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Ukrainian Steel Industry Faces Challenges with EU’s Carbon Border Tax (CBAM)

INDUSTRIESUkrainian Steel Industry Faces Challenges with EU's Carbon Border Tax (CBAM)

As reported by Politico: “Ukrainian steel and iron companies need EU buyers more than ever before. However, the upcoming EU tax in 2026 will cost them millions unless swift changes are introduced”. The European Commission also admitted that Ukraine will be one of the countries most affected by the CBAM (Carbon Border Adjustment Mechanism). How does the Ukrainian steel industry react to new solutions regarding the border charge for carbon dioxide emissions?

Impact of CBAM on trade relations between Ukraine and the European Union

The CBAM may significantly reduce the value of Ukrainian exports to the European Union, which was a key partner for steel producers even before Russia’s full-scale invasion. When it comes to import and the steel industry, many experts are noting that while the import of some products to the EU will continue, commodity prices will significantly increase, and the import of other products may be suspended. In the context of new resolutions, there are also doubts about the practice of applying CBAM in full scale to imports from Ukraine, but leaving the doors open for Russian semi-finished steel products under the latest 12th package of sanctions.

The war in Ukraine as a force majeure event in CBAM regulations

Ukrainian steel industry companies understand the need to reduce their carbon footprint. They point out real restrictions on the implementation of projects supporting the green transformation. “Had it not been for the war, we would have had time to prepare for the green transformation. We planned to restructure our plants for low-carbon steel production and modernize Kamet Steel and Ilyich Steel. We also considered building electric arc furnaces in Zaporozhye, instead of Martin furnaces. However, we currently cannot engage in large transformation projects in Ukraine as investors are unable to provide financing at normal interest rates.” says Yuriy Rizhankov, CEO of Metinvest, a leading company in the metallurgical and mining sector from Ukraine.

Introducing CBAM in the face of the devastating war could significantly worsen the situation of the Ukrainian economy. Referring to new events, Jozsef Csapo, Deputy Director General for Technology and Strategy at ArcelorMittal Kryvyi Rih, told Politico, “Ukraine will be brought to its knees.” Experts argue that Ukraine may suffer significant financial losses due to new regulations. Stanislav Zinchenko, who runs an independent consulting firm advising iron and steel companies, estimates these at $1.4 billion. Entrepreneurs point out the urgent need to support Ukraine. “The СBAM regulations state that if appropriate, disruptive force majeure events occur, the European Commission can make decisions that will help mitigate these regulations. If anything disrupts export stability, we expect the European Union to take appropriate steps.” comments Yuriy Rizhankov.

Potential solutions in the context of Ukraine and CBAM

Decarbonization in the European Union is largely driven by public support of states. Some companies operating in the steel industry expect 50% of decarbonization investments to be covered by public funds. Ukrainian entrepreneurs have limited opportunities in this respect. “During the war and post-war reconstruction, the Ukrainian government will not be able to finance decarbonization programs. Given Ukraine’s close relations with the European Union, it would be reasonable for Ukrainian companies to participate in EU programs funding decarbonization – this would be an example of real integration” – concludes Yuriy Rizhankov.

Ukrainian companies believe that in the context of CBAM, two options should be considered. The first is the accelerated accession of Ukraine to the European Union and joining the European Emissions Trading System (EU ETS) with some derogations. The second option is to defer CBAM requirements for Ukraine. In this case, entrepreneurs are considering Ukraine’s commitment to implement its own emission trading system (ETS) and participate in the EU’s Green New Deal.

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