The opportunities and challenges arising out of development in climate legislation

The Law of Ukraine “On Basic Principles of State Climate Policy” No. 3991-IX as of 8 October 2024 (the Climate Law of Ukraine) came into force on 30 October 2024.

Simultaneously, this period is marked by the active development of legislative initiatives regarding the implementation of the European 4th Energy Package and coupling of the Ukrainian energy market with the EU (Draft Laws No. 12087 and No. 12087-1, as an alternative).

It is worth noting that EU energy legislation is closely linked to climate goals and policies, as the energy sector has a significant impact on the climate and is an industry where changes will have a decisive impact on achieving European climate goals. This approach is also reflected in implementing the EU energy and climate acquis into Ukrainian legislation.

Therefore, timely consideration of developments and changes in climate legislation is critical for the energy sector, and crucial for the entire business environment.

The purpose of the Climate Law of Ukraine

The key provision of the Climate Law of Ukraine is to direct the state climate policy towards achieving climate neutrality in Ukraine by 2050. The Law also sets an interim target to reduce greenhouse gas emissions by 65 percent below 1990 levels by 2030 (the target already declared by Ukraine at the international level in the updated nationally determined contribution of Ukraine to the Paris Agreement approved by the Government in 2021).

The Law is aimed at implementing the EU acquis communautaire in the field of climate change, particularly the European Climate Law[1].

Climate concepts and principles

The Climate Law of Ukraine defines key concepts in the climate field: climate neutrality, low-carbon development, nature-based solutions, market mechanisms and instruments, circular economy, etc.

This Law also sets out 21 principles of state climate policy, including the European “polluter pays” principle, which requires entities responsible for emissions and pollution to bear the associated costs, including the cost of measures to prevent emissions and pollution, to control such activities and to eliminate their consequences.

The Law also defines the principle of sustainable development, which lies in the conformity of state climate policy with the UN’s global sustainable development goals by ensuring a balance between environmental, economic, and social aspects. This principle is linked to the Strategy for the Implementation of Sustainable Development Reporting by Enterprises, which was also recently approved by the Resolution of the Cabinet of Ministers of Ukraine No. 1015-p as of 18 October 2024.

To predict further development of climate legislation, it is also worth considering the following principles established in the Climate Law of Ukraine: integration of state climate policy into all sectors of the economy and all areas of public policy, as well as into documents on restoration of Ukraine to overcome the consequences of armed aggression.

Climate policy targets

The Climate Law of Ukraine defines the following long-term goals:

• achieving climate neutrality through a socially just and economically efficient transition to low-carbon development to keep the global average temperature rise below 2°C, aiming to limit such a rise to 1.5°C;
• building resilience and reducing risks associated with climate change;
• ensuring low-carbon and sustainable development of Ukraine, as well as environmental, food and energy security;

and medium-term goals:

• reduction of greenhouse gas emissions and increase of their absorption in the sectors of industry, transport, energy, agriculture, forestry, construction, waste management, natural resources management, etc.;
• increase in the share of renewable energy sources and alternative fuels in the energy balance of Ukraine;
• reducing the energy intensity of GDP;
• development of environmentally friendly and low-carbon technologies and infrastructure, as well as implementation of nature-based solutions in the economy;
• strengthening adaptive capacity, increasing resilience and reducing vulnerability to climate change.

Climate strategic and programme documents

It is essential that with the adoption of the Climate Law of Ukraine, the requirements and regulations for the development of key strategic documents in the field of climate are established at the legislative level, namely regarding:

• The Long-Term Low-Carbon Development Strategy of Ukraine (is approved, reviewed and, if necessary, updated by the Government every 5 years with a planning period of 30 years; the strategy should take into account the results of its evaluation and monitoring of its implementation).
• Nationally Determined Contribution of Ukraine to the Paris Agreement (the Government approves the NDC for a period of 10 years, the NDC is reviewed and updated every 5 years or in case of changes in the field of climate change).
• National Energy and Climate Plan (the Government approves the NECP for 10 years, the NECP is reviewed and updated every 5 years).
• Climate Change Adaptation Strategy (the Government approves the strategy for a period of 10 years, the strategy is reviewed and updated every 5 years).

The Climate Law of Ukraine also establishes a multi-level system for the development and implementation of climate programme documents:

• sectoral programme documents (a) on reduction of GHG emissions and increasing their removal and (b) on adaptation to climate change in the industry, transport, energy, agriculture and forestry, construction, waste management, natural resource management and other sectors of the economy and/or public policy areas (which are approved by the Government, reviewed and updated every 5 years);
• regional and local plans for reduction of GHG emissions and increasing their removal, as well as regional and local strategies on adaptation to climate change (which are developed by local authorities and local self-government bodies, reviewed and updated every 5 years).

The Law provides for the scientific support in developing climate policy documents, which is ensured by the Scientific and Expert Council on Climate Change and Ozone Layer Preservation, as an independent advisory scientific and expert authority.

The Climate Law of Ukraine establishes a system of monitoring and evaluation for implementation of state climate policy. The monitoring is based on information on climate measures provided to the Government by the central executive authorities. The Ministry of Environmental Protection and Natural Resources is responsible for monitoring. The Scientific and Expert Council on Climate Change and Ozone Layer Preservation evaluates climate policy efficiency and provides forecasting in climate change.

The Climate Law of Ukraine also establishes a framework regulation of the national system for inventory of anthropogenic emissions from GHG sources and removal of GHGs by sinks, which is operated by the Ministry of Environmental Protection and Natural Resources. The National Report on Inventory of Anthropogenic Emissions by GHG Sources and Removal of GHGs by Sinks reflects the result of the system’s functioning. It is developed by the Ministry of Environmental Protection and Natural Resources and updated annually.

The means for implementation of climate policy

To implement climate policy measures and achieve the set targets, the Climate Law of Ukraine provides for the application of the following practical tools:

• fiscal tools (environmental tax);
• market mechanisms and tools (emission trading system, voluntary carbon markets and other instruments provided for in Article 6 of the Paris Agreement[2]);
• tools on state financial support for business entities (state aid in the form of grants, subsidies, guarantees, low-interest loans, targeted loans on preferential terms, etc. for the implementation of climate policy measures; gradual reduction and cancellation of state support for the extraction, transportation, processing and consumption of fossil fuels that do not meet the requirements of low-carbon development; introduction of schemes to support the development of green and low-carbon technologies, renewable energy sources (auctions, contracts for difference, etc.);
• tools to stimulate the citizens (grants, subsidies, low-interest loans, guarantees, targeted loans, etc., promotion of climate action).

International cooperation

In the Climate Law of Ukraine considerable attention is given to international commitments of Ukraine, both at the global level within the UN and at the regional level, in terms of obligations under the EU-Ukraine Association Agreement and the Treaty Establishing Energy Community.

The key role in international cooperation on climate change is assigned to the Government, and the central executive authorities participate in the dialogue on international climate initiatives.

Conclusions

Ukraine has shifted to actively developing its climate legislation, which will have an impact on all segments of the economy, especially for businesses with significant environmental impact. With the adoption of the Climate Law, Ukraine not only demonstrates the fulfilment of international obligations and the strengthening of its European integration course but also implements the declared course of green transition and establishes tools to motivate enterprises to implement their own sustainable development goals and policies, climate measures and criteria in their business strategies.

Declaration of climate targets and introduction of state regulation on climate policies and tools are essential factors that should be considered in the activities of both energy undertakings and enterprises that convey a responsible approach to the environmental impact of their activities and determine the prospects of their activities on a long-term basis.

If you would like to discuss the issues raised in this paper in more detail, please contact the SK team.

Information contained in this legal alert is for general informational purposes only, does not constitute legal or other professional advice and should not be relied upon as a substitute for specific professional advice adapted to the specific circumstances.

[1] Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (‘European Climate Law’)

[2] Ukraine participates in the Partnership for the Implementation of Article 6 of the Paris Agreement on the Development of Carbon Markets and Private Investment, the source is available at https://www.kmu.gov.ua/news/uriad-skhvalyv-pryiednannia-ukrainy-do-partnerstva-z-implementatsii-statti-6-paryzkoi-uhody