Within the space of two months, three different legislative proposals for the future National Greenhouse Gas Emissions Trading System (NGGETS) have emerged in Ukraine. Moreover, the closer the matter gets to Parliament, the less those who will have to live under the new rules know about the drafting of the new legislation.
Following the publication of the alternative parliamentary bill No. 15386-1, EcoPolitic sought comments from one of its initiators — MP and Deputy Chair of the Committee on Environmental Policy and Nature Management Olena Kryvoruchkina — as well as from representatives of the expert community. We wanted to find out how this document differs from the other two published earlier, and how experts assess it.
First, second, third… Will there be more?
On 15 May, the Ministry of Economy published its 107-page draft law on the National Greenhouse Gas Emissions Trading System. Following numerous consultations with representatives of the business community and the expert community, the document was put out for public consultation and sent to the European Commission. It has not yet been registered in parliament.
On 7 July, to the surprise of all stakeholders, a group of MPs registered draft law No. 15386 on the National Emissions Trading System in the Verkhovna Rada. Its text and accompanying documents appeared on the parliamentary portal just three days later. The structure of the national system outlined in this draft law differed significantly from that proposed by the ministry. Most of the control mechanisms, including the allocation of funds, were effectively placed in the hands of the State Agency for Energy Efficiency and Energy Saving.
Then, on 21 July, an alternative draft bill, No. 15386-1, was added to the previous one, also without a public presentation or prior discussion. The initiators of this second document were four MPs: Olena Kryvoruchkina, Eduard Proshchuk, Serhiy Mahera and Serhiy Mandziy. The very next day, it was referred to the Environment Committee for consideration.
For representatives of the business community and the expert community, the emergence of this draft bill came as yet another surprise. The scenario turned out to be the same: first, MPs register the document with the Verkhovna Rada, and only then do stakeholders find out exactly what has been proposed to them.
So what is the difference?
One of the bill’s initiators, Olena Kryvoruchkina, deputy chair of the Environment Committee, explained in response to a query from EcoPolitika that Bill No. 15386-1 was not drafted from scratch. According to her, it is a revised version of a draft previously prepared and put out for public consultation by the Ministry of Economy, Environment and Agriculture.
The MP noted that, whilst refining the draft, the authors took into account the results of consultations with relevant central executive bodies, business representatives, specialist civil society organisations and international experts. In particular:
- the document has been brought more into line with the provisions of Directive 2003/87/EC and the European Union’s latest approaches to the functioning of the European Union Emissions Trading Scheme (EU ETS);
- recommendations from the European Commission’s Directorate-General for Climate Action (DG CLIMA) regarding the regulation of aviation and maritime transport have been taken into account;
- clarified provisions aimed at ensuring Ukraine’s further integration into the EU ETS;
- aligned a number of provisions with the positions of the Ministry of Finance, the Ministry of Community and Territorial Development of Ukraine, the Ministry of Energy and other relevant authorities.
“Furthermore, the draft law takes into account current trends in the development of European legislation, in particular regarding the gradual transition from free allocation of allowances to full auctioning within the context of the CBAM mechanism by 2038. This provides a more realistic and predictable mechanism for Ukrainian industry to adapt to the future requirements of the European carbon market,” noted Olena Kryvoruchkina.
Consultations during the finalisation process
Consultations during the finalisation processAccording to the MP, the results of consultations with relevant central executive authorities, business representatives, specialist civil society organisations and international experts were taken into account during the finalisation of the draft bill.
This represents a fairly broad range of participants. However, the initiator’s response does not specify which business associations, civil society organisations or international institutions were involved in drafting Bill No. 15386-1. Nor does it mention the dates, format or specific outcomes of these consultations.
EcoPolitika contacted Viktoria Karpets, a manager at the European Business Association (EBA), to ask whether the drafters of the bill had consulted with the Association’s experts.
We did not receive direct confirmation of the EBA’s involvement in drafting the document. The Association emphasised that its experts are always open to dialogue, and that constructive discussion regarding different approaches to the introduction of the National System for Environmental Management and Audit is a positive sign. According to Viktoria Karpets, the emergence of yet another draft bill on the National System indicates that this issue is important to parliament and remains a focus of attention for legislators.
"At the same time, we are ready to take part in a professional discussion and provide expert recommendations during the further drafting of the documents," the EBA stated.
Neither Lyudmyla Tsyganok, President of the Association of Environmental Professionals (PAEW), nor Vladyslav Antypov, Director-General of the Centre for Ecology and the Development of New Technologies, were aware of the drafting of Bill No. 15386-1. Both experts told Ekopolitika that neither they nor their closest colleagues had been involved in discussions on the document.
Of course, it would be unfounded to claim that no consultations took place: the drafters may well have consulted with other representatives from the business sector, civil society organisations and the expert community. However, a specific list of participants is needed to fully assess the scope and representativeness of the consultation. Clarification of this information would help to better understand whether the positions of various stakeholder groups were taken into account during the finalisation process.
Consultations with the European Commission are still to come
A separate stage of the work concerns consultations with European partners. After all, the NSTCs are not being developed in a vacuum, but as part of Ukraine’s fulfilment of its European integration commitments and its future alignment with the EU ETS.
The Ministry submitted its draft bill to the European Commission whilst it was still at the public consultation stage. European experts provided a number of recommendations on it. It is likely that these are the recommendations from DG CLIMA referred to in Kryvoruchkina’s response. At the same time, according to the MP herself, representatives of the European Commission have not yet familiarised themselves with the text of draft bill No. 15386-1.
“It is important for us to ensure the most coordinated position possible among all key stakeholders in the process — government bodies, business and the public. Once the national consultation phase is complete, the draft bill will be presented to international partners, in particular the European Commission, for further consultation,” the MP explained.
Photo: shutterstock.com
At the same time, a procedural issue arises: the draft bill has already been registered with the Verkhovna Rada and referred to the relevant committee. This means that the national review process will, in fact, take place after the document has acquired official parliamentary status.
Therefore, the formation of a consolidated position is deferred to the stage of work on the draft bill within the committee. This approach leaves scope for further refinement of the text, although prior coordination of positions could have facilitated work on this complex economic reform and the implementation of EU law.
Furthermore, it is important to distinguish between DG CLIMA’s recommendations on the ministerial draft and its assessment of the entire Bill No. 15386-1. European experts will yet have to assess the extent to which the European Commission’s comments have been taken into account in the parliamentary version.
Draft Law No. 15386-1: how does it differ from previous documents?
Journalists at EcoPolitika have briefly reviewed the proposed legislation. Indeed, in terms of its structure, the alternative bill is closer to the Ministry of Economy’s draft than to the main Bill No. 15386, but it is significantly shorter: 76 pages instead of 107.
In particular, Bill No. 15386-1 reverts to a three-phase model for the implementation of the National Emissions Trading System (NETS). The Ministry’s draft envisaged the same approach: an initial phase, a mature national system, and full operation within the EU ETS. By comparison, Bill No. 15386 provides for two phases.
It also regulates the establishment of the NETS registry, the issuance and trading of allowances, the participation of installation operators, aviation and shipping companies, as well as liability for breaches of the system’s rules.
The approaches to the use of revenue from the sale of allowances also differ fundamentally. The authors of Bill No. 15386 effectively propose that the existing Ukrainian Decarbonisation Fund should act as the administrator of this revenue.
The alternative bill, No. 15386-1, provides for the Cabinet of Ministers to establish a separate special-purpose fund, the proceeds of which are to be used to finance investment and innovation projects in the field of decarbonisation. In this respect, it again aligns with the ministerial version, which proposed the creation of a new Ukraine Modernisation Fund to accumulate revenues from the ETS.
At first glance, the debate over whether to create a new fund or use an existing one may seem technical. In reality, it is one of the key issues of the entire reform. It will determine who will manage the revenue from the sale of allowances, the criteria by which funds will be allocated, which enterprises will receive support, the amount of that support, and how transparent the process will be.
10%, 30% or 100%: who will actually receive the money for modernisation
The first parliamentary bill, No. 15386, limits non-repayable support to a maximum of 10 per cent of the project’s cost. A larger amount can only be obtained through repayable instruments: loans or financial leasing.
For a solar power station on the roof of a municipal building, this might well be sufficient. However, for a steelworks’ transition to hydrogen, carbon capture or the extensive modernisation of a cement kiln, 10 per cent risks being more of a symbolic discount than a real incentive.
Draft Law No. 15386-1 provides for basic support of up to 30 per cent of the project’s cost. For innovation grants, funding may reach 60 per cent of relevant costs, and for certain mechanisms and technical assistance — 100 per cent.
However, in the alternative document, as in the ministerial draft bill, there is another instrument: the decarbonisation credit certificate. If a company invests its own funds in an approved project, part of the expenditure can be counted towards its quota submission obligations. In a single year, such a certificate can reduce an operator’s obligations by up to 90 per cent.
Why the process of drafting the law is no less important than its text
Why the process of drafting the law is no less important than its textThe ETS is often described as an environmental tool, but for industry and the country as a whole, it is first and foremost a new economic reality. A flaw in the design of such a system could turn the purchase of allowances into yet another cost for industry, rather than a source of funding for eco-modernisation. This is particularly true if companies are required to pay for emissions but have no real access to funding for technological upgrades, as is currently the case.
Therefore, the involvement of business and independent experts in drafting the legislation is not merely an important component of European practice. It helps to identify potential practical difficulties, excessive burdens and the risks of insufficiently transparent allocation of funds even before the system is launched.
Draft Bill No. 15386-1 may indeed contain useful improvements to the ministerial version. However, these should not be assessed solely by its authors. The next stage should be an analysis of the document by the European Commission, the business community, civil society organisations and independent experts. This will help parliament select the most balanced of the three ETS models.
If the bill’s initiators wish to formulate a consolidated position, the logical next step would be to hold an open discussion, publish the comments received and provide information on the participants in the preliminary consultations.
EcoPolitics is already preparing a detailed analysis and comparison of all three draft laws for you, complete with expert commentary. Look out for it on our website shortly.
