European environmental protection: what will help Ukrainian industrialists to stay in the EU market
8 December 2025 16:42
Ukrainian steelmakers are waiting for… certainty. It is not only about the prospect of another increase in electricity tariffs, but also about whether and to what extent Ukrainian industrialists will feel the impact of the so-called environmental tax or carbon duty imposed by the European Union on importers. Komersant found out why it is so difficult for Ukraine to upgrade its industry in a “green“ way.
Currently, the industrial sector and, above all, the metallurgical sector is a key priority in trade negotiations between Ukraine and the European Union. Stating this the other day, Deputy Prime Minister for European and Euro-Atlantic Integration Taras Kachka stated that the EU is building up its environmental protection and also admitted that Ukraine is lagging behind in the field of environmental policy.
This largely concerns the steel industry, which may sooner or later feel the unattractiveness of this European environmental protection, including in the form of a carbon tax.
CBAM is coming
We are talking abouttheCarbon Border Adjustment Mechanism ( CBAM), which provides for the introduction of a carbon tax. It may affect Ukrainian producers who supply goods such as steel, cement, fertilizers, electricity, aluminum, and hydrogen to the EU. Maybe, if the introduction of this tax is not postponed. By the way, Ukraine has grounds for such hopes. Stanislav Zinchenko, CEO of GMK Center, explains.
“According to one of the CBAM regulations, if there is force majeure, and the war is a force majeure, Ukraine can ask for a postponement of the CBAM in relation to its exports. That is, because we are at war and will have a post-war recovery, it may not apply to us,” the expert notes.
In fact, Ukraine is negotiating with the EU on such a postponement. And their particular importance is emphasized by the realization of the scale of the negative effect that is expected in the event of the introduction of an environmental tax for Ukrainian companies. According to Stanislav Zinchenko, about 15% of Ukraine’s exports to the EU are potentially subject to CBAM , which is $3-4 billion out of about $25 billion in merchandise exports in 2024.
“We make regular calculations. And they are such that the first year of CBAM’s operation will be minus $300-400 million for Ukrainian exports in the steel industry alone. Physically, in the first few years of CBAM’s existence, the steel industry will lose pig iron exports, square billets exports, and long products exports,” the expert notes.
According to the Federation of Employers of Ukraine, if CBAM is introduced for Ukraine, the overall drop in the country’s GDP in 2026 could be 4.8%. As of 2030-2034, the negative effect on GDP could reach 6.1-6.3%. The decrease in tax revenues and social contributions to budgets and funds of all levels as a result of the reduction in business activity due to the introduction of CBAM could amount to USD 2.8 billion in 2026.
That is, according to Stanislav Zinchenko, in the worst-case scenario – without postponement and without modernization – the losses will be enormous.
Modernization is lagging behind
For Ukraine, it is important not so much to “avoid” the CBAM as to ensure full transparency of emissions data, modernization of enterprises, and integration with European climate policy. The upcoming launch of the Emissions Trading System (ETS) will play a key role in this process. This is the opinion of Anastasiia Sydorenko, PhD in Law, climate specialist at the NGO Ecodia.
“First, the ETS will set the internal price of carbon, which can be taken into account by the EU when calculating financial CBAM obligations. Secondly, the emissions trading system will create a fairly stable mechanism for collecting funds for emissions, which can be used to decarbonize the industry and reduce the real carbon footprint of Ukrainian products. This, in turn, will reduce the risks for exporters in the sectors covered by CBAM and gradually bring the rules of the Ukrainian market closer to the European ones,” the expert notes.
Thus, according to her, the key task for Ukraine is not to oppose the mechanism itself, but to ensure data transparency, technological modernization and synchronization with the EU climate policy that will allow Ukrainian exporters to operate in predictable conditions and maintain a competitive position in the European market.
But to what extent is Ukrainian industry ready to reduce emissions and upgrade its environment in the midst of war, when facilities are being destroyed, production is declining, and logistics is limited? Anastasia Sydorenko continues.
“According to the National Emissions Inventory, emissions from the industrial processes and product use sector decreased by 81.68% compared to the base year of 1990. In 2023, emissions from the industrial processes and product use sector decreased by 2.23% compared to 2022. However, this reduction was due to the effects of the full-scale invasion, in particular, a sharp drop in industrial production,” the expert notes.
However, in her opinion, there are several factors that should encourage businesses to transform now.
“First, it is the understanding that without reducing the carbon footprint, exports to the EU will become more expensive (because CBAM payments by importers will actually increase the overall price of Ukrainian exports), and some markets may simply be lost. Secondly, access to international financing is increasingly subject to decarbonization requirements. And third, Ukraine’s existing climate commitments set goals such as achieving climate neutrality for the entire economy by 2050 and reducing greenhouse gas emissions by more than 65 percent by 2035 compared to 1990 levels. In practical terms, this means that Ukrainian enterprises should focus on gradual emission reductions, as the state already has a legal obligation to introduce policies and instruments that will ensure the fulfillment of these goals,” explains the expert.
For businesses, these obligations create a predictable long-term trajectory in which modernization and decarbonization become inevitable elements of competitiveness in domestic and foreign markets.
According to Anastasiia Sydorenko, such a transformation is possible through modernization of technologies, energy efficiency, reorientation to renewable energy sources, and, where technically feasible, electrification and transition to green hydrogen. For example, in sectors such as freight transport, production of green building materials, long-distance shipping, etc.
ETS postponed
The Ukrainian Ministry of Economy considers the prospect of implementing the CBAM to be one of the main challenges to the development of Ukraine’s trade and economic relations with the EU. It recognizes not only the need to postpone the application of this mechanism to Ukraine, but also the importance of the immediate implementation of the Emissions Trading System (ETS). But there are also problems with urgency.
Back in early 2025, the President signed a law passed by the Parliament amending certain legislative acts of Ukraine to restore monitoring, reporting and verification (MRV) of greenhouse gas emissions. Previously, due to the introduction of martial law in Ukraine, such reporting was voluntary, meaning that companies could decide whether to submit reports on their greenhouse gas emissions or not.
According to Anastasia Sydorenko, PhD in Law, climate specialist at NGO Ecodia, the renewal of the mandatory monitoring, reporting, and verification of greenhouse gas emissions is connected to the plans to create a national greenhouse gas emissions trading system, as verified emissions data is the basis for setting future emissions quotas.
However, the pilot version of the Emissions Trading System is planned to be launched in 2028. Anastasia Sydorenko continues.
“The action plan for the creation of a national greenhouse gas emissions trading system, approved by the Government at the end of February this year, provides for the development and adoption of a specialized law, bylaws, training and testing of the system in 2025-2027, the launch of the pilot (first operational stage) in 2028, and finally, full implementation no earlier than three years after the lifting of martial law,” the expert explains.
One of the most important issues in the context of the future Emissions Trading System is where to allocate the revenues generated from the sale of emission allowances at public auctions. According to Anastasia Sydorenko, taking into account both the European experience and national realities, it would be advisable to direct the relevant financial resources to support climate projects that benefit not only individual enterprises but also society as a whole.
“The emphasis should be on introducing the latest technologies in industry, developing renewable energy, increasing energy efficiency, and implementing social programs to support workers and communities with limited resources to adapt to changes caused by the decarbonization of the economy,” the expert emphasizes.
Until the Emissions Trading System is operational, financing for industrial decarbonization can be based on a combination of several sources. Anastasia Sydorenko, PhD in Law, climate specialist at the NGO Ecodia, says.
“First, there are international donor programs that support modernization, energy efficiency, and renewable energy development. Secondly, private investment and bank lending, which are increasingly using climate risk and carbon intensity assessment approaches, making low-carbon projects more attractive to financial institutions. Thirdly, government mechanisms such as the environmental tax and the Decarbonization and Energy Efficiency Transformation Fund,” the expert notes.
Together, these sources, in her opinion, will be able to form the financial basis for preparing the Ukrainian industry for full integration with European climate requirements.
The current Ministry of Economy of Ukraine has the task and opportunity to balance climate and economic policy. This is emphasized by Taras Kachka, Vice Prime Minister for European and Euro-Atlantic Integration. His proposal, voiced recently, envisages the creation of a working group of business representatives and experts to work with the government on tools for adapting industry to climate requirements.
Author: Sergiy Vasilevich
