Introduction of CBAM alone in Ukraine not enough to drive decarbonization – study

The introduction of the EU's Carbon Border Adjustment Mechanism (CBAM), which will enter its paid phase in early 2026, will lead to moderate structural shifts in Ukraine's economy but will not be sufficient to drive decarbonization, according to a study by Green Deal Ukraїna.

"For Ukraine's economy as a whole, CBAM's impact is limited. It's important to note that European producers will also face stricter rules, as their free emissions allowances will begin to be phased out on January 1, 2026. This levels the playing field between EU and non-EU producers. Without CBAM, Ukraine would have an advantage not only over EU companies but also over all other countries exporting to the EU that are subject to CBAM," Scientific Lead at Green Deal Ukraїna Georg Zachmann told Interfax-Ukraine.

The study examined two scenarios: one with CBAM in place and another with its implementation delayed.

In carbon-intensive sectors covered by CBAM, such as metallurgy and energy, its introduction could cause a drop in output. Under the CBAM scenario, pig iron and steel production is projected to fall by nearly $250 million by 2035 compared to the baseline, while output in the energy sector could decline by $237 million. In contrast, cleaner and non-CBAM sectors are expected to see moderate production growth, benefiting from the reallocation of certain production factors such as capital and labor. Sectors forecast to expand include light industry, agricultural products, and services.

"If you introduce CBAM, the overall impact on Ukraine's economy will be fairly limited, but the steel sector will reorient toward other regions and reduce exports to the EU," Zachmann said.

Overall, highly carbon-intensive sectors, such as cement, are projected to export 13.8% less in 2035 than under a no-CBAM scenario. Energy sector exports would fall by nearly 9%, while pig iron, iron, and steel exports would drop by 3.1%. Other CBAM-affected industries would see less significant export changes.

As for CBAM's broader impact, the study estimates a welfare loss of less than 0.1% compared to the baseline scenario, along with a slight slowdown in economic growth – about 5.9% under the CBAM scenario versus roughly 6% without it. CBAM's effect on reducing Ukraine's carbon intensity would be very modest, cutting CO₂ emissions by only 0.3%–0.8% annually.

The study concludes that CBAM alone cannot drive decarbonization – Ukrainian policymakers must pursue structural reforms and develop a green industrial policy that supports decarbonization.

"There is a Ukrainian Decarbonization Fund, but it's very small and uses its money for, say, a few small solar panel projects, so it has no real impact yet. In 2024, it issued just 16 loans totaling about $4 million. But the tool exists. The problem is, it's too small, and its administration is probably not designed to handle tens of billions of hryvnias. A high carbon price will raise so much money that you'll want to be sure parliament, anti-corruption bodies, and everyone else have a clear understanding of how it will be used," Zachmann said.