Kyoto protocol on pollution could bring financial benefit for Ukraine (05/04/03)

Kyoto protocol on pollution could bring financial benefit for Ukraine

by Ivan Poltavets
Special to The Ukrainian Weekly

KYIV - If another major industrial nation ratifies the Kyoto Agreement, it could bring Ukraine financial benefit in the most unlikely of ways.

Because the level of pollution in Ukraine has dropped sharply in the last several years, mostly due to the near total collapse of economic structures for much of the 1990s, Ukraine has dropped below its allocated pollutant levels as agreed upon in the 1997 Kyoto Protocol, an international agreement that delineated how much pollution signatory nations could emit.

Today, by selling its unused quotas for greenhouse gas emissions, said Ferdinand Pavel, expert of the German Advisory Group, "Ukraine can earn from an estimated $700 million to $3 billion every year in 2008-2010."

Mr. Pavel spoke at a roundtable on the topic titled "Kyoto Protocol: Opportu-nities for Ukraine," which was held jointly by the Institute for Economic Research and Policy Consulting and the German consulting firm in Kyiv's World Bank office on April 4.

The Kyoto Protocol, adopted within the United Nations Framework Conven-tion on Climate Change, aims for the reduction of human-produced greenhouse gas emissions to prevent global warming. In the protocol all major emitter-nations of greenhouse gasses were assigned quotas on emissions at a base year set as 1990, which they will have to show as an annual average for the years 2008-2012.

Currently, developed nations are responsible for more than 50 percent of worldwide greenhouse gas emissions. To achieve the set goals, flexibility mechanisms were built into the protocol to allow for easier attainment of overall compliance. One of these mechanisms foresaw the creation of a market for unused quota-shares, which could be bought by countries or enterprises facing difficulties in meeting their own set quotas.

Ukraine is a country that currently has many unused quota-shares. Since 1990, greenhouse gas emissions have fallen by a factor of two. The reason for such a dramatic change lies in a sharp drop in GDP - and especially in industrial production - over the last decade. This should guarantee Ukraine an ample stockpile of unused and salable greenhouse gas quotas when that mechanism is activated.

Another flexibility mechanism that Kyiv may be able to utilize for financial advantage is called "joint implementation." This mechanism allows investors to develop a project in which they find an enterprise where a reduction of greenhouse gas levels could be achieved in the cheapest way. Investors could finance such a project and then sell the level of the emissions that were reduced if they fell below the allowable emission level. The point is to target the most obsolete technologies first rather than concentrating on improving modern facilities and guarantee that the level of greenhouse gas emissions is reduced in the most cost effective manner.

"There are estimations that such a flow into Eastern Europe as a whole area will be at between $2.4 billion and $5.6 billion [annually]," said Mr. Pavel.

For Ukraine it could become one of the rare cases in which the extreme energy inefficiency of its industry became a benefit, attracting foreign "climate" investments.

Researchers at the European Bank for Reconstruction and Development (EBRD) put Ukraine first in a ranking of Eastern European countries that could potentially reap the most benefits from Kyoto Protocol implementation. How-ever, in the list of countries ready to deal with the Kyoto Protocol mechanisms Ukraine occupied the last spot.

"Ukraine, after signing the protocol in 1999, slightly decreased its pace in the international negotiation process and implementation of its international responsibilities [within the Kyoto process]. Currently, a ratification package is ready and has been submitted to the Cabinet of Ministers of Ukraine," explained Semen Kublanov, head of the Ecology Monitoring Department at the Ministry of Ecology and Natural Resources of Ukraine.

It is expected that the Kyoto Protocol package will soon be sent to the Verkhovna Rada for ratification. Despite the relative slack in Ukraine's performance in the Kyoto Protocol process, Western companies are already looking for opportunities in Ukraine. Ruhrgas (Germany) and Ukrtransgaz (Ukraine) have developed a joint project to optimize the work of the Ukrainian gas transit system, which could cut carbon dioxide emissions by 350,000 tons annually and cost the German firm approximately 15 million euros.

In return for the investment, the Ukrainian side would have to provide the German firm with emissions certificates for achieved greenhouse gas reductions. However, the project is currently stalled by the uncertainty of the official Ukrainian stance towards the Kyoto Protocol, as well as lack of necessary institutional infrastructure.

Officially, the protocol will come into force once the ratifying countries together account for at least 55 percent of global greenhouse gas emissions. Canada and Poland ratified the anti-pollution document in December 2002. The Kyoto protocol should enter into force 90 days after its ratification by Russia, which is expected to accede this year. Russia is responsible for 17 percent of all greenhouse gas emissions, and its accession would put the member-states' total over 55 percent.

"We will try to convince the Russian leadership to get Kyoto protocol ratified," mentioned Hans-Jochen Schmidt, the representative of the German Embassy in Kyiv.

A number of firms have already started their own greenhouse gas emissions reduction programs, and even if implementation of the Kyoto Protocol is delayed, which is unlikely at this point, projects to reduce emissions will continue and a greenhouse gas emissions market should soon take off as the European Union, Japan and perhaps Ukraine develop potent national programs.

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