Ukraine needs to implement the declarative principle of CBAM application

Starting from October 1, 2023, the Carbon Border Adjustment Mechanism (CBAM) will be applied in a transitional phase for exports to the EU. Until December 31, 2025, the CBAM will operate in a test mode without payment for CBAM certificates. At the same time, importers report on carbon emissions from their production. Starting in 2026, importers will need to buy CBAM certificates, the price of which will be in line with the price of carbon emission allowances in the EU. How will this affect the cement industry, and how can the situation of Ukrainian exporters be improved?

Impact on the cement industry

According to preliminary calculations, taking into account the current price of a ton of CO2 in the EU market, the additional burden on the Ukrainian producer when exporting 1 million tons of cement will be about €10 million.

The cost of CBAM certificates will make Ukrainian exports uncompetitive under martial law (with limited domestic demand) and the inability to modernize domestic enterprises during the war to catch up with European companies in terms of carbon emissions.

What to do?

From a legal point of view, according to Article 30(7) of the CBAM Regulation: “If an unforeseeable, exceptional and unprovoked event occurs which is beyond the control of one or more third countries covered by the CBAM and that event has a devastating effect on the economic and industrial infrastructure of that country or countries, the Commission shall assess the situation and submit a report to the European Parliament and the Council, accompanied where necessary by a legislative proposal, amending this Regulation, identifying the necessary temporary measures to address those exceptional circumstances.”

One of the approaches that can be proposed under this provision may be to apply a declarative approach to goods imported from Ukraine to the EU and subject to the CBAM. In other words, it would be essentially the same approach as for the rest of the countries, but without charging emission fees, which is critical for our industry.

The application of the declarative CBAM principle to the Ukrainian producer will help to partially accumulate resources after the war, directing them to address the issues of the national decarbonization chain.

The Ukrcement Association, together with Ukrmetalurgprom, the Ukrainian Association of Producers of Ferroalloys and Other Electrosteel Products, the FEU and the ARZINGER Law Firm, appealed to the Government of Ukraine to negotiate with the European Commission on the application of the declarative CBAM method for Ukraine for the period of martial law and several years for the period of reconstruction. We received a response from the Ministry of Economy that the negotiation process has begun.