The law could help to attract foreign investment into the rebuilding of metal and mining enterprises in Ukraine.
Meanwhile, unification of local legislation with European directives will make Ukraine’s licensing procedures clearer to foreign trading partners, which will also facilitate the rebuilding process.
But businesses in Ukraine have a limited time to meet the requirements of the new law, which is putting extra pressure on them, considering the wartime challenges they already face.
“Ukraine wants to ease its entrance into the European Union. This means that our business will need to switch to new standards faster than was expected,” a spokesperson for key Ukrainian steelmaker Metinvest told Fastmarkets.
“The new law raises concerns because of the [short] time allowed for modernization, and the economic pressure that it will put on Metinvest,” the spokesperson said. “[The] terms under which the best available technologies [a mandatory requirement] should be implemented, and the decommissioning of outdated equipment should happen, could be a challenge during wartime.”
According to the law, within four years of the law being enacted, companies should obtain an integrated environmental permit, which will set specific emissions and waste standards for enterprises.
“By October 2028 [the deadline for permit applications],” a spokesperson for ArcelorMittal Kryvyi Rih told Fastmarkets, “we are obliged to carry out a large number of preparatory actions and to have [a specific] investment plan, and the potential financing sources we will use for modernization of equipment, according to the best available management technologies and methods (NDTM) in production.”
ArcelorMittal Kryvyi Rih (AMKR) is Ukraine’s other large steelmaker.
“Under martial law, when companies are economically unstable, [those requirements] will be extremely complicated,” AMKR said. “[It is] unclear how [we will be able to bring into effect] ecological modernization, and which international companies are ready to visit Ukraine [to perform] construction and engineering works.”
Before Russia’s full-scale invasion of Ukraine, local steel businesses had already been dealing with foreign engineering and technological companies on modernization projects, the company added.
“The law may help to raise funding for our environmental initiatives,” Metinvest said. “However, it is extremely difficult to attract foreign financing for a plant over which missiles fly every day.”
EU’s CBAM affects Ukraine’s decarbonization policy
The hostilities, and the loss of vital logistics routes through ports on the Black Sea and Sea of Azov, have significantly affected export volumes and the sales geography of Ukrainian producers.
Even after late August 2023, when the so-called ‘sea corridor’ allowed iron and steel products to be exported via the ports of greater Odesa, the EU remained the key market for Ukraine-origin products.
According to estimates by market sources, more than 80% of Ukraine’s finished steel goods and 80% of its iron ore are exported to the EU, so it is crucial for Ukraine to align its decarbonization policy with the EU.
The European Carbon Border Adjustment Mechanism (CBAM) is a tool intended by the European Union to put a fair price on the carbon emitted during the production of carbon-intensive goods that enter the bloc.
The CBAM transition period began on October 1, 2023. This phase, when EU authorities will test the mechanism without imposing any duties, will run until the end of 2025, with full implementation to start in 2026.
The CBAM will be gradually phased-in from 2026 to 2034, alongside the phasing-out of the free carbon allowances applicable under the European Emissions Trading Scheme (ETS).
Buyers of imported goods will have to submit CBAM declarations on a quarterly basis. These declarations should contain the following information:
• Total quantity of each type of goods imported in the previous calendar year
• Total embedded emissions associated with the imported goods
• Total number of CBAM certificates to be transferred for surrender
• Copies of verification reports issued by the accredited verifier.
The price of the certificates will be calculated by the European Commission on a weekly basis, based on the average price of the closing EU ETS carbon dioxide (CO2) allowances for each week.
The price of a carbon emissions permit in the EU was €65-70 ($71-77) per tonne in July 2024. The EU intended that the free allocation of such permits would be fully eliminated by 2034.
Market sources have estimated that CO2 allowance prices would jump to €200-250 ($219-273) per tonne when the free allocations are phased out.
CO2 emissions by Metinvest’s Kamet Steel asset, an integrated long steel producer located in central Ukraine, were 2.3 tonnes per tonne of produced steel in 2023.
Two years before, however, the company’s CO2 emissions per tonne of produced steel were at a lower figure of 2.17 tonnes in 2021.
This was because these results included the Ilyich Iron & Steel Works and Azovstal, both of which have now been destroyed by the war but were located in Mariupol, now occupied by Russian forces. Before the invasion, Metinvest had concentrated its ecological initiatives on these assets.
The company also partly owns integrated flat steel-making asset Zaporizhstal Iron & Steel Works in Zaporizhzhia.
In 2022, Metinvest’s CO2 emissions amounted to 2.45 tonnes per tonne of steel.
AMKR, which is also an integrated mill, declined to comment on its emission volumes.
The phasing-out of free allocations to industries under the ETS will start with a 2.50% cut in 2026, along with the CBAM phase-in. By 2030, the free allocations will be almost halved (down by 48.50%), before being completely phased out in 2034.
“[A total of] 80% of ETS carbon allowances is distributed [and] only 20% is paid for. From 2026, the mills will have to start paying for them,” a distributor in Europe said.
The EU’s ambitious decarbonization goals, and the growing cost of carbon emissions under ETS, has been stimulating European steelmakers to invest heavily in the decarbonization of their operations, using steelmaking methods that reduce CO2 emissions.
As a result, European steelmakers see CBAM as a necessary tool to ensure a fair and level playing field for all steel suppliers into the EU.
“We aim to reindustrialize Europe into a green economy,” a steel mill in Europe said, “so we need to measure the emissions [related to the] steel that comes in from abroad, and make sure that we are all competing under the same conditions.”
Modernization ambitions of Ukrainian steel companies
Both of the key Ukrainian steelmakers, Metinvest and ArcelorMittal, currently produce steel via the basic oxygen furnace-blast furnace (BOF-BF) route. But, taking the above into account, they are now considering a transition to steel production via electric-arc furnaces (EAFs) or other technologies that will help to reduce emissions.
This, however, would seem to be possible only after the end of military operations in the country.
“Currently,” AMKR told Fastmarkets, “the company is implementing legislation on monitoring greenhouse gas emissions for large industrial equipment, and is undergoing verification of the monitoring report by an independent accredited organization.
“For the post-war period, we are considering all technologically possible options for CO2 emissions reduction, including the construction of an electric-arc furnace, the installation of solar power plants, etc,” the company added.
“Improving the quality of iron ore products for direct-reduced iron technology is important for low-carbon steel production,” Metinvest said.
“For example, the Central mining and processing plant can already produce 2.3 million tonnes [per year] of high-quality pellets. We plan to design facilities for the production of direct-reduction iron [DRI] and hot briquetted iron [HBI] in Kryvyi Rih,” it said.
“A transition to steel production technologies aimed at significant reduction of CO2 emissions in the short and medium terms is a strategic step toward the gradual elimination of blast- and open-hearth furnaces, and their replacement with electric-arc furnaces or other available technologies,” it added.
Interpipe is the sole EAF-based steel producer in Ukraine, and concentrates on pipes and railway products. It did not respond at the time of publication to a request for comment on its current operations or future projects.
Published by: Julia Bolotova, Marina Shulga, Vlada Novokreshchenova
