Five Myths about Industrial Pollution Reform and Its Impact on Businesses

Why, despite the war, should Ukraine implement one of the most important environmental reforms?

According to GAHP experts, about 57,000 people die every year in Ukraine due to industrial pollution. The lion's share of this indicator is caused by air pollution.

Even before the full-scale war, Ukraine commenced work on reforming industrial pollution prevention. This reform envisages a gradual transition to stricter environmental standards for industries that have traditionally been the biggest polluters of the environment, namely energy, metallurgy, chemical industry, etc. As a result, the level of industrial pollution is expected to be brought into conformity with the best available techniques (BAT) recognized in the EU.

The war made changes in this work. Many industrial facilities were completely destroyed and are beyond repair. Accordingly, they need to be built anew. It is only logical to do this already taking into account modern green technologies. In addition, to acquire full membership in the European Union, Ukraine must implement Directive 2010/75/EU.

The industrial pollution reform will require the implementation of large-scale environmental modernization measures in industry. Therefore, this topic has always spurred opposition from business circles. In 2021, the Verkhovna Rada failed to approve draft law No. 4167. The parliament is currently considering the finalized draft law No. 6004-2, which is aimed at launching the long-awaited reform.

In the recently published study Reform Anew: Analysis of the Potential Impact (ex ante) of the Implementation of Directive 2010/75/EU in Ukraine’s Energy Sector, the DiXi Group think tank analyzed the most common arguments of opponents of the reform and refuted typical myths about its alleged harm to the development of Ukrainian industry. We have summarized the main ones here.

Myth 1: the reform will ruin domestic economy

As a matter of fact, it won’t. Eco-modernization will not lead to enterprises ceasing their activities. On the contrary, a systematic approach to technology renewal will provide an opportunity to reduce operating costs, improve product quality, cut down on polluting substances and potentially decrease the tax burden. It is also related to the future payment of the “carbon duty” when exporting products to the EU and the carbon tax in Ukraine, the increase of which is being discussed. Outdated technologies used by enterprises are not only harmful to the environment but also make products more expensive and often do not meet occupational safety requirements.

Myth 2: businesses are unable to cover the costs of eco-modernization

As a matter of fact, they aren’t. Most major polluters can afford eco-modernization. They have relevant branches in the EU and are aware of the requirements of conducting such business in accordance with Directive 2010/75/EU.

For medium and small businesses, partial coverage of costs may be provided through government support mechanisms, which are allowed by the said Directive. Examples include soft loans, transitional payment, non-refundable financial assistance from funds, etc. However, a significant amount of investment must be made by businesses themselves, since in the future they will receive benefits from the implemented measures.

Myth 3: war and economic crisis is not the time to switch to stricter environmental standards (BAT). The deadlines for the implementation of BAT should be extended

This statement is manipulative. It is necessary to separate the concepts of crisis and war, as well as the creation of a regulatory framework for BAT and their actual implementation.

In peacetime, the concept of an economic crisis in arguments of businesses has always been very vague and was usually encountered in passionate speeches rather than in sound analyses and economically proven reasonings. To some extent, the heating season can also be called a crisis period, for which the government and relevant enterprises were systematically unprepared. The economic crisis sometimes correlates with the political crisis and many other factors that form a multiplicity of various “crises” that seem to render eco-modernization and other reforms impossible.

Instead, it has been proven that climate change will create spawn economic and environmental crises. In order to prevent and adapt to them, eco-modernization measures are needed. These measures must be taken immediately.

The war really has a significant impact on the ability of business, the government and the population to finance eco-modernization measures. But it is now that the post-war recovery plan is going to be implemented. If international financial aid is used efficiently, Ukraine will have a unique opportunity to carry out a green transformation of the energy and industrial sectors.

The adoption of the legislative framework that establishes European environmental standards is a priority and is unlikely to be delayed by war or other reasons. All the more so since the main normative basis has already been worked out and the corresponding bill No. 6004-2 is under consideration in the Ukrainian parliament.

Myth 4: some requirements of Directive 2010/75/EU have not been met, and the Ministry of Environment is authorized to act at its own discretion in matters of implementing BAT and granting a derogation from them

This statement is manipulative. The requirements of Chapters III–VI and Annexes V–VIII of Directive 2010/75/EU are not directly transposed into draft law No. 6004-2. At the same time, given their technical nature, the draft law provides that these requirements will be implemented through bylaws. This is not a violation of the requirements of the Directive and is in line with the law-making practice in Ukraine.

According to draft law No. 6004-2, the Ministry of Environment is indeed authorized to approve the methodology for calculating the cost of achieving the maximum permissible emissions for an industrial facility (defined in the conclusions of BAT), as well as the indicators of the criterion of the disproportionately high cost of achieving the maximum permissible emissions for an industrial facility compared to environmental benefits.

However, in making a decision the Ministry of Environment will be limited by the requirements of the Cabinet of Ministers concerning the development, form and content of the assessment of the derogation, as specified in Part 2 of Article 13 of the draft law. Therefore, the powers of the ministry are not discretionary.

Myth 5: the development of a state target program for eco-modernization appears to be underfunded

Not quite. In fact, draft law No. 6004-2 provides for the instruction of the Cabinet of Ministers to develop the concept of a state target program to support enterprises implementing BAT. But the development of the program by the government does not mean that only public funding is used. As positive examples, we can cite already implemented joint projects with the support of international donors: the EBRD and EIB. They finance environmental modernization projects and/or require compliance criteria in order to receive loans. The implementation of the state target program on eco-modernization is real if the business initiates appropriate partnerships with donors.

All things considered, with the right approach, the implementation of the requirements of Directive 2010/75/EU in Ukraine is achievable and can bring benefits to Ukrainian business, whilst also giving the people and the environment a chance for the future. The adoption of framework law No. 6004-2 in the field of industrial pollution prevention today would be a significant contribution to the fulfillment of Ukraine's obligations as a candidate for EU accession.

Read this article in russian and Ukrainian.