How “minimal” is an $8.7 billion hit? EU carbon tax jolts Ukrainian steel

The EU calls Ukraine’s resistance a defense of European values. It also just imposed a carbon tax on Ukrainian steel without offering the funding European producers receive to comply with the same rules.

On 26 January, Ukraine’s largest steelmaker, ArcelorMittal Kryvyi Rih, announced it will close the facility that turns raw steel into rebar and wire—the materials that reinforce buildings—in Q2 2026. The company blamed the EU’s Carbon Border Adjustment Mechanism, which took full effect on 1 January without exemptions for Ukraine, and electricity prices that have doubled since the war began.

The closure shows that CBAM is already reshaping Ukrainian industry—weeks after the European Commission dismissed concerns about its impact as “limited.”

The legal sidestep

Ukraine had a case for exemption. The EU’s own CBAM regulation—Article 30(7)—allows temporary relief for countries facing extraordinary circumstances beyond their control. War would seem to qualify.

But the Commission didn’t engage with that legal framework. Instead, it ran economic models showing Ukrainian steel demand would remain “broadly stable” and concluded the impact would be minimal.

GMK Center director Stanislav Zinchenko called this a substitution of logic: the regulation provides an exemption based on the nature of the event, not on quantified economic impact. “The European Commission’s argument is based on an assessment of expected economic impact,” Zinchenko said, “while the CBAM Regulation provides for special treatment not based on the scale of the impact, but on the nature of the event. These are two different logics.”

The Federation of Employers of Ukraine projects $8.7 billion in GDP losses for 2026, rising to $11.3 billion by 2034. For a country where 81% of steel exports go to the EU, how is that “minimal”?

Regulation without resources

The EU’s green transition rests on over 160 legislative instruments—a labyrinth so complex that even European businesses revolt against it. In 2025, 916 signatories, including industrial giants Ineos and Bayer, signed the Antwerp Declaration demanding action against “over-regulation.”

But EU businesses, however burdened by paperwork, at least get the funding. The Modernisation Fund, Social Climate Fund, and European Investment Bank channel billions into decarbonization. Total EU investment in energy efficiency has reached $100 billion over the past decade.

Ukraine faces the same CBAM requirements with a fraction of the resources. The country’s Decarbonization Fund holds €182 million ($218 million)—against an estimated €102 billion ($122 billion) needed for the industrial green transition. That’s 0.17% of the requirement.

EU support programs like Ukraine Facility target small and medium businesses, according to Zinchenko, not heavy industry where single projects exceed €1 billion ($1.2 billion).

War compounds everything

ArcelorMittal’s CEO, Mauro Longobardo, described 2025 as “a year of survival and constant adaptation.” Russian strikes on energy infrastructure meant the company couldn’t operate both blast furnaces stably. Electricity prices for industrial producers climbed from $135/MWh in 2024 to $210/MWh in January 2026. Zelenskyy declared a state of emergency in the energy sector on 14 January.

Ukrainian business associations repeatedly urged the government to negotiate a CBAM deferral. “We have absolute, legitimate arguments,” economic expert Andrii Zablovskyi said. “We must convince the EU to give us a deferral.”

The Ukrainian government has not publicly responded to the mill closure or outlined next steps on CBAM negotiations.

What comes next

CBAM costs will rise annually as the EU phases out free emissions allowances for its own producers. By 2034, Ukrainian exporters will pay the full carbon price—currently above €90 ($108) per tonne of CO₂—without access to the subsidies their European competitors receive. The Commission is also expanding CBAM to 180 additional products, which would hit Ukrainian SMEs exporting steel structures, bolts, and containers.

According to GMK Center projections, continued CBAM pressure could force the closure of three of Ukraine’s seven operating blast furnaces, putting over 13,000 jobs across the industry at risk.

ArcelorMittal spent years rebuilding its EU market after the 2022 invasion disrupted exports. “The introduction of CBAM without considering wartime realities,” the company stated, “has crossed out these efforts.”