Decarbonisation Fund for Ukraine’s Reconstruction, Accession and Transformation

by Green Deal Ukraina

Having to simultaneously defend its sovereignty and align with European Union (EU) standards, Ukraine faces a unique accession challenge: post-war reconstruction choices will determine whether its economy converges with the European climate and industrial model or locks in long-run competitiveness gaps. Current carbon pricing in Ukraine is effectively negligible (< €1/tCO₂), while EU carbon prices generated by the European Union’s Emissions Trading System (EU ETS) reached €60–90/t in 2025. Integrating into the EU ETS is essential for accession, but a sudden jump in carbon prices could destabilise key industries and undermine political support. Gradual preparation is therefore critical.

Empirical evidence and EU practice suggest four mutually reinforcing design principles to make rising carbon prices feasible: (1) predictable and gradual increase in carbon prices to guide investments without causing political/social/economic disruptions; (2) smart revenue recycling to offset distributional impacts and finance green investment, helping to overcome industrial vested interests; (3) front-loading finance to bridge the time gap between the immediate costs of decarbonisation and its longer-term economic and environmental benefits; and (4) international transfers to overcome local capital scarcity allows to invest in modernisation with comparatively low mitigation cost.

To overcome the political and financial barriers to carbon pricing reform, the brief recommends a jointly governed EU–Ukraine decarbonisation fund that links rising carbon revenues to predictable international co-financing.