EU Carbon Border Levy Is a Growing Source of Tension for Ukraine
May 22, 2026 5:30 am ET
In the fourth year since Russia’s full-scale invasion of Ukraine’s industrial heartland, Kyiv faces another challenge—this time from a partner: the European Union’s carbon border adjustment mechanism.
The levy, which the Ukrainian government and industry say has already sharply reduced steel exports to the bloc, is designed to narrow the carbon-cost gap between EU producers and foreign competitors. It puts a price on the embedded CO₂ emissions of imports in six sectors: cement, aluminum, fertilizers, iron and steel, hydrogen and electricity.
“CBAM and the war are not very compatible,” Ukrainian Economy Minister Oleksii Sobolev said, pointing to the added uncertainty the conflict brings for Ukrainian export prices. “It creates an additional disadvantage for us, and then it is easier for EU buyers to shift to other countries,” he added.
Ukraine, an EU candidate country, hasn’t been granted a CBAM exemption because “granting general exceptions to specific countries would be inconsistent with the functioning of the measure,” according to a commission spokesman.
European Commission data show Ukraine is the largest exporter of CBAM goods—mainly steel and cement—to the EU in volume terms. The commission, the EU’s regulatory body, projected a “minor” effect for Ukraine’s economy last December—a 0.01% decline compared with a 2025 baseline by 2035—“due to the relatively low emission intensity of iron and steel produced in Ukraine compared with some other third-country producers.”
However, Sobolev said the tax could cost Ukraine as much as 6.5% of its GDP over the same 10-year period. He also noted a steep fall in exports to the EU across several sectors.
CBAM came into effect at the start of 2026, and the responsibility for buying CBAM certificates from 2027 falls on the EU importers of CBAM-covered goods.
According to the European Steel Association, in the first quarter of 2026, exports of finished steel products from Ukraine to the EU dropped by 17% year-over-year, with long product exports falling by two-thirds. The EU plans to cut tariff-free steel imports by nearly half compared with 2024 levels from July, which would further raise costs for Ukrainian steel exporters.
Yuriy Ryzhenkov, chief executive of Ukrainian steelmaker Metinvest, said that, if left unchanged, the mechanism would be a “killer” for Ukraine’s steel and ferroalloys industries.
Ryzhenkov’s Metinvest is part of the Ukrainian steelmakers’ association, which is talking to the government in Kyiv as it negotiates with the commission over adapting CBAM to Ukraine’s extraordinary circumstances. He expects the talks to conclude within two months. Iryna Holovko, a carbon market expert at the International Carbon Action Partnership, said Ukraine’s situation could fit CBAM’s provision for force majeure—an “unforeseeable, exceptional and unprovoked event” with “destructive consequences” for a country’s economy and infrastructure. “I also understand that there is a huge sensitivity around granting Ukraine an exemption, given its status as the top exporter of CBAM goods to the EU,” she added. The International Carbon Action Partnership is a forum that includes the European Commission as a member, and Ukraine participates as an observer.
CBAM is an extension of the EU’s flagship climate policy—the EU Emissions Trading System—under which large industrial polluters across several sectors pay for the greenhouse gases they emit each year. Participating companies must surrender one carbon allowance for each metric ton of CO₂-equivalent they produce.
Operators in strategically important sectors that would otherwise be at a competitive disadvantage to cheaper, more carbon-intensive imports—such as steelmakers and oil refineries—receive free allowances each year. But to meet its goal of net-zero emissions by 2050, the EU plans to gradually phase out free allocation.
Free allocation to EU domestic producers will be fully phased out, as EU importers of CBAM goods gradually start paying for a higher share of the carbon embedded in the products they import.
CBAM is the outward-facing counterpart to the EU ETS: while the bloc’s carbon market covers emissions from industrial and power companies within the EU, CBAM targets the CO₂ embedded in imported goods produced outside the bloc.
The commission has assigned different values to products from countries outside the EU, depending on the emissions intensity of their manufacture. For example, the same steel product could have a CBAM cost of €14.93 (about $17) per ton if imported from the U.S., €98/t (nearly $115/t) from Ukraine, and €252.50/t (over $290) from India, when calculated using default values, according to OPIS.
However, these values are often higher than the cost of the emissions actually produced. Because CBAM turns emissions into a cost by charging importers for each ton of CO₂ embedded in a product, higher reported emissions mean a higher cost at the border. To avoid paying based on high default values, companies must have their emissions verified by EU-accredited verifiers.
But measuring CO₂ emissions near the front lines of a war is no small feat. One reason Ukrainian-made steel may be more expensive and less attractive to EU importers is that, without verified actual emissions data, they would need to pay according to the default values.
A commission spokesman said that, in extraordinary and unforeseeable circumstances, the verification rules could allow verifiers to carry out a virtual site visit rather than a physical one.
Bureaucracy is one of the main concerns of the EU’s major trading partners. Exporters in several countries, including India and Turkey, have complained CBAM implementation has been difficult to navigate, citing uncertainty over emissions-reporting rules and verification procedures.
CBAM requires countries to adjust their environmental policies to mitigate the cost, but “Ukraine is not in the position of adjusting at the moment,” says Simone Borghesi, an economist who leads the research group on climate change at the Florence School of Regulation. Borghesi said the commission can send a “powerful signal” by allowing Ukraine to reinvest its CBAM contributions in decarbonization.
With its own emissions trading system and CBAM laws in the making, Ukraine isn’t opposed to the carbon tax or calling for a blanket exemption. Instead, Ryzhenkov said, “what we’re advocating is a staged and realistic solution that would reflect wartime conditions and allow producers to survive, modernize and decarbonize before they are fully exposed to CBAM.”
As an environmental tool, CBAM is designed to encourage countries outside the EU to introduce carbon pricing and clean up production so their exports face lower costs when entering the EU.
Sobolev confirmed that once the burden of the war is gone, carbon policies would be one of Ukraine’s priorities: “In the long term, we will be much greener, more cost-efficient and competitive. So we support CBAM.”
—Nia Simeonova is a reporter at OPIS. OPIS and The Wall Street Journal are owned by the same parent company, Dow Jones.
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Appeared in the May 23, 2026, print edition as 'EU Carbon Levy Hampers Ukraine'.
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