Carbon Market Watch

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Study on JI in Ukraine by the National Ecological Centre of Ukraine

24 Sep 2012

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Review of funds expenditure obtained under the international emissions trading in Ukraine

SUMMARY

The countries of Central and Eastern Europe and former Soviet Union have the largest greenhouse gas emission quotas surplus as a result of economic recession in the 1990s rather than due to systematic implementation of measures to reduce emissions. Such greenhouse gas emission quotas, acquired by the state without real climate protection efforts, are called “hot air”.

In 2008, the actual level of GHG emissions in Ukraine was 420.6 million tons of CO2-eq. – which is 46% of the allowed quota, set at the level of 1990 (100% = 934.1 million tons of CO2-eq). Thus, the potential use of national GHG emission quotas surplus during 2008-2012 is estimated at 2 733 586 263 tons CO2-eq.

From 2009 to 2012, the Government of Ukraine managed to sell 47 million assigned amount of units. Selling price was approx. 10 euro per unit of transferred GHG emission quotas, so the total amount of funds received by Ukraine through the mechanism of the Kyoto Protocol emissions trading was 470 million of euros.

To use funds received by Ukraine within the international emissions trading, the green investment scheme was established, with the National Environmental Investment Agency (NEIA, www.neia.gov.ua) appointed as the coordinating body. The legal framework of international emissions trading is established by a number of resolutions of the Cabinet of Ministers of Ukraine, and the basic provisions of the Green Investment Scheme are defined by the CMU Resolution No. 221 dated 22.02.2008, as amended.

Areas of projects implementation under the international emissions trading of Kyoto Protocol in Ukraine were approved by the buyer country in the relevant Green Investment Scheme Guidelines. Thus, the following categories of activities were selected for funding:

  • Energy conservation,
  • Fuel switching for low environmental burden,
  • Utilization of Coal Bed Methane,
  • Renewable energy,
  • Activities for emissions reductions of greenhouse gases other than carbon dioxide (CO2),
  • Activities for environmental protection (e.g. pollution reduction activity).

In addition, 5% of resources are allocated to the “soft greening”, i.e. capacity building for prompting of environmental activities.

Proposals for green investment scheme projects may be filed by enterprises and organizations and budget-funded institutions. At first projects proposed in the NEIA are checked for compliance with the criteria, then they are reviewed by the Interdepartmental Working Group at NEIA, approved projects agreed with the Party of the greenhouse gas emissions quotas buyer country, The Ministry of Ecology and Natural Resources, the Ministry of Finance and the Prime Minister of Ukraine.

As of December 2011, the National Environmental Investment Agency of Ukraine accepted 987separate projects for consideration for implementation in the framework of a Green Investment Scheme, of which the Ukrainian government finally approved the implementation of 363 energy saving projects, including thermal modernization of public buildings and mine waters treatment.

According to NEIA, Ukraine completed 37 projects green investment scheme by the end of 2011, which achieved an overall reduction of greenhouse gas emissions by 2 736.63 tons of CO2eq per year. The cost of works for the project implementation amounted to UAH 38 086 997 (ca EUR 3.5 million), so specific cost of annual reduction of 1 ton of СО2-eq. amounted to UAH 13 917, that is EUR 1 278. Planned activities for all 987 green investment scheme projects in Ukraine have the total emission reduction potential of 247 577.37 tons of СО2-eq per year (0.069% of all CO2 emissions in Ukraine of 2010) with the total cost of UAH 3 718 972 099 (almost EUR 340 mln). Thus, the average cost of 1 ton of annual reduction of СО2-eq. emissions for all green investment scheme projects in Ukraine is UAH 15 021, or approx. EUR 1 373. However, a number of projects proposed for implementation under the green investment scheme are unreasonably expensive and with low efficiency of emission reduction.

The efficiency of the results of green investment scheme projects in Ukraine under current procedure is questionable by the disproportionately large cost with little cumulative target level of greenhouse gas emissions reduction. In addition, projects that can be implemented successfully within other flexible Kyoto Protocol mechanism – joint implementation – are also selected to be financed using funds received in Ukraine from the international emission trading under Kyoto Protocol. Such projects create competition for projects in the public sector. Accordingly, the principle of project selection as well as procedure transparency is questionable.

Non-transparency and bureaucratization in the implementation of international emissions trading mechanism under the Kyoto Protocol is a problem in Ukraine. Disclosure of information on projects implemented under the green investment scheme of the international emissions trading is not properly adjusted, resulting in difficulty to evaluate their quality and efficiency, or even the possibility of corruption signs. In turn, it is still possible that the green investment scheme projects can be implemented in Ukraine for political reasons, and thus obstruct from selection of economically and environmentally viable ones.