Under pressure from the EU: How Ukrainian industry is paying for the missteps of domestic officials and EU bureaucrats
4 May 14:37
ANALYSIS FROM 
Ukrainian steelmakers focused on exports to Europe are already feeling the full brunt of the unwelcome border carbon adjustment mechanism (CBAM), set to take effect in 2026. And this impact will only intensify. Unless, of course, the Ukrainian government manages to negotiate an exceptional regime for Ukraine with the European Commission. How the CBAM has already changed—and will continue to change—the rules of the game for Ukrainian industry—was investigated by
From 17% to 93% of exports, depending on the sector—that is how the Ukrainian Ministry of Economy estimates the losses of the metallurgical industry in the first quarter of 2026 due to the introduction of the CBAM. And that is not the full extent of the losses. The border carbon adjustment mechanism, which involves a fee for the difference in CO2 emissions between European producers and importing producers, is expected to affect Ukrainian producers who supply not only steel but also cement, fertilizers, electricity, aluminum, and more to the EU. However, Ukrainian steelmakers will feel this impact the most.
Export losses
Ukraine’s total exports to the EU could decline by $1.39 billion as a result of the carbon tax. Cement exports to the EU, for example, face the threat of near-total collapse—supplies are expected to drop by 96%. But the bulk of the losses—89%—will fall on the metallurgical sector, which accounts for nearly the entire volume of exports subject to the CBAM. The total export losses could reach $1.24 billion. These figures are cited by experts at the Institute for Economic Research and Policy Consulting. Regarding the current losses in the metallurgical sector, Oleksandr Kalenkov, president of the Metallurgprom Association of Enterprises, adds :
“We are highly dependent on the European market. Against this backdrop, shipments to Europe for some companies, such as ArcelorMittal, have fallen by 80%, and by an industry average of 60% specifically due to CBAM. Contracts are being canceled, and lost foreign exchange revenue for the first quarter amounted to approximately 120 million euros. And the negative impact of the SWAM will intensify,” says the expert.
The consequences of the SWAM’s implementation vary across different segments of the steel industry. Exports of long products have suffered more, while flat product manufacturers have incurred smaller losses. Says Andriy Tarasenko, chief analyst at GMK Center.
“In the flat-rolled steel segment, SWAM acted purely as an inflationary factor, driving up prices accordingly. In other words, flat-rolled steel suppliers in the EU passed on SWAM payments entirely to prices, which allowed them to maintain the existing supply structure. In contrast, producers of long products from Ukraine have already felt the effects of SWAM quite strongly: in the first quarter, exports of long products from Ukraine fell by about 60–70% overall,” the expert notes.
CBAM specifics
Preparations for the introduction of the carbon border adjustment mechanism in Europe itself and in the countries that trade with it took several years. In Ukraine, given the force majeure conditions under which the country has been operating since the start of the war, there was hope for an exemption from CBAM. But it didn’t work out. At least, not yet. Starting in January 2026, Ukrainian companies, without exception, found themselves in the grip of CBAM—tight enough to complicate operations, but not sufficiently regulated to minimize losses. Here is a key feature of how this mechanism works, as explained in a comment to the publication
“There is enormous uncertainty surrounding the CBAM, and it stems from the fact that there is no officially established tariff for Ukraine on specific products. No one understands what the CBAM rate is. This will become clear in 2027, when importers of goods into the EU begin paying,” the expert notes.
He explains that technically, under CBAM in the European Union, the importer—that is, the Ukrainian company’s partner—pays the fee. At the same time, CBAM accrual begins on January 1, and the importer-counterparty will pay in 2027 in a single installment for the entire year of 2026, during which they imported goods. In contrast, the Ukrainian partner does not have such privileges. Oleg Krykavsky, Director of Government Relations at ArcelorMittal Kryvyi Rih, continues.
“The situation is as follows: if we want to export our products to the EU, we must provide the importer of these products—that is, our EU counterpart—with the maximum discount on the highest calculated CBAM. The importer must factor this amount in to have an incentive to import our products into the EU. In reality, however, this is not appealing to them: they do not want to deal with either the CBAM or any reports, and in essence, they are gradually switching to European products that are free from this headache—Polish and German products,” the expert notes.
This has already led to documented export losses for the industry—ranging from 17% to 93% depending on the sector, as reported by the Ukrainian Ministry of Economy. One of the reasons cited by the ministry for this situation is the inability to verify emissions amid the war.
Non-existent verification
The extent to which CBAM will devastate business operations depends largely on the level of emissions in production and companies’ ability to confirm emission volumes through a verification system. Companies may adopt two approaches to reporting: using standard values defined by the regulator (default values) or actual data recorded at the enterprise. “Default” values simplify reporting, but they are so inflated that using them is highly disadvantageous. In contrast, using actual data requires a complex monitoring system and confirmation by independent verifiers. Andriy Tarasenko, chief analyst at GMK Center, continues.
“Verification of actual data will only be available starting in early 2027—covering emissions for 2026. And right now, the market is operating without any understanding of emission volumes at all. In other words, the problem lies in uncertainty. Buyers do not understand the transaction amounts. For instance, in the first quarter, 6 million tons of steel were imported into the EU, yet no one understands the transaction amounts. Everyone relies on actual figures, but they are unverified. And there are many problems there,” the expert notes.
First and foremost, this procedure requires verifiers to make actual visits to the enterprises. In Ukraine’s case, this is hard to imagine given that virtually all Ukrainian steel mills are located near the front lines. According to Andriy Tarasenko, there was an initiative to include Ukrainian enterprises in the register of accredited verifiers, but it is difficult to say how feasible this is. He describes the current situation with verification as follows:
“Verification will only be available starting January 1, 2027, and payment for 2026 imports must be made by September 30, 2027. There will be 9 months to complete verification. And given that physical visits will be required—and there are likely tens of thousands of such companies around the world that need to be visited—there are serious doubts that this can be carried out. And if it is not carried out, then everyone will have to rely on ‘default’ emissions.”
It’s good that at least Ukrainian officials acknowledge the verification issues and are trying to resolve them somehow. Minister of Economy, Environment, and Agriculture Oleksiy Sobolev, following a recent conversation with Gerassimos Thomas, Director-General of the European Commission’s Directorate-General for Taxation and Customs Union, announced that he had agreed with European officials to expedite the emissions verification process for Ukraine and propose practical solutions for businesses. Perhaps this experience of communicating with European Commission officials will prove more successful than the previous one, which ultimately failed to result in Ukraine’s exemption from the SVA.
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Learning from Mistakes
The first few months of the Carbon Border Adjustment Mechanism’s operation not only allowed for an objective assessment of the export losses suffered by Ukrainian enterprises but also convincingly demonstrated that the European Commission made a mistake when calculating the consequences for Ukraine of the CBAM’s implementation starting January 1, 2026. Andriy Tarasenko, Chief Analyst at the GMK Center, explains what this is all about.
“When Ukraine applied for an exemption under the force majeure clause, it was expected that the European Commission would prepare a report estimating the losses from CBAM for Ukraine. This would then be submitted to the European Parliament for approval. They produced this report. And this report showed that in the long term, by 2030, the losses to Ukraine’s economy from the introduction of CBAM will amount to only one-hundredth of a percent. And accordingly, this gave them grounds to say: yes, there is a force majeure in Ukraine, but CBAM will have no impact on the Ukrainian economy. However, they failed to take many internal factors into account. And the European Commission, it seems, already understands that they did not account for these factors,” the expert notes.
The Ukrainian government is convinced that the calculation error made by European officials must be corrected urgently and is already conducting relevant negotiations at the European Commission level. This was recently announced by Taras Kachka, Ukraine’s Deputy Prime Minister for European and Euro-Atlantic Integration. He believes that the issue that has arisen with the CBAM is a manifestation of a strategic problem. According to the official, it is important for the European Commission to treat Ukraine as part of its own market, rather than as a trading partner, because the EU and Ukraine have signed an Association Agreement, Ukraine is a candidate for EU membership, and the current application of CBAM constitutes discrimination. Accordingly, the European Commission should reconsider the Ukrainian issue and grant a temporary exemption from CBAM. In particular, this would give Ukrainian enterprises time to modernize and the country time to decarbonize its industry. Andriy Tarasenko continues.
“We need this temporary exemption, but we must take into account that in the long term, once Ukraine becomes an EU member, it will still face the problem of high emissions costs. Therefore, the solution lies in seeking sources of funding for decarbonization projects. For example, the steel industry alone requires $12 billion for decarbonization. It is clear that our budget does not have the funds for this; moreover, the budget is in deficit. And decarbonization will have to be addressed in any case. Therefore, we are counting on assistance from partners and access to financing from relevant European funds, similar to what European companies receive,” the expert notes.
He emphasizes that the current financial situation at the relevant Ukrainian enterprises is such that the steel industry cannot generate the $12 billion it needs for decarbonization on its own.
Emissions Trading
The upcoming launch of an emissions trading system in Ukraine will play a key role in the decarbonization of Ukrainian industry and its subsequent full integration with European climate policy. What exactly is the significance of this? In a comment to the publication
“First, the emissions trading system will establish a domestic carbon price that the EU can take into account when calculating financial SWAP obligations. Second, the emissions trading system will create a fairly stable mechanism for collecting funds from emissions, which can be directed toward the decarbonization of industry and reducing the actual carbon footprint of Ukrainian products. This, in turn, will reduce risks for exporters in sectors covered by the EU ETS and gradually align Ukrainian market rules with European ones,” the expert notes.
She recalls that in early 2025, the President signed a law reinstating the monitoring, reporting, and verification of greenhouse gas emissions. This was an important step for our country, especially given plans to establish a National Greenhouse Gas Emission Trading System (NGGETS), as verified emissions data forms the basis for setting future emission quotas.
And in April of this year, it became known that the Ministry of Economy, Environment, and Agriculture had already prepared a draft Law of Ukraine “On the Principles of Operation of the National Greenhouse Gas Emission Trading System.” In particular, the bill proposes introducing a mechanism under which companies will be able to use 90% of the payments made within the ETS to implement their own decarbonization projects. Mandatory conditions for such projects include a market-based, non-inflated cost and a proven decarbonization effect. Anastasia Sydorenko, a specialist in the Climate Department at the Ecodia Center, explains how the process of launching the greenhouse gas emissions trading system will unfold.
“The plan is to conduct training and system testing, launch a pilot (the first operational phase) in 2028, and finally, fully implement the system no earlier than three years after the lifting of martial law. In other words, the government plans for the first launch of the ETS to take place in 2028. But this will be more of a limited phase with pilot elements—meaning the system will not yet be operating at full capacity but will be tested in key sectors,” the expert notes.
In the meantime, while the emissions trading system is not yet operational, funding for industrial decarbonization, according to Anastasia Sydorenko, can be based on a combination of several sources. First, these are international funds and donor programs that support modernization, energy efficiency, and the development of renewable energy. Second, private investment and bank lending, within which assessments of climate risks and carbon intensity will be increasingly applied, making low-carbon projects more attractive to financial institutions. Third, government mechanisms—such as an environmental tax, as well as the Decarbonization and Energy Efficiency Transformation Fund—should help. Together, these sources can form the financial foundation for preparing Ukrainian industry for full integration with European climate requirements.
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