As a part of the implementation of the reform program “Free Economy”, it is proposed to completely abandon the state environmental tax and provide local governments with the right to independently regulate the placement of potentially harmful industries on their territory.

The following procedure for such regulation is defined:

• Categories of industries that are potentially harmful to the environment industries, the conditions for their location and the level of permissible environmental pollution by them are determined by the law of Ukraine. Separately defined categories of industries that cannot be located in Ukraine.
• The local government concludes an agreement with the enterprise (which belongs to the category of industries potentially harmful to the environment), to which it gives permission to conduct relevant activities on its territory. Under this agreement, the amount and procedure for the payment of environmental compensation by the enterprise and the requirements for the organization of this production relating to the storage and restoration of the environment are determined. The contract also determines the amount and procedure for the payment of penalties and further actions of the parties in case of failure of one of the parties to the terms of the contract.
• If in a result of the enterprise’s activities the ecology of another locality is violated (above the level established by law), the enterprise must continue to conclude an agreement on the payment of environmental compensation with the local government of that locality to continue working. The terms of such an agreement for different settlements do not have to be the same. 
• The conclusion, amendment and termination of the contract between the enterprise and the local self-government body, as well as the decision to bring an action against the enterprise within the framework of the contract, is approved (ratified) by a general referendum of citizens of Ukraine living in the respective locality.
• The entire amount of environmental compensation from enterprises is distributed in equal parts between all citizens of Ukraine, are residents of the respective locality.
• Enterprises that have already paid the environmental tax at the start of the reform program have the right to pay environmental compensation in an amount not exceeding the amount of the environmental tax that was paid earlier. Provided that they do not increase the damage to the environment (for example, by expanding an existing or organizing a new production potentially harmful to the environment). Otherwise, they are required to conclude a new agreement with the local government on the right to place their production on its territory (including the right to operate existing plants).
• The amount of environmental compensation paid by the enterprise is subject to the standard tax on costs at a rate of 4%.

Environmental compensation, which is paid directly to local residents for the location of industries potentially harmful to the environment, serves (together with the local referendum institute) reliable protection against possible abuse in this matter by local authorities.

In addition, the proposed procedure for the placement of potentially environmentally harmful industries will ensure a fair balance between the potential damage that the enterprise can cause or does to the environment and the economic benefits for local residents and the economy of the country as a whole.