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Ukraine and Kazakhstan eye linkage of ETSs with EU scheme

With correct design, carbon markets in Eastern Europe may soon take off

London (03 October 2012)

The countries of eastern Europe are moving ahead with the design of domestic emissions trading schemes and, with the right schemes in place, will soon be open for business, placing them on a par with the new generation of such schemes around the world, according to Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

“When designing new emissions trading schemes, including for the countries of Eastern Europe, it is important to keep in mind that the intention is to link up with other markets around the world. There are technical and policy choices that can ensure that linking emissions markets will be possible in the future. Incompatible design features will make the linking of emissions trading schemes impossible”, explained Olga Gassan-zade, Associate Director, Advisory Services, Thomson Reuters Point Carbon.

"The introduction of a carbon price through domestic emissions trading schemes in Ukraine and Kazakhstan will help to direct investments towards low carbon technologies and thereby assist in tackling climate change", commented Jan-Willem van de Ven, Senior Carbon Manager, responsible for carbon market development within the European Bank of Reconstruction and Development (EBRD).

A consortium led by Thomson Reuters Point Carbon’s Advisory Department has been selected by the EBRD to advise on how the schemes being proposed in Ukraine and Kazakhstan should be designed, with a view to increasing preparedness as well as facilitating linkage to other schemes. Known as the PETER project (Preparedness for Emissions Trading in the EBRD Region), it will assist the two countries in analysing the cap and trade options and criteria for linking with external emissions trading schemes and will provide practical tools to facilitate linking discussions with external partners.

The Ukrainian government has said it wishes to design an “open link” system, which would enable it to link up to the EU's scheme, the world's largest, for example. The Ukrainian government plans to end work on preparation measures by the end of 2014 for launch the following year. In May this year Kazakhstan announced it will go ahead with its own national system to be launched as early as 1 January 2013. The Kazakh government has also said it aims to link the country’s domestic carbon market with the EU ETS, or with the emerging schemes within the Asian-Pacific region.

Gulmira Sergazina, the Head of the Low Carbon Development Department of the Ministry of Environmental Protection of Kazakhstan commended EBRD on the launch of the project and said: "Kazakhstan is fully on track to launch the first pilot phase of the domestic emissions trading scheme on January 1, 2013. Most of the regulatory legislative acts, including the rules on allocating greenhouse gas (GHG) allowances, the reserves of allowances, the total cap under the National Allocation Plan (NAP) and the rules for maintaining the state registry of GHG emission sources, are already in place and the government is working on finalising the NAP for 2013. In this regard, the PETER project is an important information source because it will help us to look at the opportunities that will arise from the second phase of the Kazakh ETS, which will start in 2014".

"The devil will be in the design detail, but the decision to introduce a cap on domestic polluters and to trade emission allowances across borders indicates the increasing integration of these two countries into a global system of trade and investment transactions. It also demonstrates the serious contribution these countries can make to global climate change mitigation efforts", said Grzegorz Peszko, Lead Energy/Environmental Economist at the EBRD.

“In an emissions trading scheme, capital finds its way to the cheapest emissions reduction. In the cases of Ukraine and Kazakhstan, it’s clear that linking a domestic emissions market to other emissions trading schemes in the region or globally opens the door for foreign capital to be invested in making the economy more efficient”, said Gassan-zade.

Ukraine and Kazakhstan combined emit close to 2% of the global greenhouse gas emissions, or roughly the same amount as Canada or the UK.

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