Ukraine works to align with EU’s CBAM requirements

LONDON (ICIS)–Setting up emissions trading and raising a domestic carbon tax are two of the measures that Ukraine is implementing to align its economy with the EU’s newly introduced cross-border adjustment mechanism (CBAM), given the rules will directly impact its power, industrial and agricultural sectors.

As the EU is its main export market, Ukraine has a direct interest in reducing its carbon footprint and ensuring its companies are competitive when the CBAM mechanism is fully implemented in 2026.

Under CBAM, which came in force on 1 October, non-EU exporters to the bloc are required to report greenhouse gas emissions.

From 2026 they will be expected to pay a price difference between the carbon price in the country of origin and the price of carbon allowances covered by the EU Emissions Trading Scheme (ETS).

The EU’s CBAM does not include any concessions for Ukraine despite the fact that its industrial base was severely damaged since the start of the Russia-Ukraine war.

However, Olha Yevtsihnieieva, advisor to the head of the State Agency on Energy Efficiency and Energy Saving of Ukraine, told ICIS the country was working on multiple projects to reduce its carbon footprint and ensure companies remain competitive, while also meeting EU requirements.

Prior to Russia’s full-scale invasion on 24 February 2022, Ukraine had a large industrial base and was exporting iron ore, semi-finished steel products as well as a variety of agricultural products.

However, since the war, overall exports have dropped by 35% as the industrial base was damaged, she said.

Nevertheless, Ukraine continues to export agricultural goods and has been increasing its electricity interconnection capacity with neighbouring EU countries to 1.2GW. This capacity is expected to increase further in the upcoming years.

A LOWER CARBON FOOTPRINT

To abate some of the carbon footprint, Ukraine has increased the renewable share target in the overall installed capacity from 9% to 27% by 2030.

Around 90% of Ukraine’s wind capacity and around 50% of its solar capacity was destroyed or occupied by Russia since the start of the invasion. However, some companies are now working to expand the installed renewable capacity. For example, private power producer DTEK has brought online a 114MW wind power plant earlier in spring and is expecting to expand it to 500MW.

Secondly, the parliament adopted a law for the establishment of a decarbonisation fund.

A new decree is expected to be adopted in the upcoming weeks laying out the rules for the reimbursement of funds to companies taking active steps to decarbonise their operations.

The government has already raised the tax on emissions from Ukrainian hryvnia (UAH) 10.00/tCO2e to UAH30/tCO2e (€0.76/tCO2e). But this is only a fraction of EU carbon prices, which are currently hovering around €80.00/tCO2e.

UKRAINE ETS

Ukraine is also working with the German Agency for International Cooperation to establish a functional emissions trading system which would help to plug the gap in the upcoming years, according to Yevtsihnieieva.

Nevertheless, she said there are many issues to address including a strengthening of its greenhouse gas measurement, reporting and verification to ensure carbon emissions are properly reported.

For example, in an article she published for the local Kyiv Independent, she pointed out that an audit conducted by the Accounting Chamber of Ukraine found that only 264 installations emitting greenhouse gases had officially submitted monitoring plans to the National Centre for Greenhouse Gas Emissions Accounting in the second half of 2021.

This represented only 15% of Ukraine’s total installations at the time.

She insisted that emissions would need to be accurately calculated before a proper carbon map was drafted to reflect science-based climate targets.