Risks of introducing CBAM for Ukrainian economy will be significant, talks with EU on postponement needed due to war – experts

Ukrainian exporters of products to the EU countries within the framework of the Green Deal strategy and, in particular, the additional tax on goods with a high level of carbonization during production (Carbon Border Adjustment Mechanism, CBAM), which will be introduced from 2026, will incur significant costs and negotiations with the EU on a postponement of the introduction are needed due to the war in Ukraine.

As Andriy Hluschenko, chief analyst at GMK Center, reported at the round table on how CBAM will weaken the economy of Ukraine, which took place on October 23, the costs of CBAM will increase for the Ukrainian economy and can significantly weaken it.

A study on the impact of the EU carbon tax on the Ukrainian economy was presented at the event, the main findings of which were published by the Interfax-Ukraine agency on October 14, the losses of the Ukrainian economy from the additional CBAM tax in the EU in the first year will amount to $202 million, growing in 2030 to $1.44 billion, the mining and metallurgical complex will suffer the most.

GMK Center Chief Analyst Andriy Tarasenko stated that the CBAM is necessary to achieve climate goals and at the same time to prevent losses for European enterprises. At the same time, he advocated for negotiations with the EU on the application of Article 30.7 of the CBAM regulation, which suggests that the European Commission can change the approach to the application of CBAM for countries that face an unpredictable, exceptional and unprovoked situation that has devastating consequences for the economic and industrial infrastructure."

"We have been at war for three years," the expert emphasized.

Director of Sustainable Development Projects at ArcelorMittal Kryvyi Rih Olha Semkiv noted that it is impossible to separate the CBAM from the decarbonization process. ArcelorMittal Kryvyi Rih had been working in this direction long before the introduction of the CBAM, but 2022 crossed out these efforts. At present, there is no opportunity to pay due attention to the decarbonization direction, and there is no expertise to compile the relevant reports within the CBAM.

"But ArcelorMittal Kryvyi Rih plans to return to decarbonization plans. Moreover, the European market will be one of the main markets for the plant … We expect a delay in CBAM obligations, and all metallurgical companies believe that there are grounds for this – this point should be applied due to the situation in Ukraine. We really want the dialogue between the EU and Ukraine in terms of implementing the legislation to be continued," Semkiv emphasized.

At the same time, she pointed out the requirements at Polish customs for the presentation of documents on CBAM.

"This is very surprising, and Ukrainian companies are better informed about CBAM than in Europe," she said.

Metinvest Project Office Manager Andriy Kril recalled that CBAM was launched in 2023 (as part of the transition phase, during which companies must submit reports on carbon emissions associated with the production).

"We are now in the process when the European Commission will assess the consequences of the implementation of CBAM 1.5 years ago. The practice of applying CBAM will be studied, after which the legislation will change and be clarified. There will be a clearer understanding of the situation with CBAM when the documents are finally approved," Kril explained.

At the same time, he believes that CBAM should be applied to Ukraine not as a third party country, but as a country moving towards EU membership, which has committed to implementing EU legislation. Therefore, Ukraine has a unique situation not only because of the war, but also as a potential EU member.

"We need a constant and regular dialogue with the EU, with the authorities, so that there is unimpeded movement of goods. And we must not forget that we are moving towards Europe and will implement these mechanisms in our country," the Metinvest manager summed up.

Representative of the parliamentary subcommittee on industrial policy of the Committee on Economic Development Musa Magomedov said that Ukraine needs to take the initiative in the dialogue with the EU to postpone obligations under the CBAM, since the country is in a state of war.

"If we do not correct the situation, we will have very serious consequences. We need to include both government and Verkhovna Rada representatives in resolving the situation. The economic committee must make every effort to ensure that our country is treated with an eye on the situation in Ukraine," Magomedov noted.