Ukraine is losing the climate trade war — EBA

Ukraine is losing the climate trade war, according to the European Business Association (EBA). In order to protect the national industry in the context of the introduction of the CBAM, appropriate steps are needed from the state, in particular, the development and implementation of its own mechanism.

According to the EBA, even before the full-scale invasion, the EU identified Ukraine as one of the countries that would be most affected by the implementation of the cross-border carbon adjustment mechanism (CBAM). According to pre-war estimates by Ernst & Young, the mechanism could potentially cost Ukrainian producers $300 million.

The EBA noted that under current conditions, such a financial burden would be excessive for the domestic economy, as the industries and enterprises subject to CBAM are already among the most affected by the hostilities. In addition, due to the blockade of Black Sea ports, Ukrainian companies have limited options for exporting to countries other than the EU. Before the war, 45% of iron and steel exports went to the European Union, and in 2023, it was 85%.

In March 2021, the Cabinet of Ministers established a working group to agree on an approach to applying the carbon border adjustment mechanism to Ukraine for consultations with the European Commission. However, nothing is known to the public about the activities of this group.

At the same time, other EU trading partners are actively negotiating CBAM, responding quickly to regular changes and updates issued by the EC.

The EBA Committee on Industrial Ecology and Sustainable Development suggests that the Ukrainian authorities focus on two tasks.

One of them is to achieve the application of the CBAM to Ukraine on a declarative basis. The current regulation of the mechanism allows the EU to take into account exceptional and unprovoked events that have caused devastating consequences for the economy and industrial infrastructure of a country exporting goods covered by the mechanism (Article 30(7) of the CBAM Regulation). The business is convinced that one of the approaches that can be proposed under this provision is to apply a declarative approach to goods imported from Ukraine to the EU and covered by the mechanism.

«In fact, it will be the same approach as for the rest of the countries, but without charging for emissions,» the EBA notes.

The second task is to develop and implement an CBAM in Ukraine. Annex III to the relevant regulation defines the list of countries exempted from its operation. It includes exclusively EFTA member states, including Norway, Liechtenstein, Iceland, and Switzerland. This made other states that actively trade with the EU think about their national analog of the CBAM.

«As Ukraine will implement the EU’s climate acquis, we propose to immediately start working on the implementation of the CBAM in Ukraine. And, similar to the EU, this work should be led by the financial and economic block of the government,» the association emphasizes.

The EBA hopes for a prompt response from the Cabinet of Ministers and that the government will take appropriate measures. It is about both achieving the application of the DCFTA to Ukraine on a declarative basis and developing and implementing its own mechanism.

As GMK Center reported earlier, companies that had difficulties submitting their first report under the cross-border carbon adjustment mechanism due to technical issues with the relevant registry were granted a 30-day extension.