Ukraine will stockpile $26.5 billion of emission credits, saving them for after 2012, to help prevent an oversupply in the current five-year trading phase, according to a government agency, Bloomberg reported.

Ukraine won’t sell more than 1 billion metric tons of its likely 2.5 billion tons of spare so-called assigned amount units for compliance in the five years through 2012, said Taras Bebeshko, director of market development at the National Environmental Investment Agency of Ukraine. “Everyone is concerned about the potential oversupply,” Bebeshko said. “We would like the market to be stronger and more prosperous.”

The nation may use some of the 1.5 billion tons of remaining credits to cover its own emissions, or use them in the compliance period that starts in 2013, the first year after the initial phase of the 1997 Kyoto Protocol, he said in an interview Dec. 12 in Poznan, Poland. Each credit, issued by the United Nations under the protocol, allows a country to emit the equivalent of 1 metric ton of carbon dioxide.

The comments came 10 days after Russia, which will probably have the most spare credits, said it would stockpile all of its AAUs. That’s about 3.3 billion metric tons, or about 18 months of emissions from all the factories and power plants in the 27- member European Union, according to World Bank estimates. Emission credit prices have dropped by about half since July on concern a recession will curb demand and exacerbate a potential oversupply in the five-year period.

Economic Development

“1.5 billion will never, ever be sold for the first compliance period,” Bebeshko said. “This is a national reserve for development of the economy.”

Ukraine will be “flexible” regarding requests from potential buyers to spend money from credit sales on environmental protection, he said. So-called “greening” programs may include building wind farms, cleaning water from coal mines and reducing greenhouse-gas emissions from industry, he said.

Ukraine will probably curb some emissions for each metric ton of AAUs sold, Bebeshko said. Any expectation to cut a full ton of emissions for each AAU would be “unreasonable,” he said.

“Surplus AAUs are already an achieved reduction” because of lower economic activity and new environmental-protection policies enacted since 1990, he said. “My country has already paid for the reductions.”

Buyers requiring a new ton of carbon dioxide abatement for each AAU are asking too much from Ukraine because that amounts to a “double greening” of reductions, Bebeshko said.

Sales to Spain

Ukraine last week agreed on a memorandum of understanding with Spain for potential credit sales, as well as cooperation on climate protection, he said. No volumes or prices have been set.

“The legal framework is already prepared” and sales contracts could be agreed on at any time, Bebeshko said. The nation also has similar agreements with Canada, Japan, Deutsche Bank AG and others, he said. Ukraine expects prices similar to those of certified emission reduction credits, another type of UN carbon allowance, he said, declining to be specific.

Ukraine’s air pollution dropped when some of its dirtiest factories closed after the former Soviet Union broke up.

UN certified emission reductions for December closed Dec. 12 at 13.28 euros ($17.66) a metric ton on the European Climate Exchange in London.

The 1997 Kyoto treaty gave the 37 signatory nations emissions targets. Each must buy credits or similar permits for each ton of CO2 equivalent they release in excess of their limits. CO2 equivalent is a unit of measurement that includes carbon dioxide and five other greenhouse gases regulated by the protocol.

Bloomberg