Ukrainian industry insists on urgent action to postpone CBAM for the country
The global market is preparing for the final implementation of the Carbon Cross-Border Adjustment Mechanism (CBAM) from January 1, 2026. Thus, the other day the EU and the UK announced an agreement to merge the two ETSs – this step was expected, its benefits and drawbacks have been discussed by British business since last year. Some large economies still choose the path of confrontation. At the same time, Ukrainian industry insists on the need to postpone the mechanism for the country, because the consequences of applying CBAM for the Ukrainian economy and export-oriented industries could literally be devastating.
UK – EU
On May 19, the UK and the EU committed to working on merging their emissions trading systems (ETS). These agreements were reached as part of a broader agreement between the parties that resets post-Brexit relations in areas such as fishing rights, trade and defense.
“Closer cooperation on emissions by combining our respective systems would improve the UK’s energy security and avoid a hit to businesses from the EU carbon tax due to come into force next year, which would send £800 million ($1 billion) directly to the EU budget,” the British government said in a statement.
British industry operated under the EU ETS until the country left the bloc and launched its own carbon market in 2021.
Last summer, consulting firm Frontier Economics, commissioned by key players in the British energy market, released a study on the country’s revenue loss if it remained outside the EU carbon market – it was said to be up to £8 billion ($10.2 billion) in 2025-2030.
The move announced by the parties was welcomed, in particular, by the industry association UK Steel. They noted that they were in favour of a carbon market being merged in 2019, as the separate UK market was too small and illiquid. The announcement by the parties envisages the mutual recognition of carbon emission allowances. This would create a single price for CO2 in both markets and would free UK steel exports to the bloc from the costs and administrative burden associated with the CBAM.
In general, the ETS agreement would aim to create the possibility of mutual exemption of goods originating in the two jurisdictions from the EU and UK CBAM obligations, and should cover sectors such as electricity generation, industrial heat production, industry, maritime transport and aviation, with a procedure to expand the list.
In April, the UK published draft primary legislation for its own CBAM (the mechanism should enter into force on 1 January 2027).
British industry has long called for the country’s carbon market to be linked to the European one. However, analysts warn that the merger is likely to lead to a rise in UK carbon prices to European levels, with critics putting the figure at 6%.
On 19 May, after the announcement of the merger, the value of UK benchmark carbon contracts rose by 8.4% to £52.4/tonne (€62.3). So in the short term, the deal could mean an increase in the carbon burden for British companies.
The path to simplification
As the full implementation of the European CBAM from the start of 2026 will seriously affect world trade, exporting countries are choosing different tactics to respond. A number of countries are developing their own analogues or adapting domestic pricing tools, while others are consistent opponents of the European scheme, among them China and India. For example, India recently announced that it would take retaliatory measures if the EU goes ahead with its plan to levy a carbon tax on Indian products, according to Piyush Goyal, the country’s commerce and industry minister. The parties are currently negotiating a free trade agreement (FTA), aiming to conclude it by the end of 2025. A cross-border carbon adjustment mechanism is also under discussion.
On May 19, Russia requested WTO consultations on the CBAM, arguing that it was not a genuine environmental measure but “an instrument of trade restriction and discrimination.” Other countries have previously promised to take this step.
European companies have their own reservations about the cross-border carbon adjustment mechanism. This concerns the work of national authorities, administrative procedures, coordination of emissions tracking in the supply chain, forecasting financial costs in the absence of an understanding of the average price in the EU ETS in 2026 and the not yet defined benchmarks for calculating the tax, etc.
The European Commission has already proposed a simplification of the mechanism as part of the Omnibus I package presented in February.
In May, the European Parliament’s Committee on the Environment, Climate Change and Food Safety supported these EC proposals – it only concerned technical amendments and a number of other positions:
a new minimum weight threshold of 50 tonnes, which would exempt 90% of importers (mainly small and medium-sized enterprises) from the CBAM carbon tax
entities and individuals),
simplifying the authorisation of declarants, calculating emissions, reporting requirements and compliance with financial obligations,
strengthening the anti-circumvention strategy.
After the vote, rapporteur Antonio Decaro said that the majority of the committee had agreed to limit the amendments to specific EC proposals and not to revise other provisions of the CBAM legislation. According to him, this approach allows for simplification of the work of companies without repealing or weakening the mechanism.
On 22 May, the same proposals to simplify the CBAM, in particular the new de minimis weight threshold of 50 tonnes, were approved by the European Parliament. Now the bloc’s legislator should start negotiations with the European Council on the final text. And in early 2026, the EC will assess whether to extend the scope of the mechanism to other ETS sectors where there is a risk of carbon leakage.
At the end of March this year, applications from importers to become an authorized CBAM declarant were opened – in parallel with the development of an IT system for the registry, so that the latter would be fully operational by January 1, 2026. The EC is also working on further simplifications of the mechanism. In particular, the European Commission’s Directorate-General for Taxation and Customs Union (TAXUD) convened an informal expert group on these issues, its meetings have already been held three times, the last one in May this year.
Exception for Ukraine
At the same time, the final introduction of the CBAM could deal a devastating blow to Ukrainian manufacturers. According to updated estimates by the GMK Center, as a result of the introduction of the mechanism, Ukraine could lose $7.2 billion in GDP by 2030. In 2024, the country exported goods worth $24.8 billion to the EU, of which 14.5% falls under the CBAM. The metallurgical sector, which supplied $3.3 billion worth of products to the bloc, will suffer the most.
Therefore, the country’s industrialists and industry associations insist that the government immediately appeal to the European Union to postpone the mechanism for Ukraine on the basis of Article 30(7) of Regulation (EU) 2023/956 of the European Parliament and of the Council of the EU as a basis for applying force majeure. Such calls were made, in particular, by the Association of Environmental Professionals (PAEW) and the Office of Sustainable Solutions, the Ukrcement Association, the National Association of the Extractive Industries of Ukraine and leading participants in the subsoil use market, the Federation of Employers of Ukraine.
Domestic industry criticizes the wait-and-see approach that, in their opinion, the Ukrainian authorities have taken, as the initiative for cross-border carbon adjustment is spreading around the world. The fact that Ukraine did not address the EU on the issue of postponing this environmental duty was surprising – this was stated in the official response of the European Commission to the request of the European Business Association, the relevant information was published in the media on April 29.
After all, as reported by the Deputy Minister of Economy – Trade Representative of Ukraine Taras Kachka, the government is currently preparing official appeals to the European Commission with a request to provide exceptions both for the country as a whole and separately for electricity exports – they will work on this in the coming months.
“We have been in dialogue with the European Commission for quite a long time, trying to understand how this should work. Therefore, we are already entering the active phase of work on an exception for the implementation of CBAM for Ukraine,” he noted.
Ukrainian MMC has repeatedly emphasized that it is ready to contribute to the “green” transition in European metallurgy by supporting supply chains. However, in conditions of a full-scale war, the industry does not have the opportunity and funds to modernize accordingly. In addition, domestic producers do not have access to the same financing conditions and grants as European industry.
