Photo by Ant Rozetsky on Unsplash

The good news is that some companies already started investing. 

The EU is expected to implement “the Carbon Border Adjustment Mechanism (CBAM)” in the coming years, a tax on carbon-intensive products imported to the EU. It will be implemented to help speed up the green energy transition and protect EU manufacturers. Ukraine has a large CO2 footprint in parts of its production, and the government has feared that CBAM would mean a block of 20 percent of products in some sectors such as steel. 

The GMK Centre writes that the Ukrainian steel industry has started reducing its CO2 emissions to meet EU standards. However, they note that Ukraine will need to invest around 25 billion dollars to meet the new standards not only expected to be imposed by the EU but also by the U.S. The good thing is that work is being done at some companies. 

“Metinvest is developing a detailed roadmap to reduce CO2 emissions… We are very careful in working out each step that will eventually lead our production to carbon neutrality because such a large-scale transformation should not harm the sustainability of our business,” said Yuriy Ryzhenkov, CEO of Metinvest, according to UBN. 

UBN also writes that Interpipe, a steel company based in Dnipro, will invest 100 million dollars in reducing the company’s CO2 footprint. However, Denys Morozov, First Deputy Director General of Interpipe, also said that Ukraine has a long way to go. He said that only five percent of Ukrainian steel is produced by electrometallurgy, a low carbon method. It is much lower in countries such as Mexico, the U.S, and Turkey, where it is over 50 percent. 

It might not affect Ukraine

While the Ukrainian steel sector is trying to adjust to the changing rules, Deputy Prime Minister for European and Euro-Atlantic Integration of Ukraine Olha Stefanishyna previously attempted to calm the fear of CBAM in Ukraine. She said back in June that the new EU rules might not end up affecting Ukraine very much. 

“In fact, as a result of the negotiations (with the EU), we agreed that such a decision would not provide for trade restrictions, would not violate the Association Agreement, and would not produce an immediate impact on the export of Ukrainian products,” the Deputy Prime Minister said, referring to Ukraine’s free trade with the EU.

Deputy Prime Minister: Ukraine will avoid EU carbon tax

Her statement has, however, not been confirmed by the EU. The GMK Center writes that CBAM could increase the export costs for Ukrainian companies to the EU by 566.3 million euros per annum. The new tax is supposed to be implemented by 2023 at the latest and is a tax imposed on carbon-intensive products exported to the EU to decrease CO2 emissions.

The tax also ensures that EU producers, going through the costs of a green energy transition, have the same conditions as foreign companies with less strict environmental laws. However, critics of the tax say that it is just another way for the EU to tax foreign companies and a way for the Union to protect its internal market.

The booming steel sector

While the future tax level is uncertain, the Ukrainian steel sector is experiencing growth. The global demand for steel is high and has pushed prices higher in recent months. 

Companies such as Metinvest are experiencing huge price jumps over the last year: pig iron +71 percent; billet +77 percent; steel slab +104 percent; hot-rolled coil steel +118 percent, according to UBN. However, prices are soon expected to drop, estimated Dmytro Khoroshun, an analyst from Concorde Capital, to UBN back in May. 

Steel prices surge: More investments and higher output in Ukraine

“(Steel price) levels should remain exceptionally elevated in the short term, even though we expect a correction later in 2021,” said Khoroshun.

Shanghai steel futures prices in yuan. Graph: Tradingeconomics