The main current problem of CBAM implementation is uncertainty and unpredictability

On January 17, the Climate Platform of the Federation of Employers of Ukraine hosted a presentation and discussion of the results of two studies conducted by CMD-Ukraine. In particular, the studies focused on the awareness of domestic business on the European Green Deal and the results of modeling the impact of the Carbon Border Adjustment Mechanism (CBAM) on the Ukrainian economy.

The Carbon Border Adjustment Mechanism (CBAM) has been in operation since October 1, 2023. And although the transition period lasts until January 1, 2026, during which companies only report on carbon emissions from their production, Ukrainian businesses have already faced some problems. Sergiy Lavrynenko, CEO of Stalkanat, shares his experience of working in these conditions.

Challenges in implementing CBAM

The biggest challenges for us in implementing CBAM are uncertainty, unpredictability and lack of data. Yes, we have already learned how to fill out CBAM reports, but the overall amount of uncertainty remains very high.

In particular, we do not yet know

• the reference values of greenhouse gas emissions in the EU for our HS codes, which will be in effect and how the EU will change them;
• what will be the dynamics of the cost of CBAM certificates;
• how the EU will expand the list of goods covered by CBAM;
• how our major international partners, such as the United States and the United Kingdom, who are already preparing their CBAM analogues, will react;
• the immediate pace of the EU’s withdrawal of free carbon credits for our competitors within the EU.

For us, metal processors, the main internal risk is not knowing whether large Ukrainian steelmakers will survive after the full implementation of the CBAM. This is a vertically integrated industry and production chain – from ore mining to the supply of finished products, which are raw materials for us. We have historically been dependent on these supplies.

Carbon calculations

We have calculated that if CBAM had been fully implemented yesterday, the losses for us would not have been very catastrophic. Approximately, we would have lost about 20% of exports of the “weakest”, lowest margin products. But this is now, when we are busy producing products for fortification. If not for this, we would have lost 30-40% of our exports under such conditions. Our calculations show that our emissions are 1.99 kg of CO2 per kilogram of finished product (steel fiber). Of these, 1.88 kg of CO2 are direct emissions from steelmakers, not directly from us.

But we are also losing opportunities due to uncertainty. Over the next five years, Stalkanat will be able to implement a large ambitious project to build another production shop. Of course, this is a large investment, but it also means additional jobs, deeper processing and increased competitiveness. And instead of exporting steel wire, which is subject to the CBAM, we can produce and supply ropes to foreign markets that have much higher added value and are not subject to CBAM regulation.

The idea for this project came from the CBAM challenges, but due to uncertainty, it is still an idea. So far, we see that this project is unlikely to be implemented due to the lack of understanding of whether CBAM will be extended to rope products tomorrow.

What to do

We are back to where I started – uncertainty. Who can guarantee that CBAM will not be extended to ropes in five years or sooner? That is why we have a request to the authorities that will negotiate CBAM with the EU.

Even if we fail to get Ukraine’s exemption from the CBAM due to force majeure, we should at least sign an agreement that would provide clarity and predictability for the next 10-15 years for Ukraine. Namely, it would set out an exhaustive list of goods from Ukraine that would be subject to the CBA (and not be supplemented) and a clear calculation algorithm with published values of the components for the next 10-15 years.

Such an algorithm would allow each producer and exporter to predict the amount of duty, knowing their technology and carbon footprint and modeling the pace of green process improvement for themselves and their EU competitors.