14.08.2026
During Energy Club’s expert online discussion “CBAM and Electricity Trade between Ukraine and the EU: Risks, Practical Challenges and the Market Position,” Serhii Shemlii, Regulatory Affairs Manager at JSC Market Operator, presented a systemic view of why CBAM may create a threat to the coupling of Ukraine’s and the European Union’s electricity markets.
According to him, understanding the problem requires looking at three key issues: how CBAM works, at which specific stage of market coupling the risk arises, and whether there are regulatory solutions that could remove or mitigate this risk.
“Today, our task is to understand how and why CBAM poses a threat to market coupling,” Serhii Shemlii said.
He recalled that the introduction of CBAM is a direct consequence of the reform of the European emissions trading system. Its logic is to level the playing field between producers in the EU that pay for emissions and importers of goods from third countries where climate regulation may be less strict.
According to Serhii Shemlii, if an importer brings goods covered by CBAM into the customs territory of the EU, it must be registered as a CBAM declarant and purchase the relevant number of CBAM certificates. The number of such certificates is linked to the volume of embedded emissions, while their price is linked to the price of allowances in the EU emissions trading system.
“In this mechanism, we clearly see that it is about leveling competitiveness,” Serhii Shemlii explained.
He paid special attention to the specifics of applying CBAM to electricity. Unlike the usual model of explicit allocation of cross-border capacity, market coupling involves implicit allocation: market participants submit bids, market operators and transmission system operators provide data to the algorithm, and the algorithm determines prices, accepted volumes and scheduled exchanges of electricity between countries.
It is after the market results are determined, according to Serhii Shemlii, that the key problem arises.
“The problem arises after the market coupling results are determined,” he noted.
He explained that in order for physical electricity flows to take place, there is the concept of shipping or a trading agent. Physically, this means nominating export and import volumes to transmission system operators, while financially it means ensuring settlements.
However, in the case of coupling the Ukrainian and EU markets, a new situation emerges: Ukraine is integrating with the European electricity market but is not part of the EU’s single customs area. Therefore, the customs border remains in place.
“We are now in a situation that has not occurred before: we are moving toward the coupling of the Ukrainian and EU markets without Ukraine being integrated into the single customs area. Accordingly, even when the coupling takes place, a customs border will still function between us,” Serhii Shemlii emphasized.
According to him, in the case of electricity exports from Ukraine to the EU, the trading agent on the EU side will have to carry out customs clearance of this electricity after receiving the trading results. This automatically makes the trading agent a CBAM declarant.
At the same time, because trading under market coupling is anonymized and aggregated, the costs of CBAM certificates cannot be correctly allocated to specific market participants.
“Because trading is anonymized and aggregated, the costs of CBAM certificates cannot be allocated among market participants. The only way out is to exclude electricity from CBAM,” Serhii Shemlii stressed.
He also drew attention to the regulatory “vicious circle” created by the current logic of applying CBAM to electricity. In order to couple the Ukrainian and EU markets, the CBAM issue for electricity needs to be resolved. At the same time, in order to exclude electricity from CBAM, the criteria related to market coupling must already be fulfilled.
“A vicious circle emerges: in order to have market coupling, we need electricity to be excluded from CBAM. But in order to obtain such an exclusion, we already need to have market coupling,” he explained.
According to Serhii Shemlii, this concern was communicated to the Energy Community and the European Commission. As a result, the European side proposed changing the logic of the approach: not to remove the criteria, but to provide for the possibility of concluding a memorandum of understanding that would define a plan and timetable for fulfilling the necessary conditions.
Such a memorandum could serve as a basis for temporarily excluding electricity from CBAM until all criteria are fully met.
Serhii Shemlii also emphasized the importance of the deadline of 1 January 2030. According to him, by that date Ukraine must have a national emissions trading system in place with electricity prices comparable to those in the EU.
“Even if this regulatory vicious circle is resolved and the relevant changes are introduced, the closer we get to 1 January 2030, the greater the risk for market coupling becomes, because Ukraine needs to have a national emissions trading system with electricity prices at the EU level,” Serhii Shemlii noted.
Among the priority actions for Ukraine, he named accelerating the launch of the national emissions trading system and transposing electricity sector legislation. At the same time, he assessed the prospects of obtaining an exemption on force majeure grounds with caution.
According to him, although the relevant provision was considered as a potential instrument for Ukraine, the European Commission has its own view on how it should be applied. One of the risks he mentioned is the possibility of creating a precedent for other countries and conflict regions.
“It is possible to talk about an exemption on force majeure grounds, but the chances are low. At the same time, we have our homework, and we can do it,” Serhii Shemlii concluded.
Thus, the key message of his speech is that CBAM is not only an issue of the cost of electricity imports or exports. For Ukraine, it is also a systemic regulatory challenge that may affect the architecture of future market coupling with the EU. Therefore, resolving this issue requires simultaneous work on a national emissions trading system, transposition of European energy legislation, a special regime for electricity and continued dialogue with the European Commission.
