European carbon border levy could devastate Ukraine, new study warns

The carbon border levy (CBAM) being introduced by the European Union could have a devastating impact on Ukraine’s iron and steel industry. This is the conclusion of a model by Kyiv-based consultancy GMK Center. According to the authors, Ukrainian companies will find it difficult to meet decarbonisation requirements without EU funding. The European Commission is working on introducing exemptions that would mitigate the impact on Ukrainian producers.

The EU’s Carbon Border Adjustment Mechanism could cause Ukraine export losses of up to 4.7 billion dollars in 2026–2030, according to a new study by the Kyiv office of consultancy GMK Center.

Ukraine exported goods worth a total of 24.8 billion dollars to the EU in 2024, of which 14.5% would fall under the carbon levy regulations, the report says. According to the modelling, the carbon tax will hit the iron and steel sector hardest. Ukraine currently exports goods produced in both sectors worth 3.3 billion dollars.

Total potential export losses in 2030 could reach 1.6 billion dollars. Finished steel products will be the most affected, followed by semi-finished steel products. According to GMK Center’s calculations, losses could total 899 million dollars for the first category and 558 million dollars for the second.

Funding for Ukraine’s decarbonisation is uncertain

The study also shows that in the first year of full CBAM implementation, Ukrainian iron and steel exports could face 311 million dollars in CBAM payments. By 2030, CBAM could make Ukrainian exports of cement, fertilisers, pig iron, billets and long steel products uncompetitive.

"Applying CBAM to Ukraine is a prohibitive trade mechanism that will lead to lower exports and a decline in production,"said Stanislav Zinchenko, CEO of GMK Center, to S&P Global Commodity Insights.

The EU market is absolutely crucial for Ukrainian producers.

"Over the past three years, the EU has become a key market for Ukrainian manufacturers," he said. "Our domestic market for all kinds of key industrial goods has shrunk. Only businesses focused on exporting to the EU have survived."

The report says CBAM’s negative impact on Ukraine would worsen over time because of rising carbon prices and the gradual reduction of free allowances under the EU emissions trading system.

"Ukrainian producers of steel, cement, aluminium and other products have not had access to subsidies, decarbonisation grants and low-cost loans like their counterparts in the European market," Zinchenko said. "Ukrainian businesses can decarbonise production only by gaining access to European financial instruments."

Exemptions for Ukraine are likely

Europe is Ukraine’s largest trading partner, with significant steel exports to countries such as Poland, Bulgaria, Italy, Romania, Greece and Moldova. European officials seem well aware of this. In early March, the European Commission proposed extending the exemption for Ukrainian steel exports.

In a recent proposal, the Commission also put forward several improvements to CBAM to reduce the administrative burden on smaller importers and adjust the deadline for purchasing certificates. Under these changes, importers will be able to purchase CBAM certificates from February 2027, rather than 1 January 2026, to cover emissions embedded in their imports for 2026.

"This could be achieved under Article 30.7 of the CBAM Regulation, which contains a force majeure clause for countries affected by unpredictable, exceptional and unprovoked events that cause serious damage to their economic and industrial infrastructure," the report says.