Ukraine Will Implement Climate Change Convention through Establishment of Green Investment Scheme
By Olya Melen, Goldman Prize winner for Europe 2006, Head of Legal Unit, Environment-People-Law (Ukraine), molya at uoregon.edu

Ukraine was one of the first countries to sign both the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol to the UNFCCC and is thus taking voluntary obligations to limit its greenhouse gas emissions (GHG). In 2008, Ukraine will start trade of Assigned Amount Units (AAU) that could bring more than US$10 billion to the Ukraine budget.

Although a Green Investment Scheme is not mandated by the Kyoto protocol or the UNFCCC, the launch of this scheme in Ukraine is aimed at satisfying potential buyers’ concerns that AAU proceeds be channeled to previously-identified projects and programs that yield environmental benefits. The establishment of a Green Investment Scheme, together with the Kyoto Protocol and international emissions trading, could present an opportunity for Ukraine to raise significant funds to finance environmentally-friendly investments in energy, industry, transport, housing, forestry, agriculture, and education.

Enforcement of the Kyoto Protocol and its mechanisms in Ukraine requires adoption of the entire body of national legislation describing the state policy on climate change.

Presently, climate change policymaking in Ukraine is characterized by the absence of a state strategy for the use of surplus of GHG emissions; lack of laws necessary to implement the UNFCCC and the mechanisms of the Kyoto Protocol; lack of state policy in the field of GHG emissions reduction and removals by sinks; and involvement of investments in energy sector.

There are several issues that need to be addressed in the draft laws of Ukraine with regard to the Green Investment Scheme:

• Political vision of the AAU revenues disbursement;
• Financial models of green investments;
• Institutional and organizational mechanism of green investments;
• Share of AAU revenues allocated for the Green Investment Scheme;
• Eligibility criteria for the projects qualified for green investments;
• Control and verification over the implementation of Green Investment Scheme projects or measures.

Some of the existing mechanisms of state support for environmentally friendly projects could be used for replication in the Green Investment Scheme.

The State is providing support to energy-saving and environmentally-protective projects and measures from the State Budget. Ukraine’s State Budget consists of a special fund called the State Environmental Protection Fund. Its goal is to finance environmental protection measures and measures connected with the rational use and conservation of natural resources.

The main sources of revenue for this fund are allocations from the environmental pollution tax and other sources. The Ministry of Environmental Protection of Ukraine is responsible for preparation and selection of projects that will further receive financial support from the State Fund. Only projects that are aimed at implementation of certain kinds of environmentally-friendly activities included in the list of environmental protection measures can qualify for state financial support in the form of non-returnable allocation. The Ministry is also responsible for further control over the implementation of measures and projects related to the protection of the environment. This mechanism is often criticized for lack of effective control over expenses and project implementation, lengthy selection procedures, and problems with the State Treasury, which manages state funds.

One of the ideas for the Green Investment Scheme mechanism is the state support of green investment projects in the form of state credits (loans) under the current mechanism of the state support of investment and innovation projects. The replication of this mechanism for Green Investment Scheme will be conditioned by the financial sustainability of the companies, state and municipal agencies in different spheres and also from the existence of additional incentives for improvement of compliance with environmental standards.

As the year 2008 and the launch of AAU trading are quickly approaching, more efforts should be taken for creation of new laws in Ukraine and new models of behavior in the sphere of production, extracting industry, agriculture and forestry.

For more information, please see PointCarbon, Ukraine could earn $10 billion from Kyoto Protocol, 25 October 2006; Report: Ukraine Options for Designing a Green Investment Scheme under the Kyoto Protocol, Nov. 2006, available at http://www.climatefocus.com.

See also, Order of the Cabinet of Ministers of Ukraine “On approval of the plan for preparation to the consideration during the meetings of the Cabinet of Ministers of Ukraine of the most important issues of formation and realization of the state policy in the first decade of 2007,” 27 December 2006, N 674; Decision of the Cabinet of Ministers of Ukraine, “On approvals of the Statute of the State Fund of Environmental Protection,” 7 May 1998, N 634; Decision of the Cabinet of Ministers of Ukraine, “On approval of the list activities that relates to environmental protection measures,” 17 September 1996, N 1147; Law of Ukraine, “On innovations,” 4 July 2002.