Alternative draft laws No. 15386-1 and No. 15386-2 on the introduction of the National Emissions Trading System (NETS) contain a number of sound provisions. However, significant shortcomings in these documents threaten the transparency and effectiveness of the Ukrainian emissions trading market; the draft laws therefore require further refinement.
This was reported by the European Business Association (EBA).
Mixed reception from the business community
Ukrainian businesses view some of the provisions in the draft legislation quite favourably. The EBA cites, amongst other things, the lengthy transition periods with a phased roll-out of the carbon market, as well as the fact that the draft legislation takes into account the current economic circumstances facing Ukraine. This factor is important for determining the price of carbon allowances.
Among the advantages is the recognition of businesses’ own investments in projects aimed at reducing carbon emissions through the mechanism of decarbonisation credit certificates. Separately, the community has responded positively to the level of financial support of up to 30 per cent of the project cost, as proposed in document No. 15386-2, to be funded from the National Climate Fund’s revenues. The proposed voluntary carbon adjustment mechanism for exports has also been well received.
Changes required to the draft legislation
However, the draft legislation presented by lawmakers does not fully guarantee fair and transparent carbon taxation. The EBA has therefore set out several clear recommendations regarding the components of the carbon tax.
The priority for the use of revenue from the emissions trading market should be to support the decarbonisation of industry. To this end, a separate dedicated fund should be established, and the mechanisms for accessing carbon funds should be as transparent and non-discriminatory as possible.
The risk of double taxation on carbon emissions is unacceptable. Businesses have therefore called for the environmental tax on CO2 emissions to be abolished following the launch of the National Emissions Trading Scheme. In addition, all tax issues relating to transactions involving allowances and certificates should be clarified.
The Association recommends that provision be made for the issuance of decarbonisation credit certificates not only for projects currently under way, but also for those that have already been completed. In the latter case, the company must confirm that emissions have actually been reduced.
Businesses need more time to prepare for the NETS. One of the proposals is therefore to postpone the start of the emissions requirements until at least 1 January 2029.
Penalties for breaches must be proportionate to the nature of the breach itself. The business sector is therefore calling for a review of the measures taken in response to non-compliance with the NETS requirements.
Separately, the EBA recommends that the voluntary nature of the carbon adjustment for exports be maintained. In addition, the Ukrainian side is to receive an official position from the European Commission on whether it will be possible to count this towards the CBAM mechanism.
"The draft laws need to be revised to take into account the real needs of industrial enterprises, the specificities of post-war recovery and the need to create predictable conditions for investment in decarbonisation," the European Business Association emphasised.
It should be noted that the introduction of the National Emissions Trading Scheme is a necessary step for Ukraine towards meeting European standards and aligning with the EU ETS.
A strange situation arose during the drafting of the legislative framework – whilst stakeholders were awaiting the finalisation of the draft by the Ministry of Economy, three alternative bills emerged. All of them came as a surprise to experts and the business community, as nobody had heard anything about them beforehand. Meanwhile, the ministry’s own draft disappeared.
EcoPolitics has prepared a thorough analysis of three unexpected documents in this article. At the same time, experts emphasise that none of them is perfect, and that all versions require substantial revisions.
