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Cablegate: Ukraine: Keen to Preserve Status Quo On Climate

VZCZCXRO8770
PP RUEHIK
DE RUEHKV #2062/01 3291407
ZNR UUUUU ZZH
P 251407Z NOV 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 8884
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RHMFIUU/HQ EPA WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 KYIV 002062

SENSITIVE
SIPDIS

DEPT FOR OES, EUR, EEB

E.O. 12958: N/A
TAGS: SENV KGHG EREL PREL XH UP

SUBJECT: UKRAINE: KEEN TO PRESERVE STATUS QUO ON CLIMATE

REF: KYIV 936

KYIV 00002062 001.2 OF 002


SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION

1. (SBU) Summary. Ukraine's position on climate change is to
preserve the current Kyoto Protocol-based status quo. The country
has reduced its greenhouse gas emissions by more than 50 percent
since 1990 -- largely as a result of its post-Soviet industrial
collapse -- and has become a beneficiary of the Kyoto carbon trading
system. Despite its status as one of the world's largest polluters
and least energy-efficient economies, Ukraine could increase
emissions and still comfortably reach its stated emissions reduction
target of 20% by 2020. Environmental concerns continue to be of
secondary importance here, where climate change mechanisms are
generally viewed as convenient tools to raise revenue and attract
investment. End Summary.

INDUSTRIAL COLLAPSE LEADS TO EMISSION REDUCTION
--------------------------------------------- --

2. (U) Industrial collapse after the fall of the Soviet Union led
to significant reductions in greenhouse gas emissions throughout the
region. Ukraine's emissions totaled 926 million metric tons in
1990, but stood at just 436 million metric tons in 2007, a de facto
53 percent reduction.

3. (U) Ukraine signed the Kyoto Protocol as an Annex 1 country,
committing to maintain greenhouse gas emissions at or below the 1990
baseline by 2012. This was essentially a political gesture, as even
the most optimistic economic growth forecasts saw Ukraine emitting
less than 60% of 1990 levels by 2012, and less than 80% by 2020,
without any real emission reduction efforts.

1990 BASELINE YEAR "NON-NEGOTIABLE"
-----------------------------------

4. (SBU) Ukraine's official position for the post-Kyoto treaty
negotiations is a greenhouse gas emission reduction of 20% by 2020,
and 50% by 2050, from the 1990 level. One of Ukraine's chief
climate negotiators privately described this position as "cynical",
since a 20% reduction by 2020 could also be viewed as an increase of
approximately 70% from the 2009 level.

5. (SBU) According to Ukraine's official position paper submitted
to the UNFCCC, "imposing stricter obligations on Ukraine (would) not
only render economic growth impossible but (would prevent the
economic) recovery as well as the recovery of the population of
Ukraine." In fact, while Ukraine may be ready to compromise on
emission reduction numbers, its negotiators have been adamant that
the 1990 baseline year be preserved in any new agreement. The
director of Ukraine's National Agency for Environmental Investments
(NAEI) told us the 1990 baseline year was "non-negotiable" and that
"Ukraine would not be part of a climate change agreement" that would
peg emissions at a later year.

6. (SBU) According to Ukraine's climate negotiators and other
observers, the benefits of keeping the 1990 baseline year are
two-fold. First, it relieves pressure on Ukraine to strengthen its
emission reduction efforts. Second, it gives Ukraine access to
"excess" carbon credits that can be sold under the International
Emission Trading scheme. This cap-and-trade mechanism has allowed
countries that have not reached emission reduction targets under
Kyoto to buy emission allowances from countries with excess.
According to NAEI estimates, Ukraine will have approximately 1
billion excess Assigned Amount Units (AAUs), a figure equal to 1
billion metric tons of unused "hot air", before the Kyoto Protocol
expires in 2012.

CARBON DEALS
------------

7. (SBU) Ukraine has completed only one carbon trade deal, selling
30 million AAUs to Japan for roughly $300 million (reftel). Two
other deals, announced in May, to sell 150 million AAUs to two
companies registered in Switzerland and New Zealand have not
materialized. According to the NAEI, the firms were unable to prove
that they had the financial means to complete the transactions.
Analysts speculate, however, that potential investors had
reservations about Ukraine's commitment to use carbon revenues to
"green" its economy.

8. (SBU) Prodded about the size of the potential market for AAUs,
the NAEI's director admitted that Ukraine would be lucky to sign

KYIV 00002062 002.2 OF 002


similar deals before 2012. He predicted, however, that the
continuation of the Kyoto-based cap-and-trade scheme under the new
climate change agreement would significantly boost trade in AAUs,
since it would remove market uncertainty about the future utility of
such credits. Nonetheless, given the lack of a post-Kyoto treaty,
Ukraine plans to "urgently" sell its surplus AAUs before 2012,
according to one of Ukraine's climate change negotiators.

COMMITMENT TO CLIMATE CHANGE LACKING
------------------------------------

9. (SBU) Despite Ukraine's official goal of reducing emissions "20
by 2020", Kyiv-based NGOs lamented the government's lack of
commitment to fighting climate change. A representative from the
National Ecological Center said Ukraine was looking solely at the
financial benefits of a post-Kyoto deal but was not willing to
acknowledge that "Ukraine is also responsible for climate change and
should take action."

COMMENT
-------

10. (SBU) Ukraine's civil society critics appear to be right.
Despite lofty-sounding goals, Ukraine has thus far gained from
laying low, letting more zealous Europeans take charge on
negotiations over emissions targets and baseline dates. Ukraine
will continue to push for the Kyoto-based status quo at Copenhagen.
Meanwhile, Ukraine will lack incentives to lose its twin distinction
of being one of the world's largest polluters and least
energy-efficient countries.

PETTIT

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