From January 1, 2026, the cross-border carbon adjustment mechanism (CBAM – Carbon Border Adjustment Mechanism) will be fully operational in the European Union, according to which imported goods, the production of which is associated with significant carbon emissions, will be taxed with additional tariffs. However, as of October 1, 2023, a transition period began to operate, during which importers submit reports on carbon emissions during their production, but without paying for CBAM certificates.
Already at this stage, Ukrainian companies faced rather complex problems that even require the involvement of foreign aid. The full-fledged launch of CBAM from 2026 will have a very strong negative impact – Ukrainian exports of metallurgical products, cement and fertilizers may significantly decrease or even stop completely. This state of affairs requires immediate action by the state, namely assistance in mitigating the application of CBAM to Ukrainian business.
The first problems
All companies had problems with CBAM reporting, as such documentation is new and quite complicated for Ukrainian business, says Olga Kulyk, director of the Department of Energy Ecology and Green Economy of the Employers' Federation of Ukraine (FRU).
A survey of market experts and Ukrainian exporters showed the presence of the following main problems when submitting CBAM reports:
1. Insufficient level of expertise of the main stakeholders, especially importers.
Lack of understanding of processes and requirements often leads to difficulties in communication, which was especially acute at the beginning of 2024.
2. Lack of targeted methodological assistance.
"Less than 10% of the 20,000 companies in Germany that were supposed to report on time did so. And in Ukraine, there are also problems with reports, with the methodology. A very raw procedure, a raw experiment, but it is starting to affect Ukrainian companies," says Stanislav Zinchenko, director of the information and analytical center GMK Center.
3. The need for access to the necessary data.
Namely: to the standard coefficients, for example, the indicator (coefficient) of CO2 emissions per 1 kW of consumed power, since the reporting based on the default reference values was completed in the summer of this year.
"Back in the spring of this year, we appealed to the government to help solve this issue, because it is one of the main coefficients for calculations in the report. As far as I know, the work is underway, but, unfortunately, there is no information about the results," says Olga Kulyk.
4. Lack of trained employees in companies who can prepare relevant reports.
The FRU often receives requests for training and/or clarification regarding these reports and their completion. Some companies decide to turn to consultants. The cost of their services is quite high, and for some companies disproportionate, because of the entire range of exported goods, not all of them are subject to CBAM regulation and the percentage of "CBAM goods" is relatively small.
5. Limited time frames for operators of large and complex installations, such as integrated metallurgical enterprises.
Less than a year to prepare documentation on monitoring methodologies and reports in accordance with European legislation, which differ significantly from existing national standards, is an ambitious task. Operators must adapt to new requirements in a short period of time, which can negatively affect the quality of the prepared documentation.
6. Complication of processes.
Further, it will be necessary to undergo verification of the data/reports provided. And here the question of access to verifiers will arise, more precisely, whether there will be verifiers in Ukraine who will have the right to carry out the appropriate verification. In addition, there will be a question about their number, which, in conditions of increased demand for these services, will also affect the cost of such services.
External help
The certain complexity of preparing CBAM reporting led to the fact that all or most Ukrainian companies engaged external expertise. It is interesting that even attracting foreign aid is not a comprehensive solution to the problem.
Impact of CBAM on the economy
According to the results research GMK Center, the introduction of CBAM in the EU will lead to increased losses for the Ukrainian economy. Currently, more than half of Ukrainian exports of goods go to the EU, and CBAM can be applied to 15-17% of them.
If in the first year of full implementation of CBAM Ukraine will lose $202 million in exports, then in 2030 this figure will increase to $1.44 billion per year.
"Because of CBAM, Ukraine can stop exporting such products as cement, fertilizers, cast iron, square billets, and rolled products after 2030. The Ukrainian metallurgical industry will suffer the most from CBAM, since 93% of Ukrainian exports subject to CBAM are iron and steel products ", the study emphasizes.
Since the possibility of implementing decarbonization projects in wartime conditions remains in question, for Ukrainian companies, the introduction of the price component of CBAM from 2026 will obviously not lead to a reduction in greenhouse gas emissions, but will only worsen the already shaky situation with the sale of products.
However, it is likely that the influence of CBAM will not have a significant impact on individual Ukrainian exporters due to the specifics of production, which is ready to meet environmental requirements.
State support
Given the volume of problems already at the stage of reporting preparation and, most importantly, the potential impact of CBAM, state support for mitigating the impact of this mechanism on the Ukrainian economy and business is extremely important. Yes, it is necessary to speed up the creation of an information base in Ukraine with indicators (coefficients) of CO2 emissions per 1 kW of consumed power.
According to Olga Kulyk, the authorities need to introduce recommendatory and methodological support:
- Ukrainian exporters subject to CBAM regulation, in the course of preparing the documents necessary for exporting their own products to the EU;
- Ukrainian producers of precursors in submitting information at the request of producers of goods subject to CBAM, regarding the CO2 emissions indicator, since emissions from the production of precursors must be taken into account when calculating the total CO2 emissions from the production of such goods.
At the global level, business proposes to conduct negotiations with the European Commission regarding the application of the declarative principle of CBAM for Ukraine during the period of martial law and several years during the period of reconstruction.
"One of the approaches that can be proposed under this provision may be to apply a declarative approach to goods imported from Ukraine to the EU and subject to the CBAM. That is, in fact, it will be the same approach as for the rest of the countries, but without charging a fee for emissions," says Lyudmila Kripka, executive director of the Ukrcement association.
We remind you that in accordance with part 7 of Art. 30 of Regulation (EU) 2023/956 on CBAM, temporary measures can be introduced to overcome exceptional circumstances if "an unforeseeable, exceptional and unprovoked event has occurred that is beyond the control of one or more third countries covered by CBAM and this event has devastating consequences for the economic and industrial infrastructure of such country or countries". The Ministry of Economy notes that the relevant negotiation process has already begun.
Such a decision will be beneficial to the European Union itself, as it will ensure guaranteed supplies of iron ore raw materials and steel semi-finished products produced with low carbon emissions from Ukraine. However, Ukraine needs help in investing in the "green transition" process for steel enterprises.
"The fact that steel is produced in countries that share the same policy goals for steel production should be seen as an investment in sustainable and friendly supply chains. This is particularly important for achieving climate goals. Decarbonisation of steel will be effective if it is supported by supply chains, which encourage investments in modern technologies of decarbonization of raw materials, in particular iron ore", notes Taras Kachka, Deputy Minister of Economy of Ukraine – Trade representative of Ukraine.
Also, according to Olga Kulyk, it is important to initiate negotiations with the European Commission regarding the involvement of the responsible bodies of the Ukrainian authorities in the development of EU legislative acts regarding the procedure for verifying CBAM reporting, in order to ensure the possibility of verifying such reports by Ukrainian business entities and, in the future, for mutual recognition of the verification results by of Ukraine and the EU.
"We do not see the interest of either the government or the ministries, which should conduct constant negotiations. And the EU is surprised why Ukraine does not take an active part in this process. Unfortunately, some government employees believe that this is a business problem, not the Cabinet's," states Stanislav Zinchenko.
In addition, the Ministry of Economy should start the development of the Ukrainian CBAM mechanism for importing products from third countries, similar to the one introduced in the EU. According to the experts of the European Business Association, this will contribute protection of national producers and provision of equal conditions for all market participants in Ukraine (producers and importers), as well as accelerate and simplify the process of integration of the Ukrainian market into the EU market after Ukraine acquires the status of an EU member state.
