The Ukrainian steel industry has found itself at the center of regulatory and trade transformations linked to the country’s push toward European integration. During his speech at the forum “Regional dialogues with business on European integration: the steel sector,” Deputy Prime Minister Taras Kachka outlined the key challenges: from quota disputes and the CBAM mechanism to the strategy for integration into the EU internal market and the decarbonization of the industry. GMK Center presents the main points of his speech.
Over the past ten years, Ukraine’s steel sector has undergone a significant contraction: nominal production capacity fell from 40 million tons to approximately 8 million tons. In the most difficult year of 2023, actual production stood at about 6 million tons; it has since recovered to approximately 7.5 million tons—which is still significantly lower than the pre-war figure of 23 million tons.
Due to logistics constraints caused by the war, the EU has become the main market for Ukrainian steelmakers. Complicated logistics have eroded competitive advantages in traditional markets—in North Africa and the Middle East—while trade ties with the European Union have strengthened.
Currently, the EU is significantly underestimating the volume of duty-free quotas required by Ukraine. The Union’s stated political position is not to harm Ukraine; however, the proposed trade parameters effectively violate the Association Agreement. The only way to avoid conflict is a negotiated settlement leading to realistic, unrestricted quotas. A timeline has been set: a decision on quotas by July 1, and broader agreements by December 1 (within the broader context of the negotiations).
The Carbon Border Adjustment Mechanism (CBAM), despite being in a trial phase without financial penalties, has already had a devastating impact on Ukrainian steelmakers in the first quarter of this year.
The main problem is the calculation method: instead of actual emissions data from specific companies, “default” (abstract) values calculated by the European Commission are used. As a result, some buyers are already refusing to work with Ukrainian suppliers. The problem has been acknowledged, and work to resolve it has begun: it is expected that a solution for trading based on actual emissions (actual values), without waiting until January 1, 2027, will be found within 1–1.5 months. The European Commission has acknowledged the error: in previous models, default values were used instead of actual ones. This correction eliminates uncertainty and enables full-fledged commercial negotiations with buyers.
If Ukraine retains its “third country” status under EU trade rules, it will be treated on par with Egypt or the U.S. when applying the mechanism for regulating overcapacity. There is a possibility of invoking the force majeure clause—legally justified given the war circumstances—but the European Commission has not yet made a decision on this. Even if a one-year force majeure extension is granted, it will pass quickly and will not solve the systemic problem.
It is also proposed to introduce a similar carbon adjustment mechanism for imports from third countries (e.g., Turkish steel), with the funds raised directed toward the modernization and decarbonization of Ukrainian producers. The industry supports this approach.
While the EU is pursuing decarbonization deliberately—to promote employment, well-being, and development—in Ukraine, a similar reduction in emissions has occurred “by force”: through deindustrialization and the destruction of industrial facilities as a result of Russian aggression.
Ukraine has traditionally lagged behind in developing its own climate policy; however, since 1990—the base year of the UN Framework Convention on Climate Change—it has steadily reduced CO₂ emissions, and in relative terms, by more than the EU. However, this is a consequence of industrial decline, not a systematic environmental policy. Therefore, the country still lacks an institutionally established climate infrastructure.
By 2027, manufacturers that fail to decarbonize will lose out to the competition not only geographically but also technologically. Already today, the customers of Ukrainian manufacturers—steel consumers—are considering switching to suppliers with a lower carbon footprint.
Crossroads One: Domestic Funds vs. European Grants. Under current conditions, we should rely primarily on domestic funds through the mechanism of domestic carbon pricing. Revenues from this mechanism should be automatically directed toward decarbonization measures—this is more advantageous than paying CBAM to the EU, where the funds will go toward modernizing competitors in the Czech Republic, Poland, or Slovakia. As for European grants: a realistic opportunity to receive them may not arise until the end of next year, as Ukraine is currently using EU macro-financial assistance to cover military expenditures.
For reference: EU countries spent an average of 0.2% of GDP per year on decarbonization (the figure is now rising to ~0.35%). If we apply a similar approach to Ukraine’s GDP and divide it by total emissions, a fair carbon price for Ukraine would be around €1.5 per ton of CO₂—which is strikingly different from the current level in the EU (~€70–75).
Crossroads Two: a domestic ETS or integration into the European one. Building an autonomous national emissions trading system could provide greater flexibility in allocating allowances, but would require up to five additional years for the EU to recognize its equivalence. The alternative is direct integration into the EU ETS with special conditions for Ukraine: expanded free allowances, discounts for the transition period, and a lag in meeting requirements (approximately +5 years from the current EU trajectory).
This year, Ukraine must prepare an implementation plan for the integration of its Common Customs Area as part of its EU accession negotiations. The document should include a phased timeline with clear parameters regarding gaps relative to EU requirements, conditions for the transition period, and mechanisms for their review.
The only reliable way for Ukraine’s steel industry to survive, modernize, and develop is through full integration into the EU’s internal market as soon as possible. This argument is driven by the logic of current processes, not merely by a desire for European integration as such.
Precedents already exist. As of January 1 of this year, Ukraine has been integrated into the EU roaming services market—which constitutes legal recognition of Ukrainian consumers as part of the internal market. The Verkhovna Rada has passed a law on market rules in the energy sector (market coupling), which is intended to ensure the full integration of energy markets by approximately 2027. Ukraine’s steel market already operates according to principles similar to those in Poland or the Czech Republic—without significant internal barriers.
Obtaining the status of an EU internal market participant in the steel sector will allow:
Integration into the EU ETS is a key instrument. A realistic timeframe is 2027–2029. Temporary measures—force majeure deferrals and transitional exemptions—cannot serve as a sustainable foundation: a systemic solution spanning several generations is required.
Source: https://gmk.center
