CBAM might apply to one third of Ukraine’s exports to the EU

Once introduced, CBAM will increase the fiscal burden of Ukrainian producers of electricity, fertilizers and metal products

Carbon Border Adjustment Mechanism (CBAM) might affect one third of Ukraine’s exports to the European Union. This opinion was presented by Stanislav Zinchenko, GMK Center Director, at the international online conference “Climate policy: risks and implications for the economic and financial sectors”.

He reminded that in 2019, Ukraine’s revenues from exports to the EU totaled €21.1 billion. Importantly, the most carbon-intensive commodities that Ukraine exports include electricity and fertilizers, as well as mining & metals sector products, such as pig iron, steel semi-finished products, rolled products, pipes and tubes, metalware, other products made of ferrous metals, ores.

According to Mr Zinchenko, CBAM is going to increase the fiscal burden by 42% of the finished product price for electricity producers, by 18% for carbamide producers and by 15% for producers of pig iron and semi-finished products. That will adversely impact Ukraine’s exports to the EU.

“Ukraine is one of the first countries that joined the European Green Deal. Since Ukraine signed the Association Agreement with the EU, it assumed lots of commitments. They include introduction of the monitoring system and the allowances market in Ukraine. The government and the business are now holding open discussions on various platforms. Ukraine has already commenced the integration process,” says Stanislav Zinchenko.

Ukrainian businesses are concerned about the upcoming changes in the rules of trade with the EU. The leading business organizations have already responded to potential risks that CBAM is going to bring.

• Thus, in February 2020, the European Business Association established the Committee on Industrial Ecology and Sustainable Development.
• In August, the American Chamber of Commerce in Ukraine set up the Sustainability Committee.
• In September, the Union of Ukrainian Entrepreneurs established the Sustainable Development Committee.
• In November, the Federation of Employers of Ukraine conducted an analysis of implications for business.
• The Ukrainian Business & Trade Association has been doing analytical work since August.

As reported earlier, the European Parliament supported the introduction of CBAM last week and adopted a resolution to that effect. That document is declarative and describes no specific CBA mechanism, nor sets any particular deadlines for its introduction. The European Commission is expected to present its official proposal on CBAM by the end of Q2 2021. CBAM is supposed to take effect in 2023 at the latest.

Carbon Border Adjustment is a tax that will be imposed on carbon-intensive products imported to the EU depending on the volumes of CO2 emitted in the process of their manufacture. CBA is part of the European Green Deal.