Pathways for Reforming Ukraine’s Carbon Tax: Towards an ETS-Compatible Upstream Tax with an Expanded Scope

This Policy Briefing accompanies and summarises the Policy Proposal “Pathways for Reforming Ukraine’s Carbon Tax: Towards an ETS-Compatible Upstream Tax with an Expanded Scope”. It advocates for an ambitious reform of Ukraine’s carbon tax, transitioning it to an upstream tax with expanded scope and increased price levels. By expanding its coverage to sectors like buildings and road transport analogous to the scope of the upcoming EU ETS 2, it would prepare Ukraine for EU accession, while enhancing efficiency and fairness. Moreover, it could also complement the planned Ukrainian Emissions Trading System (ETS) by providing a price floor, thus stabilising carbon prices and reducing price uncertainty. This Policy Briefing highlights the potential for significant emissions reductions and annual revenue generation of EUR 1.2–4.2 billion by 2030, contingent on an increasing tax trajectory gradually approaching expected EU ETS 2 prices. It also emphasises the importance of mitigating regressive effects through targeted social compensation measures. This reform proposal provides the blueprint for a cornerstone of Ukraine’s future climate policy, enabling Ukraine to ‘catch up’ and converge with European climate policy architecture and carbon price levels while mitigating regressive effects for vulnerable households.

Author(s):
Rouven Stubbe

What is a Policy Briefing?

Similar to Policy Papers, current or possible future policy topics are discussed. The economic analysis and policy recommendations are presented in a concise manner, focussing on the core arguments and results.