Navigating EU–Ukraine Market Coupling: GOs, CBAM, and the Challenge of Negative Prices

According to an analysis by Green Deal Ukraine, in late 2025–early 2026, inefficient trade due to a lack of market integration resulted in annual profit losses in Ukraine exceeding EUR500 million.

The adoption of the Law of Ukraine No. 4834-IX dated 7 April 2026 (“Law on Market Coupling”) marks Ukraine’s transition from physical synchronisation with Europe to full market integration. The implementation of market coupling systems (SDAC and SIDC) will fundamentally change the architecture of the Ukrainian energy market, transforming it into an integral part of the European economic space. Given the scope of the Law on Market Coupling’s final and transitional provisions, Ukraine faces a colossal amount of regulatory work to fully implement European regulations. According to the Law on Market Coupling, the actual launch of the integrated day-ahead (SDAC) and intraday (SIDC) markets will take place only after the National Energy and Utilities Regulatory Commission (NEURC) approves a report on the readiness of the market infrastructure and financial settlement systems.

The implementation of the new market structure brings several ambiguities regarding future regulatory changes. Market stakeholders are particularly concerned about the very real prospect of negative electricity spot prices, the lack of a CBAM exemption for Ukraine, and the potential non-recognition of Ukrainian guarantees of origin (GOs) for renewable electricity.

Negative prices on the electricity market

1. Legal and regulatory dimension

The Law of Ukraine on Market Coupling, as of 1 May 2027, abolishes the NEURC’s authority to set price caps on the market. The NEURC’s powers to impose price caps on the day-ahead market (DAM), intra-day market (IDM) could temporarily apply in the period from 1 May 2027 until the launch of single market coupling only during a state of emergency in the Integrated Power System of Ukraine (IPS), for a period of up to 90 days, taking into account prices on adjacent European markets, and such measures must not restrict electricity imports/exports. A separate regulation is introduced for technical price limits that may be applied during balancing operations and by NEMO, provided they are harmonised with other NEMOs.

Abolishing price caps will naturally lead to electricity pricing driven purely by market signals. It means that when there is a surplus of electricity, the market will experience negative prices. This practice, expected in Ukraine, is far from unprecedented. For instance, the EU market has historically experienced widespread negative pricing in the intraday market and in 2024, on the day-ahead market.

2. Tax dimension

• VAT

There are three potential ways in which transactions with negative prices may be treated from the VAT perspective:

• • Sale of goods from the seller to the off-taker. In this case, the goods are sold at a negative price, which means electricity is sold at a price below zero.

The Tax Code of Ukraine enables the sale of electricity at a price below zero if the price was determined in the independent electricity market, without self-assessment of output VAT or a reverse charge for the seller.

We may not exclude the possibility that the State Tax Service may use the green tariff as a market-level benchmark for the accrual of additional output VAT for the seller. This may cause disputes with the tax authorities. In this case, the off-taker does not recognise input VAT for the goods received, as he has not made any VAT payment on his side.

• • Sale of services from the off-taker to the seller. State Tax Service may also take a fiscal approach, taking into account the practice of the Polish Tax Authority (Krajowa Administracja Skarbowa, KAS), and recognise that a service is provided in the case of negative price supply. There is a court practice in Poland in favour of KAS, in which KAS argues that there is no supply of goods for the transaction with a negative price (i.e., the VAT reverse charge does not apply to the seller). The transaction with a negative price must be treated as a sale of services by the off-taker (Judgment of the Provincial Administrative Court (WSA) in Warsaw of 21 February 2024, ref. no. III SA/Wa 2083/23).

In this case, the safest approach for the Ukrainian taxpayers may be to recognise input VAT for the seller and recognise output VAT for the off-taker.

• • Simultaneous sale of goods and services. In this case, electric energy itself may be sold as a good at a minimum base price from the seller to the off-taker. The market-level surplus may be treated as a service of stimulating the consumption of electric energy supplied by the off-taker to the seller. The price of such service may also include a minimum base price for the electricity itself, effectively leading to a zero net effect on the price of electricity for both parties.

In this case, there will be two different tax bases for the VAT: (x) tax base for the electricity price (i.e. minimum base price); and (y) tax base for the service of stimulating consumption of the electric energy (plus minimum base price).

In terms of the (x) tax base, the off-taker must recognise input VAT and the seller must recognise output VAT. In terms of the (y) tax base, the seller must recognise input VAT, and the off-taker must recognise output VAT.

We have seen a possibility for such an approach based on our market insight. We understand that there are proposals from key stakeholders regarding treating supply with negative prices as a provision of service, at least at the level of the applicable bylaws. This may shed light on the tax treatment as well.

Anyways, additional clarity is needed at the level of applicable laws. Alternatively, taxpayers may clarify this issue with the State Tax Service of Ukraine by obtaining an individual tax ruling. We would not exclude the possibility of a future court dispute with the State Tax Service of Ukraine due to the lack of clarity about the individual tax ruling obtained.

• Corporate Income Tax

Corporate Income Tax in Ukraine applies to a financial result calculated in accordance with accounting rules, as adjusted by the Tax Code of Ukraine.

Based on the treatment of transactions between the seller and the off-taker, various accounting treatments may be applicable, depending on the management’s decision for the respective company:

• • Sale of goods. If the transactions are characterised purely as a sale of goods from an accounting standpoint, COGS and a negative price effectively create a deductible expense for the seller. It is also a potential field for dispute with the State Tax Service of Ukraine, which may argue that the deductible expense may not be recognised if there is no corresponding income.

For the purchaser (off-taker), the accounting results depend heavily on the off-taker’s subsequent actions with the electricity obtained (immediate resale, storage, utilising or remote resale). In general, the purchaser must recognise cash received from the seller and the market price of the obtained electricity as his negative future COGS for such goods. Meaning that income must be recognised upon the sale of electricity to the third party. There may be a position where only cash paid by the seller is included in the off-taker’s negative COGS. From our standpoint, recognition of cash as part of negative future COGS without recognising the negative COGS for the market price of the produced electricity may lead to litigation with the tax authority and a potential loss in court for the taxpayer.

• • Sale of services. The State Tax Service of Ukraine previously stated that the sale of electricity must be treated as a sale of goods.[1] However, the Ministry of Finance of Ukraine, in its letter, stated that transactions related to the sale and purchase of electricity must not use inventory accounts (i.e. recognise COGS).[2] That may lead to the conclusion that, from an accounting standpoint (in particular under Ukrainian national accounting standards), the sale of electricity must be treated as a sale of services.

In the case of the sale of services, the seller may recognise COGS as a deductible expense upon the transfer of electricity under the negative price. Services provided by the off-taker may, in turn, be recognised as a deductible expense of the seller.

The off-taker must recognise cash received from the seller as income for the provided service. Future COGS in this case is zero for the off-taker.

We may not exclude a dispute with the State Tax Service of Ukraine, stating that COGS was recognised as an expense without proper accounting treatment, taking into account the letter of the Ministry of Finance of Ukraine mentioned before. This risk may be particularly relevant for companies using Ukrainian national accounting standards.

• • Simultaneous sale of goods and services. As described above for VAT, there is a potential scenario in which electric energy itself may be sold as a good at a minimum base price from the seller to the off-taker, and the market-level price will be treated as a service provided from the off-taker to the seller.

In this case, the seller may recognise a loss (if any) equal to the difference between the COGS of electricity and the sale price under the minimum base price (received from the off-taker) as a deductible expense. The seller may recognise the price of services paid to the off-taker as a deductible expense.

The off-taker may recognise future COGS for the electricity in the amount of the paid base minimum price. Cash received from the seller must be recognised as income for the provided service.

We may not exclude the possibility that amendments to the Tax Code of Ukraine will be made to clarify the Corporate Income Tax position for the sale of electricity at negative prices. An individual tax ruling is also advised for this case.

• Excise tax
  • Sale of goods. Based on current provisions of the Tax Code of Ukraine, producers of electricity are subject to excise tax (except for renewable energy producers) and therefore are still liable to pay the excise tax obligation, even in the case of negative prices.
    Producers of renewable energy are exempt from the excise tax. Therefore, producers of renewable energy get a competitive advantage in the market with negative prices for this scenario.
  • Sale of services. In this case, highly likely that the price of provided services will be used as a tax base for the excise tax. Therefore, electricity producers will be still subject to excise tax.
  • Simultaneous sale of goods and services. There is a strong case for saying that the excise tax base must be the minimum base price of electricity. Therefore, the excise tax must not apply to the price of the service that stimulates electric energy consumption, which makes this treatment the most favourable from the electricity producer’s standpoint.

Anyways, more clarity at the level of law would be of the great benefit for the market. Individual tax ruling is still advisable for excise tax.

CBAM exception

Absent an EU carbon tax derogation or a domestic Emission Trading Scheme (ETS), upcoming CBAM regulations risk making Ukrainian electricity exports financially uncompetitive.

The Carbon Border Adjustment Mechanism (CBAM) is the EU’s tool to put a fair price on carbon emitted during the production of carbon-intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. Also, CBAM aligns carbon costs with the EU Emissions Trading System (ETS). CBAM currently covers six carbon-intensive sectors: aluminium, cement, iron and steel, fertilisers, electricity, and hydrogen.

From 1 January 2026, importers must pay for the embedded emissions of covered imports, following the end of the transitional period (2023-2025). By pricing embedded emissions, CBAM increases the effective cost of exporting carbon-intensive products to the EU for non-EU producers, including Ukraine.

Article 30(7) contains an explicit force majeure clause allowing the EC to provide provisional measures to address exceptional circumstances where “an exceptional and unprovoked event has destructive consequences on the economic and industrial infrastructure of such country”. Given the exceptional wartime circumstances in Ukraine, the government should examine whether the conditions for invoking this provision are met and, if so, pursue it through the European Ukrainian political dialogue. Alternatively, Ukraine could explore the case for a political commitment from EC to recycle CBAM revenues collected on Ukrainian exports back into reconstruction and decarbonisation of the Ukrainian industry.

The alternative to saving money in Ukraine and avoiding CBAM obligations is the establishment of a national emissions trading system (ETS), a “cap-and-trade” mechanism under which the state sets a cap on covered greenhouse gas emissions, while companies must surrender allowances for their actual emissions. Domestic ETS is important because, under CBAM rules, a carbon price effectively paid in the country of origin – including through a domestic ETS – may be deducted from the CBAM obligation, provided that such payment is duly documented and recognised for CBAM purposes.

Ukraine has already taken preparatory steps towards establishing a domestic ETS. In February 2025, the government approved an action plan for the creation of a national greenhouse gas ETS, which envisages a preparatory phase in 2025–2027, a pilot launch from 2028, and a full operational phase no earlier than three years after the termination of martial law.

On 7 July 2026, the Ukrainian Parliament registered the draft law “On the Principles of Functioning of the National Greenhouse Gas Emissions Trading System” (“Draft Law”). The Draft Law aims to establish the legal, institutional, and economic framework for the national system transposing Directive 2003/87/EC with the aim of addressing CBAM-related competitiveness risks. According to the explanatory note, the Draft Law provides for a smooth introduction of the Ukrainian ETS within several stages. Also, the Draft Law defines the legal, institutional, organisational, and economic foundations of the ETS’s operations.

Although the Draft Law strengthens Ukraine’s pathway towards EU-aligned carbon pricing, it does not address the timing gap, which arises when the CBAM has been valid and obligatory, i.e. since 1 January 2026. At the same time, Ukraine’s ETS remains subject to parliamentary adoption, secondary legislation, and staged implementation, and is expected to become fully operational no earlier than three years after the termination or cancellation of martial law.

Unless Ukraine secures a CBAM derogation or establishes a recognised domestic ETS, CBAM may materially reduce the commercial competitiveness of Ukrainian electricity exports to the EU.

GOs Recognition

Currently, the GOs issued in Ukraine by the NEURC are not recognised for cross-border trading. This leads to inefficiency of market coupling, preventing participants from realising the full commercial and environmental value of cross-border capacity. Ukraine launched its national registry of GOs controlled by NEURC in 2024, issuing over 21 million GOs domestically. At the same time, for the full integration of Ukrainian GOs into cross-border trade, the following is required.

• To conduct technical transfers across European registries, the NEURC must join the Association of Issuing Bodies (AIB). Law on Market Coupling entered into force in March 2026, resolved this major legislative bottleneck by granting NEURC the power to approve the Ukraine EECS Domain Protocol. NEURC is now completing this protocol to meet AIB standards and connect to the AIB-HUB.
• Under Article 19 (11) of the EU Renewable Energy Directive (RED II/III), EU Member States shall not recognise GOs issued by a third country except where the EU has concluded an agreement with that third country on mutual recognition of GOs issued in the EU and compatible GOs established in that third country, and only where there is direct import or export of energy. While Law No. 4777-IX “On Amendments to Certain Legislative Acts of Ukraine Regarding the Improvement of the Functioning of Energy Markets, Competitive Conditions for the Production of Electricity from Alternative Energy Sources, and Strengthening Energy Resilience” established reciprocity by legalising the recognition of EU GOs in Ukraine, a bilateral treaty with the European Commission under the Energy Community framework is still pending.
• The commercial integration of green certificates ultimately relies on physical electricity market coupling and cross-border capacity allocation, i.e. full market coupling.

Once these steps are complete, recognised Ukrainian GOs will function as a vital tool to shield industrial exports from heavy CBAM financial obligations by officially proving the use of zero-carbon electricity.

[1] Letter No. 8118/7/23-6217 dated 22.05.2003

[2] Letter No. 31-04220-29-18/1497 dated 02.09.2003

Authors

Anton Zaderyholova

Partner at the Tax practice and Co-Head of Private Client practice, AVELLUM

Olena Sichkovska-Chornobyl

Counsel, Energy and Natural Resources practice, AVELLUM