EU Green Deal and Ukraine’s Green transition: Common Goals and Transformation Challenges

In July 2021 the European Commission published a Proposal for a Regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism (CBAM). CBAM is a climate measure that should prevent the risk of carbon leakage and support the EU's increased ambition on climate mitigation.

This instrument will initially apply to imports of cement, iron and steel, aluminium, fertilisers, electricity. Starting in 2026, the EU importers, in particular the importers from Ukraine, will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU's carbon pricing rules. Should the CBAM regulation be adopted in its current wording, the Ukrainian importers will have pay up to €396 mln annually to the EU budget.

On December 7th, 2021, Petras Austrevicius, the Member of the European Parliament hosted an online discussion “EU Green Deal and Ukraine’s Green transition: Common Goals and Transformation Challenges”, organized jointly with Vasil Kisil & Partners Law Firm. The discussion featured the EU officials involved in the European Green Deal and Ukrainian stakeholders exchanging views on the impact of the European Green Deal in general, and the CBAM in particular, on EU-Ukraine trade relations.

In his opening remarks Mr. Ostap Semerak, the Partner of Vasil Kisil and Partners Law Firm, Former Minister of Ecology and Natural Resources of Ukraine (2016-2019) stressed that it is the first example Ukraine and EU hold the discussion on the draft of EU legislation before adoption.

According to Mr. Semerak, among all the countries affected by CBAM, Ukraine is in a quite specific situation. Ukraine is a party to the Association Agreement with the EU and is now suffering the aggression of Russian Federation on the east of Ukraine, where most of the key industry objects are allocated. Thus, Mr Semerak stressed that it is crucial to understand and to predict the impact of CBAM on Ukraine. 

Iryna Stavchuk, the Deputy Minister of Environmental Protection and Natural Resources of Ukraine for European Integration stated that over the last years the climate change became an important point in the political agenda of Ukraine. The Deputy Minister named the recent achievements of Ukraine in this field, such as launch of a system for monitoring, reporting and verification on greenhouse gases and a system of data collection on ozone-depleting substances and fluorinated greenhouse gases. Ms. Stavchuk stressed that Ukraine has approved a nationally determined contribution which foresees reduction of GHG emissions by 65% by 2030 as compared to 1990. Moreover, Ukraine has developed the environmental security and climate change adaptation strategy of Ukraine until 2030.

Marcus Lippold, Team Leader Green Deal, Energy, Environment, Agriculture, Transport, the Support Group for Ukraine, European Commission assured that it becomes urgent for Ukraine to adopt key legal acts on environmental control, on waste and industrial emissions. According to Mr. Lippold, with regard to CBAM, the EU is very closely at the Ukrainian side.

Nataliia Shapoval, Chairman of KSE Institute, Vice President for Policy Research, Kyiv School of Economics demonstrated the figures and facts of KSE Institute CBAM research. She presented that 16% of Ukrainian export to the EU is under risk because of CBAM and stressed that though Ukraine is not a subject of the carbon leakage. According to chairman of KSE Institute, CBAM implementation will lead to losses for the Ukrainian business up to €396 mln annually in 2026-2030 and decrease in GDP by 0.08%/year. Moreover, in steel industry, the EBITDA loss up equals to €248 mln annually in 2026-2030 due to CBAM payment (up to €160 mln) and to 9% export decrease (up to €89 mln).

Nicolae ŞTEFĂNUȚĂ, Member of the European Parliament, ENVI Shadow Rapporteur on Carbon Border Adjustment Mechanism assured that Ukraine has friends in the EU and CBAM is not meant to punish friends. According to MEP, CBAM is aimed to fight climate change addressing carbon leakage and preserving the effectiveness of ETS and EU climate efforts. Mr. ŞTEFĂNUȚĂ is also very concerned about the Russian aggression in Ukraine and troops mobilization at the Ukrainian border - it’s a great danger for the security of the European Union.

According to Mr. ŞTEFĂNUȚĂ, CBAM creates an incentive for third countries to adopt effective policies to fight climate change - if third countries introduce the carbon pricing at the same level as the EU producers, these third countries will not pay any CBAM charge at all, as the carbon price paid at home will be fully deducted. Obviously, countries that apply the EU ETS or ETS linked will benefit from a complete exemption from the CBAM. 

Finally, the MEP ŞTEFĂNUȚĂ stressed that the EU and its agencies stand ready to engage with the close partners to provide support for investment into climate measures and mutual resilient future.

Ivanna Klympush-Tsintsadze, Chairperson of the Committee of the Ukrainian Parliament on Ukraine’s Integration into the European Union stated that to minimize the effects of CBAM the EU and Ukraine should talk about some kind of “Marshall Plan” for Ukraine that would ensure Ukraine's green transformation. According to Ms. Klympush-Tsinstadze, we lack a conversation between the Ukrainian Parliament and European Parliament about problems tobe solved together, not only about the common goals, but also about common decisions and common solutions.

The Member of the Ukrainian Parliament encouraged a real systematic complex work on the state level with all the stakeholders: with businesses, civil society organizations, the parliament and the government and with the European side with regard to the European Green Deal and CBAM.

Taras Kachka, Deputy Minister for Economic Development, Trade and Agriculture of Ukraine – Trade Representative of Ukraine disagreed with the statements that CBAM is not a measure against friends. Mr. Kachka stressed that the CBAM is indeed against a EU’s friend - Ukraine since the country will suffer from that measure. According to the Deputy Minister, Ukraine committed to decrease GHG emissions to the level much higher than the European Union, thus, the EU should be serious about Ukraine when talking about climate ambitions.

Petras Austrevicius, the Member of the European Parliament summed up that the EU would be happy to have a next discussion with Ukraine based on the figures and more specific information about the impact of CBAM. Mr. Austrevicius encouraged Ukrainian leaders to jointly prepare the investment plans on how to transform, to modernize or to change the energy consumption in intense sectors. According to the MEP, the EU and Ukraine are facing a huge transformational process and encouraged bringing all sides around the table and to speak with figures about the impact of CBAM on Ukraine.

Finally, Ostap Semerak stated that the EU-Ukraine dialogue will lead us to a technological elevator for all Ukrainian industries that will make us more competitive and stronger. The CBAM paper is on the table and Ukraine and EU are open to discuss it.  This joint dialog is extremely important at the time of Russian aggression in Ukraine, especially at the stage of its escalation. According to Ostap Semerak, Ukraine will be stronger due to the cooperation with its friends and partners in the European Union.

The record of the online discussion is available at this link: https://www.youtube.com/watch?v=B7E7SjzURo0 

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The draft CBAM regulation is being considered in the European Parliament. Under the draft, the Ukrainian importers will have to report GHG emissions embedded in their goods without paying a financial adjustment in a transitional phase starting in 2023 and finishing at the end of 2025, giving time for the final system to be put in place.

Once the CBAM system becomes fully operational in 2026, Ukrainian importers will have to surrender the corresponding amount of CBAM certificates and pay up to €396 mln annually in 2026-2030 to the EU budget.

This means that the joint EU-Ukraine discussion on the impact of CBAM on Ukraine is crucially important here and now.