Polluting will become more expensive: How Ukraine can cope with EU carbon emissions pricing

17.06.2026, 16:24 eurointegration.com.ua

Facing a full-scale war, Ukraine decided to accelerate its path into the European Union and applied for candidate status only four days after Russia’s full-scale invasion began.

The speed of the application in such an extraordinary situation signals that EU accession is regarded primarily as a geopolitical project. However, it will also entail the economic integration of Ukraine into the European internal market.

For this integration to succeed, Ukraine’s industry must remain competitive.

And that is where a geopolitical project such as EU accession turns into a practical economic question: how can Ukraine prepare its industry to meet European environmental standards, including the requirement to purchase permits for its carbon emissions?

If Ukraine wants to become a full member of the European Union, its industry will ultimately need to pay the European carbon price. If this is the goal, Ukraine must decide: prepare its industry for it, or not.

Already now, a portion of Ukrainian exporters are being exposed to Europe’s climate regime, with the EU’s Carbon Border Adjustment Mechanism entering its paid phase this year.

But unlike in the EU,

Ukrainian companies have so far had to face these challenges alone,

with no sustainable domestic financial mechanism for public support. Without enabling frameworks for decarbonisation investments, companies have a hard time preparing their businesses for steeply rising carbon prices.

Clearly, such support cannot come from Ukraine’s wartime state budget. But it also does not have to. Across the EU, decarbonisation support instruments are largely financed through revenues generated by carbon pricing itself.

This principle, known as carbon-price recycling, was also introduced in Ukraine through the creation of a small decarbonisation fund that earmarks carbon-pricing revenues for decarbonisation investments.

The central problem, however, stayed unchanged: a low carbon price generates only limited revenues and therefore only limited support.

Without such, Ukraine’s industry does not have enough investment finance to modernise and prepare for integration into Europe’s climate regime. Also, the potentially-to-be-created Modernisation Fund, as recently proposed under the draft law on national ETS, will not solve the problem.

This creates a chicken-and-egg problem. Without financial support for decarbonisation, industry is reluctant to politically accept higher carbon prices. Yet without higher carbon prices, Ukraine will struggle to mobilise the investment needed for a successful green transition.

At the same time, if Ukraine ultimately wants to join the European Union, it will have to integrate into the EU’s Emissions Trading System, which currently produces a carbon price of around €70–90 per tonne of CO2.

In a country whose carbon price is still below €1 per tonne, a sudden, unmitigated increase of more than 60-fold would overwhelm businesses.

As EU integration is seen as the only credible way to Ukraine’s prosperity and security, and EU integration is directly linked to joining EU carbon pricing, the best way forward is a predictable, gradual increase in carbon pricing.

This would help avoid a sudden shock to the industry, steer reconstruction investments toward cleaner and more modern production, and support Ukraine’s long-term competitiveness inside the European internal market.

Ukraine, therefore, should begin preparing for its transformation as early as possible. Yet, wartime conditions shape policymaking towards short-termism, even when the strategic goal remains European integration.

That is why Kyiv and Brussels need a new political agreement.This agreement should be centred around a simple principle: every euro raised domestically through Ukrainian carbon pricing and/or national ETS should trigger additional European co-financing.

This mechanism has the potential to fundamentally change the political economy of carbon pricing in Ukraine.

With it, higher carbon pricing would immediately generate additional investment capital for Ukrainian businesses needed to modernise. With such a mechanism, Ukrainian industry would not need to fear paying EU-level carbon prices, which could in turn incentivise Ukraine to gradually increase the level and expand the scope of its domestic carbon pricing.

Both revenue streams could flow into a jointly governed European-Ukrainian instrument focused on industrial modernisation, clean energy infrastructure and long-term reconstruction investment.

Over time, such a mechanism could mobilise billions of euros annually

and allow Ukraine to build a strong institution similar to the climate and industrial funds that already support the EU’s own green transition.

If Ukraine is serious about EU integration, it needs to increase its carbon price. But if Europe is serious about Ukraine’s accession, it cannot treat Ukrainian industrial modernisation as Kyiv’s problem alone.

A jointly financed and jointly governed financial institution could bridge this gap and help Ukraine (re)build a competitive and sustainable industry that can compete within the European green economy and contribute to its advancement.

Georg Zachmann, Alexander Sicheneder, Oleh Savytskyi, Razom We Stand

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