Ukraine's Carbon Windfall an Issue for Copenhagen

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Associated Press Writer KONSTANTINOVKA, Ukraine—Ukraine's economic collapse has produced a potential multibillion-dollar bonanza, allowing the country to reap windfall carbon credit profits from the smokeless smokestacks of its industrial shutdown.

The industrial collapse has been bad for jobs but good for the climate. Ukraine produces less than half the greenhouse gases it did 20 years ago, and under a trading system devised in the negotiations for the 1997 Kyoto Protocol, curbing the gases blamed for global warming, it is allowed to sell credits for every ton of carbon dioxide saved.

How well and how long Ukraine will profit is an issue complicating negotiations for a new worldwide climate accord being sought at a 192-nation conference in Copenhagen next month.

In the central city of Konstantinovka, Vladimir Gapor, a plumber by trade, is a scavenger now, prying bits of scrap steel from the ruins of his old factory and selling them for a pittance.

"We need to survive somehow," he said.

The factory, which made glass for the Soviet military and space program, shut down in the early 1990s after the Soviet Union disintegrated. Private wrecking crews and desperate jobless people like Gapor then turned the town's industries, which once employed 16,000 workers, into heaps of bricks.

When Ukraine was a Soviet republic, Konstantinovka was a booming town of 100,000 with 25 factories. Concert music filled its Palace of Culture, its workers were rewarded with trips to Crimea's beaches, and its children with stays at mountain "pioneer camps." Today just five workshops still operate, and the population is down to 60,000, many unemployed having migrated to Moscow, Kiev or Western Europe to find jobs, leaving families behind.

The surrounding province, plagued by bad management and lack of investment, has lost 10 percent of its population, said Vladimir Morozov, an environmental engineer in the regional capital, Donetsk. Wealthy oligarchs, not communists, now rule the economy, he said, and they are showing no interest in rebuilding a wretched backwater.

While Western industrial powers must cut carbon emissions, and many developing nations are asked to shift to low-carbon economic growth, few Eastern European countries have any incentive to constrain their polluting, since they're already far below emissions limits.

These nations can make millions selling carbon credits, while enjoying a comfortable cushion to pump the gas into the atmosphere without worrying about energy efficiency or cleaning up their factories.

Countries or companies that cannot meet commitments to reduce emissions can buy these "allowances" from those that have cut emissions more than required and have a surplus to sell. Point Carbon, a Norwegian-based consulting firm, estimates 9 billion allowances are available, mostly in Russia.

Earlier this year, each one-ton allowance sold for $10 when Ukraine signed a $300 million deal with Japan. The Kiev government has almost 1 billion more tons to put on the market, said Irina Stavchuk of the National Ecological Center of Ukraine.

"The hot air business is the main goal of the government," Stavchuk said.

Income from such deals is supposed to be earmarked for clean-energy and other "green" projects. But critics have questioned how well that guideline is followed.

But the credits could lapse in 2012, when the Kyoto Protocol expires. Russia, Ukraine and other beneficiaries want these pollution rights extended in the new deal to be struck at Copenhagen. Other countries want to redress what they believe is an unfair loophole. Carbon traders, meanwhile, fear the weight of hot air credits will drive down market prices sharply.

As part of a new climate treaty, Ukraine is being asked to commit to a ceiling on emissions and it has pledged to emit 20 percent less in 2020 than it did in the benchmark year of 1990. Since its current emissions are about 52 percent below 1990, it will be left with plenty of credits to sell.

Last week Russia, the biggest holder of hot air credits, increased its pledged 2020 target to as much as 25 percent below 1990 — about where its emissions are today.