Ukraine's industry faces risks without CBAM exemptions as definitive phase approaches

The Ukrainian industry is calling for the European Commission to apply exemptions for Ukraine under the EU's carbon border adjustment mechanism before it enters its definitive period in January 2026, putting Ukrainian exporters at risk of high revenue losses, sources told Platts, part of S&P Global Commodity Insights.

"[The] consequences [of CBAM] will be extremely critical for our state, which is in a full-scale war and budget funds are spent, primarily, on ensuring defense capabilities," said Olga Kulik, head of the Ecology, Energy and Green Economy Department of the Federation of Employers of Ukraine.

A recent letter addressed to the EC by the European Business Association emphasized that 17%-20% of Ukraine's exports to the EU could be impacted by CBAM.

Russia's ongoing war of aggression would exacerbate the impact of the EU's carbon levy on Ukraine, Kulik said.

Ukraine exports a large amount of cement, fertilizers, aluminum, pig iron, steel billets and long steel products to the EU.

Exemption criteria

For an exemption to take place, the EC would need to propose a change under Article 30.7 of the regulation, which makes exceptions for unforeseeable, exceptional and unprovoked events impacting the economic infrastructure of third countries under CBAM.

Ukraine meets all the criteria to be granted an exemption under Article 30.7 of the CBAM regulation, according to Kulik.

She said the war represents an unforeseen, exceptional, and unprovoked event. It is beyond the control of a third country to which CBAM applies and has devastating consequences for the affected country's economic and industrial infrastructure.

"During the war, it is extremely difficult to implement effective measures aimed at decarbonization, as well as to attract investment for this or receive assistance from the state," added Kulik.

Unofficial meetings have been ongoing during 2024 and 2025 between Ukrainian authorities and the EC, she added.

"We do expect this submission will be given proper consideration by the Commission and it will initiate a specific modality of CBAM application toward imports from Ukraine, which will duly take into account a truly force majeure situation in our country."

A Commission spokesperson told Platts they had no comments or further information to share at the time of publication.

Platts reached out to the Ukrainian government, the Ministry of Economy, the Ministry of Environmental Protection and Natural Resources, and the Ministry of Energy, but received no response by publication time.

Export setbacks

Business groups have highlighted export revenue losses as a high risk posed by CBAM for Ukrainian industries.

Ferrous metals and adjacent materials would be most heavily impacted, studies from GMK Center and the Federation of Employers of Ukraine showed.

CBAM could result in high economic losses for Ukraine, with studies estimating GDP losses from the levy between 4.8%-6.3% over the coming years.

In gross terms, revenue losses could reach up to $1.440 billion by 2030, said GMK Center. Meanwhile, the Federation of Employers of Ukraine warned that exports of CBAM-affected goods could drop by 65.7% by 2034.

Ukraine's ETS

The start of Ukraine's emission trading system depends on the end of the war. The recently approved ETS implementation plan states that the operational phase of the scheme will start no earlier than three years after the lifting of martial law in the country.

"Everything depends on when the war ends," Stanislav Zinchenko, CEO of GMK Center, told Platts. "We will need two to five years for collecting data and two years of testing the ETS," he said, adding that in total it could take between five and six years until the system is fully operational.

"The expectation remains that the pilot phase [of the Ukrainian ETS] will begin in 2028," an expert close to the discussion told Platts. "The Ministry of Environmental Protection and Natural Resources is working on the draft ETS law."

Russian occupation across specific regions poses challenges to establishing an ETS cap, the expert said. A flexible cap similar to that available for the maritime industry could be a potential solution, the expert added.

"The pilot phase can be extended in case the war continues," the expert said.

Ukraine also imposes a carbon tax of 73 cents, a fee applied to CO2 emissions embedded in goods, the third-lowest price for carbon emissions in 2025, according to the World Bank.

"The business community and the Ministry of Environmental Protection and Natural Resources have requested the reduction of the double burden," the expert said, adding that the government would need to find a solution for harmonizing the tax and the trading system once the latter becomes operational.