The National Emissions Trading System (NETS) risks becoming yet another fiscal instrument with no impact on actual decarbonization. Ukrainian businesses have identified a number of gaps in the published NETS model and are proposing corrections.
The consolidated position of the business community, published by the Federation of Employers of Ukraine (FEU), states that the document needs to be substantially revised. Entrepreneurs have submitted their proposals to the Ministry of Economy, Environment, and Agriculture.
"The Ukrainian ETS system should be issuer-centric, i.e., aimed at the technological modernization of existing emitting enterprises that are large employers, exporters, and taxpayers. They form the basis of the country's economic stability," the FEU expressed its key position.
The need for EU financial support
The investment needs of the Ukrainian economy are too high to be met by domestic revenues from the STV. They will only be enough to finance part of the measures, as evidenced by the FEU's assessment. Therefore, entrepreneurs emphasize that true decarbonization cannot be achieved solely by accumulating funds in the new fund. Systemic and comprehensive support from the European Union is needed.
Risks to competitiveness
Climate legislation and carbon emissions regulations differ across countries. As a result, Ukrainian businesses risk losing their ability to compete with local producers in international markets.
Directions for improving the ETS
Given the scale of the ETS’s impact on Ukrainian business, the FEU proposes revising the document. The Federation’s key guidelines are as follows:
- Conduct a thorough analysis of the compliance of Ukraine’s emissions trading system with EU legislation;
- Prepare a negotiation position;
- Maintain current tax rates throughout the entire ETS implementation preparatory phase;
- Reduce the carbon burden on Ukraine’s economy compared to EU countries, which is justified by martial law, as well as defense and reconstruction priorities;
- Ensure a sufficiently long transition period during which the carbon price will gradually approach the European level;
- Direct the full volume of ETS fund resources to emissions reduction and eco-modernization;
- Guarantee business the right to fulfill 90–100% of its carbon obligations by investing in its own decarbonization and environmental modernization of assets;
- Ensure access for domestic businesses to European funds, in particular the Innovation Fund and Modernization Fund;
- Create a mechanism that will protect Ukrainian entrepreneurs from uncompetitive export conditions and from “cheaper-carbon” imports.
“Money in exchange for reforms”
The FEU has proposed implementing a decarbonization strategy based on the “money in exchange for reforms” model. The essence lies in mutual commitments: the EU finances the decarbonization of Ukrainian industry, while Ukraine harmonizes its National Emissions Trading System with the EU ETS. This approach can be implemented through targeted funding for specific investment projects.
“The Federation of Employers is convinced that this approach will allow Ukraine to simultaneously preserve its industrial and export potential, launch genuine modernization, integrate the Ukrainian economy into the European industrial space, and bring the country closer to the EU climate goals without delivering a devastating blow to businesses”, the Ukrainian business community stresses.
EcoPolitic has previously provided a detailed account of the essence and stages of the emissions trading reform in Ukraine.
According to experts, the successful launch of the ETS requires gradual implementation, harmonization with EU requirements, carbon price targeting, and earmarked use of quota revenues.
