Designing a suitable Emissions Trading System for Ukraine

The Policy Proposal “Designing a Suitable Emissions Trading System for Ukraine: Squaring EU Convergence, Price Certainty, and Competitiveness” explores the complex task of aligning Ukraine’s climate policies with the European Union amidst the ongoing Russian invasion. It advocates for a tailored Ukrainian Emissions Trading System (ETS) to balance EU integration, economic stability, and competitiveness. The study recommends implementing a strong price stability mechanism, such as a fixed-price regime during a transitional phase or a price collar, to ensure carbon price certainty crucial for Ukraine’s post-war recovery. This approach aims for a rapid convergence with EU-ETS prices by 2030, utilizing partial free allocations to ease the transition and mitigate economic shocks. Furthermore, the study suggests setting a clear, forward-looking price trajectory and establishing a Ukrainian Carbon Border Adjustment Mechanism (CBAM) to protect domestic industries and keep carbon revenues within the country. The proposed ETS design, emphasizing price stability and long-term planning, seeks to support Ukraine’s economic resilience while advancing towards EU environmental standards.

Rouven Stubbe, Pavel Bilek, Tommaso Ficara, Henriette Weser, Robert Kirchner

What is a Policy Paper?

Policy Papers refer to current or possible future policy topics. An in-depth economic analysis of the selected topic is presented, from which policy recommendations and possible actions are derived.