The new EC proposal on CBAM does not mention an exemption for Ukraine

The European Commission’s new proposal to strengthen the Carbon Border Adjustment Mechanism (CBAM) does not mention any exemption for Ukraine, but it does provide estimates of its impact on Ukrainian production and exports.

In particular, according to the EC, despite the war and damage to the economy, Ukraine is the largest exporter of CBAM goods to the bloc in terms of physical volume. In addition to agricultural products, the country also exports pig iron and steel (12.3% of its exports to the EU), cement (0.6%), and aluminum (0.3%) to the EU. Exports of CBAM goods account for about 2% of Ukraine’s GDP.

As explained, the CBAM review report showed that the impact of the mechanism on the Ukrainian economy is expected to be limited. EU modeling shows that overall demand for Ukrainian steel products is expected to remain broadly stable, with export volumes increasing by around 1% compared to the baseline level by 2035, and this small impact is due to the relatively low intensity of emissions from iron and steel produced in Ukraine, for example, compared to Chinese and Indian products.

At the same time, the expected impact on exports of cement, fertilizers, and aluminum products is slightly higher in percentage terms, but these are significantly smaller sectors compared to fsteel industry.

However, the GMK Center notes that the Ukrainian steel industry is critically dependent on exports to the EU. In the first 10 months of 2025, the bloc accounted for 81% of the country’s exports of finished steel products. Excess steel exports from China have displaced Ukrainian exports from other markets, and now CBAM threatens Ukrainian steel supplies to the EU.

“We’re not yet talking about Ukraine being denied an exemption due to force majeure. This isn’t publicly known. This refers solely to an assessment of CBAM’s impact as limited — a position we strongly disagree with and are prepared to substantiate with clear arguments,” notes Stanislav Zinchenko, CEO of GMK Center.

According to him, the EC’s calculations appear to be overly simplified, as they do not take into account indirect consequences and inter-sectoral links in the economy.

«According to our estimates, the iron & steel sector contributed 7.2% to the GDP of Ukraine in 2024, including supply chains. If exports of iron & steel products are damaged by CBAM, it means damage to other sectors of Ukrainian economy. Totally about 6% of goods exported by Ukraine this year fall under CBAM regulations. It’s about $2.5 bln – significant amount for country which lives in the war. CBAM threatens these export revenues,» explains Stanislav Zinchenko.

According to GMK Center calculations, CBAM payments (based on default values) for Ukrainian pig iron could amount to almost €100/t, for HRC – €111/t, and for rebar – €104/t. This puts Ukraine at a competitive disadvantage compared to other exporters.

The impact of CBAM will be particularly noticeable in the long products segment (rebar, wire rod, wire) and square billets. These products are manufactured in Ukraine using BF-BOF route, which is more carbon-intensive than EAF route which is mainly used for the production of long products worldwide. According to GMK Center’s study, CBAM will lead to Ukraine losing exports of long products, square billets, and pig iron to the EU by 2030.

Ukraine is integrated into the supply chains of European manufacturers, but CBAM could disrupt these supplies. As a result, Ukrainian steel mills will be forced to reduce or even halt production. Three out of seven blast furnaces currently in operation could be shut down, putting more than 13,000 jobs at risk.

The expansion of the scope of CBAM, which has been widely discussed recently, creates additional risks for Ukrainian small and medium-sized enterprises that produce and export steel structures, tanks, containers, bolts, screws, etc. These products will become uncompetitive.

“We haven’t seen which decision exactly European Commission made regarding Ukraine, but I hardly believe that decision based on incorrect numbers could be correct,” Stanislav Zinchenko concludes.

The European Commission also noted that the regulation concerning the negative impact of global excess capacity on the EU steel market related to trade does not exempt Ukraine either.

“This argument is not relevant, since two weeks ago the European Commission’s Committee on International Trade introduced amendment 25a to the draft regulation on the complete exemption of Ukraine from new measures to protect the EU steel market. Moreover, it seems strange to refer to decisions on two unrelated processes,” added Zinchenko.

The European Commission’s reference to the “minimal impact” of CBAM on Ukraine effectively replaces the criteria laid down in the CBAM Regulation itself. War, as an objective force majeure circumstance, does not require additional proof through model impact assessments, since the logic of the regulation provides for special treatment based on the nature of the event, rather than its quantitative consequences for trade with the EU.

«The assessment of the impact of CBAM on Ukraine’s economy is not an argument for denying Ukraine temporary exemption on the grounds of force majeure under Article 30(7) of the CBAM Regulation. The European Commission’s argument in the Q&A is based on an assessment of the expected economic impact of CBAM on Ukraine (ex post/quantitative approach), while the CBAM Regulation provides for the possibility of special treatment not based on the scale of the impact, but on the nature of the event (ex ante/legal approach). These are two different logics, which in the Commission’s materials actually replace each other,» Zinchenko argues.

It should be recalled that the EU is strengthening the CBAM by adding a wide range of goods. According to the European Commission’s proposals, this concerns 180 new products.