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

The Policy Proposal “Pathways for Reforming Ukraine’s Carbon Tax: Towards an ETS-Compatible Upstream Tax with an Expanded Scope” addresses the critical need for reforming Ukraine’s carbon pricing mechanisms in alignment with European Union standards and the country’s EU accession goals. It advocates transitioning Ukraine’s outdated and narrowly focused carbon tax to a reformed upstream tax, expanding its coverage to sectors like buildings and road transport analogous to the scope of the upcoming EU ETS 2. This approach would not only enhance efficiency and fairness but could also complement the planned Ukrainian Emissions Trading System (ETS) by providing a price floor, thus stabilizing carbon prices and reducing price uncertainty. The proposal 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 emphasizes 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 convergewith European climate policy architecture and carbon price levels while mitigating regressive effects for vulnerable households.

Author(s):
Rouven Stubbe

What is a Policy Proposal?

Policy Proposals are tailored recommendations for policy design that usually rely on extensive economic analysis. They are typically more focussed on a specific policy problem than policy papers.