ETS as a modernization tool: why Ukraine cannot allow the carbon price to become a new tax

Paradigm shift: from ecology to economics

In August 2026, the discussion surrounding the National Emissions Trading System (ETS) in Ukraine entered a critical phase. Experts and business representatives are increasingly concluding that the carbon emissions quota system must become an integral part of the state's industrial and economic policy, rather than being perceived as yet another financial burden. This was stated by Lyudmyla Tsyganok, President of the Association of Environmental Professionals (PAEW), in her column for the Mind publication.

According to the expert, the key error in the current discussion is that a significant part of Ukrainian business still views the ETS exclusively through the prism of environmental reform. In reality, however, given the transition of the EU's Carbon Border Adjustment Mechanism (CBAM) into a full-fledged financial phase, the carbon price has become a factor in the cost of exports. This is an issue requiring the attention of business owners, Chief Executive Officers (CEOs), and Chief Financial Officers (CFOs), not just environmentalists.

Risks for industry and legislative deadlock

In July 2026, three draft laws concerning the implementation of the emissions trading system were registered in the Verkhovna Rada: the basic document No. 15386 and two alternative versions No. 15386-1 and No. 15386-2. Despite legislative activity, experts and business representatives warn of serious risks. An incorrect interpretation of the law could create a threat to domestic industry and complicate negotiations with the European Union.

The main risk is that if the funds obtained from quota auctions are simply directed to the state budget without a clear link to technological modernization, the ETS will turn into a new tax for enterprises. This could undermine the competitiveness of Ukrainian products in the European market, access to which is critical for post-war recovery.

Modernization mechanism: where should the money go?

According to Lyudmyla Tsyganok, a key aspect of the reform is not only the level of the price on emissions but also the targeted use of the funds obtained. The correct model, supported by the government, assumes that ETS revenues should be directed to the Ukraine Modernization Fund. These funds should serve as a catalyst for investments in energy efficiency, the introduction of new technologies, and the decarbonization of production.

In the context of post-war recovery, the ETS is considered one of the main mechanisms for updating key economic sectors: metallurgy, construction materials production, the chemical industry, and energy. Without such targeted support, these sectors will find it difficult to compete with European partners who have already adapted to new climate realities.

Technical harmonization with the EU

For successful integration into the European economic space, Ukraine needs to align its ETS with the CBAM mechanism not only at the political level but also in technical and methodological aspects. The quality of this harmonization directly determines the possibility of attracting foreign investment and maintaining market share in export markets. Errors in the methodology for calculating emissions could lead to double taxation or fines when exporting to the EU, which would be fatal for many enterprises.