Ukraine should be plugged into global carbon markets to close a funding gap for green and sustainable reconstruction.
COP29’s achievements in carbon markets and increased climate finance for developing countries offers new opportunities for Ukraine’s green reconstruction and energy transition.
The war in Ukraine has caused over $1bn in losses, 180 million tons of greenhouse gas emissions, according to the Ukrainian Ministry of Environmental Protection.
Green finance can be used to reach projects on a grassroots level
Carbon markets are a crucial mechanism to aid environmental recovery, offering a unique way to fund reforestation, restore biodiversity, rehabilitate contaminated land, and develop modern, sustainable energy infrastructure.
By assigning value to carbon emissions, this system incentivises sustainable development and opens doors to new funding opportunities. The global active carbon market was valued at $6.58 bn in 2023 and is expected to be around $16.45bn by 2033. The EU, the US, and the UK are leading this expansion with their new carbon trading systems. The EU Emissions Trading System (EU ETS) remains the largest carbon market globally. Following Brexit, the UK has established its own UK EmiETS, where both countries can find synergies.
Opportunities for Ukrainian Green Energy
Access to carbon trading would provide Ukraine the financial means to implement large-scale projects. For example, Ukraine has significant potential in the renewable energy market. The country’s large agricultural lands, wind and solar capacity, and geographical location, combined with its access to critical raw materials such as copper and germanium, make it a natural candidate for renewable energy development. By installing wind farms, solar panels, and biogas production facilities, Ukraine could not only meet its domestic energy needs sustainably but also export green energy to the European Union, further boosting its economy.
Reforestation and Biodiversity Restoration
The war has destroyed 3 million hectares of forests in Ukraine, reducing greenhouse gas absorption by 1.7million tons, However, Ukraine’s forests continue to be a crucial asset. With over 9.5 million hectares of forest, Ukraine has the potential to engage in carbon sequestration programs that offer significant financial returns. The country could generate and sell carbon credits through forest preservation programs like REDD+ (Reducing Emissions from Deforestation and Forest Degradation) by protecting its forests and planting new trees during post-war reconstruction. These initiatives would not only provide revenue but also protect biodiversity and create jobs in forestry management and conservation.
Greening Public Transport and Infrastructure
By following models such as Thailand’s Bangkok E-Bus Program, Ukraine can modernise its old, diesel-powered fleet of buses and trucks, with electric alternatives. This transition would generate Internationally Transferred Mitigation Outcomes (ITMOs), which can be sold to countries, such as Switzerland, seeking to offset their emissions. The revenue generated from these credits would provide Ukraine with much-needed funds for further green infrastructure projects, creating a positive feedback loop of sustainable development.
Biofuel Potential and Agricultural Innovation
With an annual biomethane production capacity of 22 billion cubic metres, Ukraine is well positioned to capitalise on biofuel development and potentially become a significant supplier of biofuels to the EU. By encouraging domestic biofuel blending and creating tradeable greenhouse gas reduction certificates like Germany’s biofuel ‘ticketing’ system.
Conclusion
Ukraine has agreements on carbon trading with Switzerland and Japan under Article 6.2 of the Paris Agreement, but it's not enough. Other countries and markets should open their doors as well. Channelling the reconstruction fund via carbon credits and green finance will accelerate a green reconstruction, increase energy security, restore nature, and reach the community, middle and small business levels, creating a win-win ground for the country and their partners.
One of the mechanisms for developing Ukraine’s carbon markets is via an on-going UK-Ukraine initiative that supports the recovery and redevelopment of Ukraine’s economic eco-system ‘The City-Ukraine Hub’, a programme that engages the private sector from both countries within a UK and Ukrainian government initiative. One of the core programmes under the initiative, which is managed on the UK side by TheCityUK, covers green and sustainable finance cooperation in carbon market development and blended finance solutions.
The City-Ukraine Hub has created a joint working group which provides advice and support for the development of green and sustainable finance and investment in Ukraine, aimed at supporting the country’s green reconstruction and recovery, as well as fostering sustainable and inclusive economic growth through the sharing of best practices and the development of recommendations. To achieve these objectives, The City-Ukraine Hub focuses on designing, implementing, and scaling blended finance vehicles that combine concessional funding with private equity and debt. This approach helps to de-risk investments and supports the development of high-impact green projects in Ukraine, including those in renewable energy, sustainable infrastructure, and green industrial projects, thus driving sustainable recovery and economic growth.
These materials were developed under the Good Governance Fund project, 'The City-Ukraine Hub,' funded by UK International Development. The project delivery partners are Abt Global and TheCityUK.
Nataliya Katser-Buchkovska , CEO, Green Resilience Facility, Co-Chair Ukraine, Green and Sustainable SWG, The City-Ukraine Hub