29.09.2026
Ukraine should discuss a carbon payment model for goods exported to the EU and covered by CBAM, and examine how that payment could be recognised under the European mechanism. This was the proposal presented by Serhii Shemlii, a manager in the Regulatory Affairs Department at JSC Market Operator, during Energy Club’s online discussion “CBAM, Electricity and the Competitiveness of Ukrainian Industry” on 29 September 2026.
His presentation focused on the economics of carbon payments: who ultimately bears the costs, how they affect a producer’s margin, and which country retains the associated revenues. He explained that, in the absence of a deferral or exemption, the carbon cost would affect trading conditions regardless of how actively Ukraine changes its domestic regulation.
“The main difference is simply the final destination of the funds: the EU budget or that of the country of production,” Shemlii said, explaining the rationale behind his proposed approach.
The speaker compared several possible courses of action. He linked closer alignment of Ukrainian carbon pricing with the EU Emissions Trading System to European integration objectives, while also highlighting the broader financial burden on producers and the impact on domestic prices. Maintaining the current model without substantial changes, he argued, would not resolve EU importers’ CBAM costs.
As a third option, he proposed considering a differentiated model focused on exports to the EU of goods covered by the mechanism. He referred to this as a “climate compensation contribution.”
“This is a differentiated model that we should all sit down and think through,” he emphasised.
Under Shemlii’s proposal, the payment would reflect the corresponding European carbon price and take account of emissions payments already made in Ukraine. He suggested discussing a mandatory contribution, citing predictability in administration and budget revenues. For other sales destinations, he envisaged retaining domestic carbon pricing.
Possible administrative arrangements he identified included existing tax and customs procedures, cooperation between the relevant public authorities, and payment options that would take exporters’ working-capital needs into account. These elements were presented as proposals for further development. The model’s intended effect depends, among other things, on securing appropriate recognition of the carbon payment made in Ukraine under CBAM.
To explain the economic differences between the approaches, Shemlii compared several hypothetical commercial situations. In one, the European buyer absorbs the additional costs, increasing the product’s final price. In another, the buyer demands a price reduction and the Ukrainian supplier effectively covers those costs from its own margin. In the third scenario, the corresponding payment is made in Ukraine.
In the example presented, the exporter’s margin declined both when it compensated the buyer for the costs and when it made the corresponding payment in Ukraine. The key difference was where the revenues went. The speaker thus illustrated that the proposed model primarily changes where the carbon cost is paid, while its impact on business profitability requires a separate assessment.
Discussing his estimates of potential revenues, Shemlii clarified that he had used customs data for 2025 and that changes in the condition of Ukrainian industry would require those estimates to be revised. He excluded electricity from this calculation, noting the specific features of CBAM’s application to the sector.
For electricity, Shemlii identified several practical issues. First, he stressed the distinction between electricity exported as a commodity in its own right and electricity consumed in the production of other goods. He explained that these cases involve different approaches to accounting for emissions, so conclusions about the generation mix and default emission factors cannot automatically be transferred from one case to the other.
He also raised the question of how up to date the underlying data are. He considers the five-year period that, according to his presentation, is used to determine the default emission factor too long to reflect current changes accurately. In his view, using more recent data, including data from the latest year, would provide a more accurate picture of generation.
Another priority identified by Shemlii was aligning CBAM rules with the coupling of Ukraine’s electricity market and the European market. He described the interdependence between the conditions for an electricity exemption from CBAM and the implementation of market coupling as a “regulatory loop” requiring resolution at European level.
Among the changes under discussion, he mentioned the treatment of technical flows between transmission system operators and the simplification of certain requirements for substantiating electricity export conditions. He stressed, however, that the European Commission’s presentation of proposals does not mean their adoption is complete: “This is not a completed legal process.”
Addressing possible special arrangements for Ukraine because of the war, Shemlii called for attention to the EU’s regulatory procedures and political context. He highlighted the role of European institutions, the need to substantiate the economic impact on Ukraine, and the difficulty of reconciling exemptions with policies intended to protect European producers.
He identified the development of verification capacity as an urgent practical priority for the electricity sector. The speaker stressed the need to expand available expertise, account for verifiers’ sector-specific coverage, and make use of international cooperation between accreditation bodies.
“Verification, verification and verification again,” Shemlii emphasised, identifying a key area of work needed to substantiate actual emissions values.
