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Ukraine yet to cash in on Kyoto

Ukraine can earn billions of dollars as a signatory to the international Kyoto Protocol by selling its so-called surplus carbon emissions to developed countries, but the country still lags behind its neighbors in making this happen.

"Flexible mechanisms under the Kyoto Protocol to Climate Convention may potentially generate significant foreign currency revenues that can be used for investment in industrial modernization," said Paul Bermingham, World Bank Director for Ukraine, Belarus, and Moldova, in a statement.

Ukraine, according to him, is a country that produces emissions well beneath the levels prescribed by the Kyoto Protocol and could therefore be a major player on the surplus emissions trading market. Bermingham said Ukraine could earn between $9 billion and $17 billion on international emissions trade, "depending on the market price."

The Kyoto protocol was negotiated in December of 1997 in Kyoto, Japan, as an attempt by the international community to slow climate change and other environmental consequences of carbon emissions. The protocol obligates signatory industrialized countries to reduce their collective greenhouse emissions by 5.2 percent compared to the year 1990, or by 29 percent if compared to projected 2010 levels in the absence of the protocol.

According to the terms of the protocol, which came into force in February of last year after being ratified by a total of 162 nations, countries struggling to meet their emissions targets can participate in emissions reduction projects or buy the carbon "credits" they lack from countries that produce less than their share of emissions.

"Ukraine has the obligation of only maintaining the emissions of greenhouse gases at the level of 1990. Due to industrial decline and restructuring of the last decade, Ukraine will have estimated headroom of 1.7 billion tons of carbon dioxide compared with its commitments, and this headroom may be sold," he said.

The Kyoto agreement provides an international trading mechanism through which such transactions can be carried out.

It envisions the launch of joint implementation projects, whereby the companies of developed industrial countries invest in the industrial facilities of countries with transition economies to help them implement advanced emissions-cutting technologies in return for the transition country's so-called surplus emissions reduction units. The price is determined by the market situation and risk-sharing arrangements.

Mariya Kovalenko, an analyst with PointCarbon, an Oslo-based international consulting company that works with the carbon market, said Ukraine has not yet started taking advantage of its position under the Kyoto protocol, lagging behind other emissions donors of Eastern Europe.

"For instance, Poland, Romania and Bulgaria are already actively involved in joint implementation projects, letting interested investors modernize their [the donors'] energy-consuming industries and therefore reduce emissions levels," she said.

Within Europe, according to Kovalenko, there already exists a real market: the EU emissions trading system, which is designed as a cap and trade system with fines envisaged for exceeding greenhouse emissions levels.

Kovalenko said the state's role in both joint implementation projects and emissions trading is crucial. "While joint projects are company-to-company business, they have to be endorsed by the government, which establishes the common rules and criteria," noted Kovalenko.

Ukraine's government has taken no actions on the issue yet, and it has not laid out a clear-cut strategy for trading its surplus emissions internationally.

"Europeans are looking at Ukraine as an emissions seller with great potential, but they are unsure about which rules to play here," Kovalenko added.

Taras Bebeshko, head of the department on climate change at Ukraine's Environmental Ministry, said his department was only created last year, adding that the government is starting to take its first steps on the issue.

"We have been receiving offers from potential investors for joint implementation projects, but they offered something like $2 per ton of carbon dioxide, while the European market price can be as high as 25 euros per ton," Bebeshko said adding that he is against selling Ukraine's reduction units for nothing. The ministry presently has 18 offers for joint projects in Ukraine awaiting approval, he said.

According to Bebeshko, Ukraine is currently working to meet Kyoto requirements to develop and maintain an inventory of emissions and a national registry of transactions, in part thanks to grants from the World Bank. Last month, the government of Japan granted Ukraine $889,900 through the World Bank for just this purpose.

Bebeshko called for the establishment of a national system of emissions trading, whcih could become a self-supporting continuous resource for modernization of Ukraine's industries and a source of funding for environmental projects.

"I am against implementing in Ukraine the punishment-based system that exists in Europe," said Bebeshko, who thinks positive stimulation would be better for Ukraine's developing economy.

One idea that Bebeshko said only takes political will to implement is conversion of the reduction units into securities and allowing companies to trade them within the country. This would better motivate industry to cut emissions, he said.

Kovalenko said a securities-based national emissions trading system is too sophisticated an initiative for Ukraine at the moment.

"I think Ukraine should streamline its joint implementation procedures and make them function first."

European investors, meanwhile, are excited about emissions reduction opportunities in countries like Ukraine and Russia, prioritizing them over other Eastern European states.

"As long as Russia and Ukraine have so much surplus credit, Eastern Europe feels insignificant. Investors find it better to wait and see, while they [these countries] get their books in order. There's no sense of urgency," said James Atkins, head of Vertis Environmental Finance, a Budapest-based investment and financial advisory firm specializing in emissions trading.

"If Ukraine manages to work out clear procedures on the issue, it will be a superstar on the emissions trading market," Kovalenko added.

Yulianna Vilkos, Kyiv Post Staff Writer
Apr 19 2006

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