(P1) The European Union’s new carbon border tax has dealt a significant blow to Ukraine's wartime economy, causing a 17 percent plunge in its steel exports to the bloc in the first quarter and sparking urgent calls for policy adjustments from Kyiv.
(P2) "The Carbon Border Adjustment Mechanism and the war are not very compatible," Ukrainian Economy Minister Oleksii Sobolev said, adding that the levy "creates an additional disadvantage for us, and then it is easier for EU buyers to shift to other countries."
(P3) The sharp decline in shipments, which included a two-thirds collapse in long product exports, follows the January 1 implementation of the CBAM. The mechanism imposes costs on imports based on their embedded CO₂ emissions. Wartime difficulties in verifying actual emissions force Ukrainian producers to use high default values, putting their steel at a disadvantage with a default cost of €98 per ton, compared to just €14.93 for U.S. steel.
(P4) At stake is a critical economic lifeline for a nation four years into a full-scale war. The Ukrainian government estimates the carbon tax could erase 6.5 percent of its GDP over the next decade, a stark contrast to the EU's projection of a "minor" 0.01 percent impact. Kyiv is now in negotiations with Brussels to adapt the rules, arguing for a "staged and realistic solution" that reflects its extraordinary circumstances before the financial penalties begin in 2027.
The EU's plan to nearly halve tariff-free steel imports from Ukraine starting in July will further compound the pressure. Yuriy Ryzhenkov, chief executive of Ukrainian steelmaker Metinvest, said that if left unchanged, the mechanism would be a “killer” for the country's steel and ferroalloys industries.
While Ukraine is pursuing its own green transition and supports the CBAM in the long term, officials are requesting a temporary reprieve that acknowledges the immense challenges of decarbonization and data verification amid conflict. "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," Ryzhenkov said.
In contrast, major European steel producers like ArcelorMittal, thyssenkrupp, and Salzgitter are forecasting a more optimistic second half of the year, citing the new trade restrictions as a key factor. Reduced competition from imports, lower energy costs, and higher steel prices contributed to improved financial performance in the first quarter.
Salzgitter’s steel division saw its EBITDA more than double to €80 million, while ArcelorMittal’s EBITDA rose 14.9 percent to $131 per ton despite a 5.9 percent drop in shipment volumes. The European producers anticipate that the combination of CBAM and lower tariff quotas will allow them to increase capacity utilization and profitability, offsetting concerns from the conflict in the Middle East.
This article is for informational purposes only and does not constitute investment advice.
