How the CBAM transboundary carbon tax will affect business

CBAM as a tool for trade wars and industrial policy

As expected, the CBAM (Carbon Border Adjustment Mechanism) was not a climate instrument, but a powerful protection tool and an element of trade conflicts. Although 5 years ago it was described as a tool to reduce CO2 emissions, the European Union is now making it clear that CBAM is a commercial policy tool to protect domestic markets and support its manufacturers. The EU plans to use the CBAM sales revenues to subsidize its industry's decarbonization. This is a classic element of industrial policy.

Adjustment of carbon imports as a Global Trend

Primarily, it was the EU that initiated CBAM, but other countries gradually introduced similar mechanisms as well. The UK has already decided to launch its own CBAM. Norway, Taiwan, Australia, Canada, South Korea, and other EU partners are planning to take a similar approach, as they realize that without CBAM, their producers will lose competitiveness and may not be able to compete with imports from countries that do not pay for CO2 emissions.

The EU was not ready for its CBAM

As experts had predicted, the European Union was not ready for the CBAM despite years of preparation. The greatest difficulties occurred in the area of reporting and administration. The changes to CBAM that have now been announced by the European Commission as part of the Clean Industry Deal are due to this very fact.

The EU is faced with the fact that more than 120 thousand European companies have to submit reports. Small and medium-sized companies prevail on this list. Therefore, these companies with small import volumes were decided to be excluded from CBAM reporting. That way, 99% of companies will not have to report, which will affect a maximum of 10% of emissions.  As large companies' financial obligations remain the same, nothing will change for them, though. Although the physical fees have been postponed to 2027, the financial obligations for 2026 will remain.

At the same time, European manufacturers are putting pressure on the EU via their associations to strengthen the CBAM and protect themselves from competition. Meanwhile, they are also talking about the importance of subsidizing industries for a “clean transition.” Therefore, quotas and anti-dumping investigations which are currently being conducted in the EU (particularly in the steel industry), are used to protect their market.

CBAM and Ukraine: passive attitude and potential losses

For some reason, the CBAM is still perceived in Ukraine through the climate prism, although in the EU it is already perceived as a purely economic and trade instrument. The Ukrainian government is not currently actively engaged in negotiating this mechanism. This makes our country's position extremely weak. It is worth mentioning that the amount of Ukrainian exports to the EU is only increasing: it reached $25 billion in 2024. About 15% of Ukraine's exports to the EU are already under CBAM rules.

According to GMK Center's latest predictions on the impact of the EU carbon tax, the negative impact of the CBAM will increase over time as the number of vacant quotas decreases and the price of CO2 increases. Accordingly, the cost of CBAM certificates will also rise – according to our assumptions, it could reach almost $150/t CO2 in 2030. According to our calculations, the loss of Ukrainian exports due to CBAM could reach $1.8 billion in 2030, and the total export losses for 2026-2030 could reach $4.7 billion respectively.

The most severe factor for Ukraine is that due to the impact of this mechanism, our country risks losing almost $3 billion in potential investment in industry from 2026 to 2030. It's all pretty much predictable as no exports lead to no investment. For Ukraine, this means losing its future.

Carbon tax as a factor in the disintegration of Ukraine and the EU

Although Ukraine is a candidate for EU membership and is partially integrated into the European economy, the CBAM classifies it as a third country in terms of trade, along with Turkey and China. If Ukrainian producers are unable to export to the EU due to the carbon tax, they will be forced to redirect their exports to other markets. This could lead to the disintegration of Ukraine's economy and the EU, as true integration is not about signed agreements, but about growing mutual trade. This will ultimately harm the physical integration of the Ukrainian economy into the EU, and this is a very important factor.

To prevent this, Ukrainian businesses and Ukrainian trade in general should be treated as part of the European market. At the moment, the CBAM is an element that stops the integration of Ukraine's economy into the European economy. Since the EU depends on imports of raw materials and half-finished products in all fields, Ukraine with its exports, in my opinion, is an important element in ensuring the economic security of Europe. And our European partners need to understand this. At the moment, we do not notice this understanding yet.

Why Ukraine needs its own CBAM

EBA Industrial Ecology and Sustainable Development Committee has been constantly emphasizing that Ukraine needs to develop its carbon adjustment mechanism for imports to protect its domestic market. For example, Norway, which is not a member of the EU, has already made such a decision, realizing that this step will help maintain the competitiveness of local manufacturers. If Ukraine implements CBAM, it will be an important point in negotiations with the EU, demonstrating that we can control our markets and prevent the avoidance of European carbon tax rules through Ukrainian territory.

The CBAM is expanding and will gradually cover new sectors. In particular, it may be applied to the agricultural field and consumer goods production in the future.

I believe that Ukrainian businesses should already be developing strategies for adaptation, as CBAM will only get stronger and affect the entire value chain. One way or another, even at the reporting stage, the implementation of CBAM will affect all businesses in Ukraine.

Instead of waiting for new restrictions, Ukraine should actively engage in the global CBAM regulatory process and protect its interests in the international arena.