27.11.2024
Source: https://epravda.com.ua/experts/torgivlya-vikidami-yak-ukrajini-organizuvati-proces-800047/
What is the connection between European climate initiatives and Ukraine’s victory?
Ukraine’s path to victory is a “million” of small steps. But very specific ones. Putting greenhouse gas emissions in order is one of them. You have a fair question: what kind of emissions are there when missiles are flying over your head? But read to the end.
In Ukraine, legislative initiatives on monitoring, reporting and verification of emissions were adopted back in December 2019. However, due to delays in the adoption of by-laws, this system began to operate only at the end of 2021.
Around the same time, the requirement to submit emissions reports for installations with a capacity of over 20 MW, as well as for such powerful industries as oil refining, metallurgy, and cement production, came into effect.
Volumes of greenhouse gas emissions and removals in Ukraine by sector, million tons of CO2 equivalent
The beginning of the Great War introduced “adjustments” to this strategy. For the third year in a row, the reporting system has been working, to put it mildly, not fully.
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 imports of domestic products. And this is 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) – a mechanism for regulating carbon emissions at the border with the European Union. Its task is to prevent carbon pollution by charging EU importers for the import of goods with a carbon footprint.
SVAM will fully come into operation on January 1, 2026. It would seem that there is still plenty of time. But as soon as the sacred date comes, the number of free emission permits that 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, the EU importer should buy SVAM certificates, not Ukrainian companies.
The fact that the European SVAM law does not provide for any concessions for Ukraine helps to realize the importance of introducing a quota trading system.
Simply put, no one is interested in the fact that our industrial base suffered from the war. Therefore, it is high time for us to work on projects to reduce our carbon footprint and ensure competitiveness on the global market.
We cannot accuse our partners of a cold attitude towards Ukraine. The introduction of a greenhouse gas emissions trading system in our country is one of the main obligations that the country had to fulfill “a hundred years” ago – after signing the association agreement with the EU in 2017.
So, what to do when there are much more tasks than time to complete them? One of the most effective steps is to switch to auctioning quotas. Market participants can be enterprises in such industries as energy, metallurgy, chemical industry, cement production and others. Yes, this is exactly the “target audience” to which the rules of the aforementioned SWAM mechanism apply.
Carbon dioxide emissions related to energy and industrial production can come from various types of fuel. The largest volume of emissions is energy.
The impact of CO2 on the price of electricity can be significant, for example, in the context of commercial flows between countries. Commercial export and import of electricity in Ukraine is a key element of the energy strategy, which allows to optimize the use of domestic capacities, ensure the stability of the energy system and reduce energy dependence. Today, most contracts are supplied with formula pricing from the DAM of the country (the price is formed one day in advance) from which electricity is imported.
The price of CO2 emissions has a significant impact on the formation of the wholesale price for 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 greater the costs of these companies.
In particular, when the price of CO2 increases, fossil fuel producers are forced to take into account the additional costs of quotas in their offers on the DAM. At times when the demand for electricity is high and to meet the demand it is necessary to launch coal/gas generation, the price of CO2 becomes one of the main factors determining the price of electricity on the DAM.
The Ukrainian Energy Exchange is ready to begin preparatory work and is developing an assessment of the possibility of launching management of emissions trading, including by drawing on the experience of trading using the most popular ETS system in Europe. 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% remains in reserve for new participants. The secondary market includes spot trading of allowances and other trading instruments such as futures contracts and options.
This system involves two stages. The first is the setting up of monitoring, reporting and verification of emissions. The second is the creation of a market for trading allowances. Each company receives allowances, and if it exceeds its emissions limit, it must buy additional permits at auctions or on the secondary market, or pay a penalty for excess emissions.
The proceeds from the auctions go to the Innovation Fund and the Modernisation Fund, which finance projects to reduce emissions.
Prices on the European carbon market continue to rise as Europe’s climate goals and policies become more ambitious. As for the cost of allowances in the EU, as of Q3 2024 they were estimated at just over €65 per metric ton of CO2. The difference between spot and futures prices for EU emissions allowances is small.
The highest price for carbon emissions so far was recorded on 21 February 2023 at €100.34. Penalties for exceeding emissions are €100 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.
Comparison of prices for carbon emission allowances
The EU conducts auctions through the European Energy Exchange (EEX), where allowances are sold jointly for all 25 member states. Poland and Germany conduct auctions separately, but on the same exchange.
In addition to the EU, similar systems operate in China, the USA, the UK, 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.
