because you can make transfers from one account to another, and convert these currencies.”
While bureaucracy is still high in Ukraine, the Environmental Ministry is doing a pretty good job and Ukraine has great potential, said Groza, whose firm advises companies on how to register for emission reduction credits and find buyers for them. GreenStream, with main offices in Beijing, Hamburg, Helsinki, Oslo, Stockholm and Vilnius, manages the Multilateral Carbon Credit Fund (MCCF), which buys reduction credits.
There are two primary stages to the application process, according to Groza.
At the first stage the government gives an applicant a letter of endorsement, received by 74 enterprises from Ukraine’s government, Groza said.
This stage is much simpler than the second, in which applicants receive a letter of approval from the government. It is up to companies to prove the feasibility of their project in the second stage, which, due to its costliness, many are waiting to complete. Currently, 11 applicants have received letters of approval. According to Groza, Ukraine has a high number of projects approved compared to other countries, and is moving much faster than Russia.
