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Business estimates Ukraine’s potential for reducing greenhouse gas emissions to be 40-45% by 2030

25/ 06/ 2021
  Ukraine is currently preparing a draft of the Nationally Determined Contributions of Ukraine to the Paris Agreement (NDC-2). The previous proposal, developed by the Ministry of Environmental Protection and Natural Resources, envisages a reduction of 35% in greenhouse gas emissions by 2030, i.e., a 65% reduction from the level of 1990. EBA experts have three important suggestions that should be reflected in the NDC-2 draft: 1.The establishment of a 40-45% emission reduction corridor, provided that at least $ 15-20 billion is invested in decarbonization measures. According to the NDC-2 draft, the calculations are based on the annual growth of the domestic economy by an average of 3.7%. According to the latest forecasts, in 2021 Ukraines GDP will grow by 5.6% (J.P. Morgan), by 4% (the IMF), by up to 3.8% (the World Bank). At the same time, the Cabinet of Ministers of Ukraine recently approved the National Economic Strategy 2030 which includes the goal of increasing real GDP by at least 2 times until 2030. It should also be noted that in 2020 the economic decline in Ukraine was smaller than expected. This is primarily due to low initial indicators, as a result of which even small positive shifts, such as 1-2 investment projects worth several million dollars, can create a visible effect of growth, especially in the real sector of the economy. Besides, according to preliminary estimates of the EBA experts, the implementation of decarbonization goals requires at least $ 20 billion in investments, which will be directed exclusively to eco-modernization and the implementation of decarbonization measures. Therefore, the climatic ambition, set in the NDC-2 draft, should not restrain the possible rates of economic growth of our economy. Therefore, the business proposes to reflect the goal in the form of a corridor of reducing greenhouse gas emissions from 40 to 45% by 2030, i.e., by 60-55% from the level of 1990. This provides for $ 15-20 billion in total investment in modernization and decarbonization. 2.Separate calculations of sectoral investments required for the implementation of decarbonization measures. According to the NDC-2 draft, the amount of capital investment required for the implementation of NDC-2 is 102 billion euros by 2030. These calculations were made based on statistics of capital investments in Ukraine during 2010 - 2019. At the same time, according to the State Statistics Service of Ukraine, about UAH 24.8 billion of capital investments were spent on measures to prevent climate change and protect the air during this period. Therefore, we consider it necessary to provide separate calculations of investments required for the implementation of decarbonization measures in each of the sectors, in particular such sectors as energy, industry, agriculture, etc. 3.Provision of economic entities with state support for decarbonization.  As stated in the NDC-2 draft, the current financial situation of Ukraine requires the mobilization of a significant amount of climate funding, both public and private, which will contribute to economic growth. However, the current version of the NDC-2 draft only mentions the need to attract international funding. At the same time, the mechanisms for raising funds remain unclear, in particular, how it is planned to attract donor and technical international assistance, to introduce the mechanism for distribution of funds, etc. Business notes that attracting only private capital will not be enough and the stimulating policy of the state will play an important role. Thus, it is a question of unblocking the mechanisms of state support to companies by approving the criteria for the implementation of measures for environmental protection, as provided by Law №1555-VII On State Aid to Economic Entities. Besides, the reform of environmental taxation is important in terms of its intended use, in particular, EBA member companies draw attention to the need to enable companies to return up to 70% of the total accrued amount of environmental tax for eco-modernization measures. Also, nothing is said about the creation of funds for decarbonization, as well as the identification of sources and mechanisms for their replenishment. It is important that the decarbonization fund has a separate item of expenditure on technical modernization, energy-efficient equipment, etc., and that it is replenished not only by taxpayers deductions but also by international revenues. Therefore, it is important to include in the NDC-2 draft a roadmap of planned mechanisms of state support of the business for it to implement decarbonization measures. We hope that Ukraine will be able to offer the international community an ambitious but realistic contribution to the creation of a climate-neutral world.   Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

Ukraine is currently preparing a draft of the Nationally Determined Contributions of Ukraine to the Paris Agreement (NDC-2). The previous proposal, developed by the Ministry of Environmental Protection and Natural Resources, envisages a reduction of 35% in greenhouse gas emissions by 2030, i.e., a 65% reduction from the level of 1990.

EBA experts have three important suggestions that should be reflected in the NDC-2 draft:

1.The establishment of a 40-45% emission reduction corridor, provided that at least $ 15-20 billion is invested in decarbonization measures. According to the NDC-2 draft, the calculations are based on the annual growth of the domestic economy by an average of 3.7%. According to the latest forecasts, in 2021 Ukraine’s GDP will grow by 5.6% (J.P. Morgan), by 4% (the IMF), by up to 3.8% (the World Bank). At the same time, the Cabinet of Ministers of Ukraine recently approved the National Economic Strategy 2030 which includes the goal of increasing real GDP by at least 2 times until 2030. It should also be noted that in 2020 the economic decline in Ukraine was smaller than expected. This is primarily due to low initial indicators, as a result of which even small positive shifts, such as 1-2 investment projects worth several million dollars, can create a visible effect of growth, especially in the real sector of the economy.

Besides, according to preliminary estimates of the EBA experts, the implementation of decarbonization goals requires at least $ 20 billion in investments, which will be directed exclusively to eco-modernization and the implementation of decarbonization measures.

Therefore, the climatic ambition, set in the NDC-2 draft, should not restrain the possible rates of economic growth of our economy. Therefore, the business proposes to reflect the goal in the form of a corridor of reducing greenhouse gas emissions from 40 to 45% by 2030, i.e., by 60-55% from the level of 1990. This provides for $ 15-20 billion in total investment in modernization and decarbonization.

2.Separate calculations of sectoral investments required for the implementation of decarbonization measures.

According to the NDC-2 draft, the amount of capital investment required for the implementation of NDC-2 is 102 billion euros by 2030. These calculations were made based on statistics of capital investments in Ukraine during 2010 – 2019. At the same time, according to the State Statistics Service of Ukraine, about UAH 24.8 billion of capital investments were spent on measures to prevent climate change and protect the air during this period. Therefore, we consider it necessary to provide separate calculations of investments required for the implementation of decarbonization measures in each of the sectors, in particular such sectors as energy, industry, agriculture, etc.

3.Provision of economic entities with state support for decarbonization. 

As stated in the NDC-2 draft, the current financial situation of Ukraine requires the mobilization of a significant amount of climate funding, both public and private, which will contribute to economic growth. However, the current version of the NDC-2 draft only mentions the need to attract international funding. At the same time, the mechanisms for raising funds remain unclear, in particular, how it is planned to attract donor and technical international assistance, to introduce the mechanism for distribution of funds, etc.

Business notes that attracting only private capital will not be enough and the stimulating policy of the state will play an important role. Thus, it is a question of unblocking the mechanisms of state support to companies by approving the criteria for the implementation of measures for environmental protection, as provided by Law №1555-VII “On State Aid to Economic Entities”. Besides, the reform of environmental taxation is important in terms of its intended use, in particular, EBA member companies draw attention to the need to enable companies to return up to 70% of the total accrued amount of environmental tax for eco-modernization measures. Also, nothing is said about the creation of funds for decarbonization, as well as the identification of sources and mechanisms for their replenishment. It is important that the decarbonization fund has a separate item of expenditure on technical modernization, energy-efficient equipment, etc., and that it is replenished not only by taxpayers’ deductions but also by international revenues. Therefore, it is important to include in the NDC-2 draft a roadmap of planned mechanisms of state support of the business for it to implement decarbonization measures.

We hope that Ukraine will be able to offer the international community an ambitious but realistic contribution to the creation of a climate-neutral world.

 

Be the first to learn about the latest EBA news with our Telegram-channel EBAUkraine.

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