Business and the public urge the authorities to proceed with environmental and climate reforms
The global trend towards green economic transformation as a path to sustainable development creates new requirements for all companies – both those involved in global value chains and those operating in the domestic market. Ukraine needs a green industrial policy that combines regulatory and stimulus methods to ensure the ecological modernization of industry. The legal framework must be constantly improved and be the basis for economic growth, as well as the improvement of social and environmental standards.
On October 4, 2021, the EBA Industrial Ecology and Sustainable Development Committee held a round table on the reform of environmental policy and legislation.
Svitlana Mykhailovska, EBA Deputy Director for Advocacy, opened the roundtable as the moderator emphasizing that modern realities require responsible business not only to follow European environmental trends but also to play a proactive role in shaping a policy for environmental protection and climate change at both national and international levels.
Stanislav Zinchenko, Chair of the EBA Industrial Ecology and Sustainable Development Committee, Director GMK Center, and Olga Boiko, EBA Industrial Ecology and Sustainable Development Committee Coordinator, made a short presentation of the White Paper on Environmental Reforms. Thus, Mr. Zinchenko explained that the logic behind the White Paper that proposes changes to the specific legal documents based on European experience. He also stressed that it was fundamentally important to fit each initiative in the format of one problem – one solution – one page. We managed to gather the expertise of the Committee member companies, legal advisers and create a systematic document on reforming the environmental policy of Ukraine. Surely, this Paper is mainly a business response to the legislative initiatives of the Verkhovna Rada of Ukraine and the Ministry of Environment. However, it also contains a range of our proposals and visions for the development of those areas which do not have a legislative field yet. Therefore, the Paper has 2 statuses: first, it is a kind of handbook for companies that do not have the ability to track all legislative changes and assess the consequences of a particular initiative for a particular company. Secondly, it is a practical guide to action for legislators – for MPs and the authorities at the regional level to immediately get the grip of business position on environmental initiatives.
Olga Boiko drew the participants’ attention to the relationship between business proposals and European experience: “In the Paper, we shaped our vision in the form of specific tasks for the Verkhovna Rada of Ukraine and the Cabinet of Ministers. In today’s presentation, we tried to show that all our proposals have a certain origin: they are either present in the legislative documents of the European Union or gained over the years of practice and the European Union. Some positions simply have to be adapted to the Ukrainian context, given that Ukraine is not a member of the EU, and also has a different structure of the economy and organization of society.
The second session of the event was devoted to the state’s vision for the implementation of environmental reforms.
Oleksiy Ustenko, Chairman of the Subcommittee on Rents, Environmental Tax and Taxation of the Agro-Industrial complex, of the Verkhovna Rada Committee on Finance, Tax and Customs Policy spoke about the urgency of the transition from a raw materials economy to the production of high value-added products, as well as the role of state aid in industrial development. For example, in order to stimulate the processing of sunflower seeds in Ukraine, a customs duty on the export of sunflower seeds was introduced. This contributed, in particular, to the active development of processing and the emergence of the oil extraction business, thanks to which today Ukraine is the world’s first exporter of sunflower oil. It is worth mentioning the value-added tax that allowed farmers to keep in their accounts and invest in the modernization of production which gave a powerful impetus to the development of domestic agriculture – the locomotive of our economy. “We have to do the same for our industry because European policy is becoming more stringent and from the mid-2020s we will have to pay high taxes and duties in the EU related to the environment. That is why we must give our producers, our entrepreneurs the possibility to invest in environmental modernization. Therefore, there should be some incentives in tax policy – even if it is a year or two of losses for the budget – which will then help increase tax revenues by increasing production. We need a Great Industrialization program, and I believe that by the end of the year we will be able to bring the relevant initiatives at least to the first reading. “
According to Viktoriia Hryb, a member of the Verkhovna Rada Committee on Energy, Housing and Utilities, Ukraine’s main problem on the road to decarbonization is the lack of a common strategy. Thus, each ministry is responsible for its own narrow direction and does not look at the possible consequences. For example, it is important for the Ministry of Environment to achieve a certain level of environmental performance, regardless of how it will affect the overall economic situation. The same can be said about the various committees of the Verkhovna Rada. “If we raise taxes today, and they continue to go to the general budget fund and be used for other non-environmental needs, it will not help to reduce emissions. That is why I propose to consider all environmental initiatives today, including their impact on the economy. And in making certain international commitments in the field of environmental protection, we must consider our economic interests in the first place, ” Viktoriia stressed.
Lyudmyla Buimister, Chair of the Subcommittee on Competition Development and Equal Conditions for Business of the Verkhovna Rada Committee on Economic Development, shared her thoughts on Ukraine’s European integration commitments and opportunities for Ukrainian business: “We do not see a decisive position from the Government course. In my opinion, the better the position of the industry is presented in these negotiations, the better results we can get and the sooner we will be able to carry out the eco-modernization to which we all aspire. It is enough for us to show the Europeans our way to the set goal, and at the same time remain consistent. Deindustrialization is a cross on the long-term future of our state and our economy, especially in the context of the already existing import dependence in Ukraine.”
In the third session, industry experts discussed the most relevant environmental legislative initiatives.
Oleksandr Lymar, a waste management expert at the Ukrainian Institute for the Future, stressed that the absence of the VRU Environmental Committee representatives in the event reflects their general reluctance to environmental issues, including waste management. According to Mr. Lymar, the main reason for the dysfunction of the municipal waste management system in Ukraine is the lack of a special tariff for sorting and processing waste. For effective waste management reform, it is necessary to take 5 steps: amend the Law on Local Self-Government, the Tax Code, the Law on Housing and Utilities, and only then introduce a phased registration and permitting system for enterprises involved in waste management. At the same time, the proposed draft law “On Waste Management” is not a panacea, as it focuses mainly on the extended producer responsibility which will cover only 20% of all waste generated in Ukraine.
Vladyslav Antypov, General Director of the Center for Ecology and Development of New Technologies, spoke about the results of the monitoring, reporting, and verification of greenhouse gas emissions. As of today, the electronic register is not working, monitoring plans are being submitted, but they have not been agreed upon yet. A significant problem is also the insufficient number of staff to process all documents. According to Mr. Antypov, the ETS is a more flexible tool than the CO2 tax, as it will provide more business opportunities for industrial eco-modernization and reduce pressure from government authorities. At the same time, creating this system is a more complex process for lawmakers than simply raising tax rates. Answering questions about free quotas and their possible price under ETS, he cited the example of European metallurgists who even manage to make money on ETS and thus painlessly and successfully carry out eco-modernization. Mr. Antypov proposed to identify strategic industries and allocate a certain number of free greenhouse quotas to them. The price can be regulated by the issuance of quotas. Thus, when there are more quotas, the lower the price will be. However, it will be beneficial for all to create a mechanism that is fair to all industries.
Then Kyrylo Kryvolap, Executive Director of the Center for Economic Recovery, Adviser to the Prime Minister of Ukraine, explained the basis for the development of an updated National Defined Contribution to the Paris Agreement. Thus, Mr. Kryvolap noted that the final version of the document turned out to be quite a compromise. The goal of 35% allows us to get into the “club of civilized countries”, but in section 6 of the document, there are several prerequisites for it to be achieved, including international trade support, creation of joint climate funds, preservation of gas transit, mitigation of energy poverty. As for sectoral plans, the energy sector needs the transition to RES, the introduction of RAB tariff to modernize the grid, as well as the increased role of biomass. In the transport sector, these are investments of public utilities in motor transport, as well as a reasonable regulation of car imports. The main problem for manufacturing is the reform of the eco-tax, while for the agricultural sector is waste management and the increased use of fertilizers. Work is underway to create a roadmap for the NDC, which may take the form of a green transformation strategy. Another task is to involve other ministries in the decarbonization process, with the Office of the Deputy Prime Minister for European Integration playing a leading role.
Volodymyr Panchenko, Ph.D. in Economics, KSP Strategies Partner, believes that the key to the successful adoption of draft laws on industrial pollution is to provide sufficient time for companies to transit to new environmental standards and freedom to choose technologies for eco-modernization. Otherwise, similar initiatives look more like lobbying by certain foreign manufacturers.
Svitlana Berzina, Head of the Public Council at the Ministry of Environmental Protection and Natural Resources of Ukraine, President of Living Planet NGO, informed the participants about the status of consideration of draft law 3091. The final version of the document will likely consider public comments on corruption risk prevention. However, no one has seen the text of the draft law yet. In addition, Ms. Berzina said that she did not support the draft laws in the field of industrial pollution registered in the Verkhovna Rada and considered it necessary to establish a working group to calculate the economic impact of the reform and to develop a handbook of the best available techniques taking into account the domestic interests and technological developments.
Oleksandr Sushchenko, Coordinator of the Energy and Environmental Projects Group, UNDP sees the interaction with the financial market as a way out of the situation caused by the government’s ambitious climate goals and the lack of potential domestic financial sources for their implementation. Particularly, it is necessary to create conditions for the emergence of new business models, to educate project managers who can do all necessary paperwork to attract funding, further monitoring and reporting on the results. Besides, Mr. Sushchenko noted that it is necessary to fill the vacuum created after the adoption of climate ambitions to determine a step-by-step path towards green transformation. Within UNDP, there is currently a pilot project that helps farmers calculate GHG emissions in SCOPE 1,2,3, as well as assess risks under the ESG.
And at the end of the event, Olga Polunina, an expert at the DiXi Group Think Tank, presented an EIA roadmap for the mining sector. Currently, the EIA system is overloaded with too many procedures and permits. At the same time, it lacks a methodical approach to EIA conclusions and reports, qualification of EIA executors, etc. Thus, Ms. Polunina mentioned 3 recommendations such as combining several EIA into one procedure, developing EIA guidelines for the extractive sector, and defining the concept of “deep drilling” for which EIA should be conducted.
The European Business Association would like to thank all the participants in the discussion and hopes for the prompt implementation of environmental reforms voiced by the business.