“What is the connection between European climate initiatives and Ukraine’s victory?”, — write: epravda.com.ua
Ukraine’s path to victory is a “million” of small steps. But very specific. Dealing with greenhouse gas emissions is one of them. You have a fair question: what are the emissions when rockets fly overhead? But read to the end. In Ukraine, legislative initiatives regarding monitoring, reporting and verification of emissions were adopted back in December 2019. However, due to delays in the adoption of by-laws, this system did not become operational until the end of 2021. At about the same time, the requirement to submit emissions reports for installations with a capacity of more than 20 MW, as well as for such powerful industries as oil refining, metallurgy, and cement production, began to apply. The beginning of the great war brought “adjustments” to this strategy. For the third year in a row, the reporting system is, to put it mildly, incomplete. After all, it is impossible to collect accurate data on emissions today. But Ukraine will not win this war if it does not preserve its economy. And one of its most important components is income from the import of domestic products. And this is precisely where our attention to the issue of greenhouse gas emissions becomes significant. Protecting its markets, Europe introduced the so-called SVAM (Carbon Border Adjustment Mechanism) – this is a mechanism for regulating carbon emissions at the border with the European Union. Its task is to prevent carbon pollution of the environment by charging EU importers for importing goods with a carbon footprint. SVAM will be fully operational from January 1, 2026. It would seem that there is still a lot of time. But as soon as the sacred date comes, the number of free emission permits, which many Ukrainian manufacturers use today, will end. And this is not a question of some targeted punishment. This is precisely the problem of the competitiveness of Ukrainian products in Europe. After all, SVAM certificates should be purchased by the EU importer, not by Ukrainian companies. The fact that the European FTAA law does not provide for any concessions for Ukraine helps to understand the importance of the introduction of the quota trading system. Simply put, nobody cares if our industrial base is damaged by war. Therefore, it is time for us to work on projects to reduce the carbon footprint and ensure competitiveness on the world market. We cannot blame our partners for their cold attitude towards Ukraine. The introduction of a system of trading quotas for greenhouse gas emissions in our country is one of the main obligations that the country had to fulfill “one hundred years ago” – after signing the association agreement with the EU in 2017. So, what to do when there are more tasks than time to complete them? One of the most effective steps is to switch to the auction sale of quotas. Enterprises in such fields as energy, metallurgy, chemical industry, cement production and others can become market participants. Yes, that is the “target audience” to which the rules of the above-mentioned SVAM mechanism apply. Carbon dioxide emissions related to energy and industrial production can come from different types of fuel. The energy sector is the largest in terms of emissions. The impact of CO2 on the price of electricity can be significant, for example, under the conditions of commercial flows between countries. Commercial export and import of electrical energy in Ukraine is a key element of the energy strategy, which allows to optimize the use of internal capacities, ensure the stability of the energy system and reduce energy dependence. Today, most contracts are supplied with formula pricing from the RDN of the country (the price is formed one day in advance) from which the electricity is imported. The price of CO2 emissions has a significant impact on the formation of the wholesale price of electricity on short-term markets in the EU. The price of CO2 emissions is becoming an important factor for generating companies that use fossil fuels. Each ton of CO2 that these companies emit into the atmosphere must be covered by the purchase of a corresponding quota. The higher the price of quotas, the higher the costs of these companies become. In particular, when the price of CO2 increases, fossil fuel producers are forced to factor in the additional costs of quotas in their proposals for ETS. At times when the demand for electricity is high and it is necessary to start coal/gas generation to meet the needs, the price of CO2 becomes one of the main factors that determines the price of electricity at the NPP. The Ukrainian Energy Exchange is ready to start preparatory work and is developing an assessment of the possibility of introducing trading in emissions quotas, including based on the experience of trading using the most popular European ETS system. In 2023, the EU Emissions Trading System (EU ETS) accounted for 87% of the total value of the carbon market. This system is based on Directive 2003/87/EC, according to which emission allowances can be allocated for free or sold at auctions (primary market). In the EU, more than 50% of new allowances enter the market through auctions, while 5% remain in reserve for new entrants. The secondary market includes spot trading of quotas and other trading instruments such as futures contracts and options. This system involves two stages. The first is setting up emissions monitoring, reporting and verification. The second is the creation of a quota trading market. Each company receives quotas, and if it exceeds the emission limit, must buy additional permits at auctions or on the secondary market, or pay a fine for excess emissions. Proceeds from the auctions go to the Innovation Fund and the Modernization Fund, which finance emission reduction projects. Prices in the European carbon market continue to rise as Europe’s climate goals and policies become more ambitious. As for the cost of quotas in the EU, for the III quarter of 2024, they were estimated at a little more than 65 euros per metric ton of CO2. The difference between spot and futures prices for EU emission allowances is small. The highest price for carbon emissions so far was recorded on February 21, 2023 at the level of 100.34 euros. Fines for excess emissions are 100 euros per ton. According to experts, the carbon market will move towards approximately €110/t in 2025, and then there will be a “price explosion” – it will reach €150/t by 2030. The EU conducts auctions through the European Energy Exchange (EEX). , where allowances are sold jointly for all 25 member countries. Poland and Germany conduct auctions separately, but on the same exchange. In addition to the EU, similar systems operate in China, the USA, Great Britain, Switzerland, South Korea, Mexico, New Zealand and other countries. In Ukraine, the emissions trading system could cover up to 30% of emissions, which is comparable to 38% of emissions in the EU.
