Starting July 1, 2026, new requirements for mandatory bioethanol content in gasoline come into effect in Ukraine. This marks one of the most significant changes for the fuel market in recent years, impacting producers, importers, gas station chains, logistics, and the end consumer.
Is the market ready for the new rules? Is there enough resource? What risks and opportunities does this reform present? We discuss these issues with Taras Mykolaienko, Executive Director of the Ukrainian Association of Bioethanol Producers.
Export Orientation vs. Domestic Market
— Mr. Mykolaienko, how do you assess the current sales structure of Ukrainian bioethanol: what share of products is exported, and what is sold domestically?
— Currently, the sales structure is heavily export-oriented. Approximately 70–80% of bioethanol produced in Ukraine (exceeding 100,000–120,000 tons annually) is exported, primarily to EU countries. The domestic market consumes only a small fraction, though the potential for growth is immense.
— What volumes of bioethanol are currently available for domestic consumers, and do you see a growth trend?
— Domestic capacities are capable of covering 100% of internal market needs, even if the maximum bioethanol blending quotas are implemented. The resource is available. However, we do not yet see a significant trend toward increasing supply specifically for domestic consumers, as it remains more economically and administratively advantageous for producers to ship volumes abroad.
Overall, we expect an addition of 270,000 tons of processing capacity per year to the existing 450,000 tons of annual production. Meanwhile, for the domestic market—considering an increase in biocomponents to 7% and higher—no more than 140,000 tons are theoretically needed, and taking into account already blended imports, the requirement drops to no more than 80,000 tons.
— How do you evaluate the market’s readiness for the full implementation of bioethanol blending requirements? Is there enough resource?
— From the producers’ side, readiness is at its maximum—there is plenty of resource and idle capacity. The real question lies in the readiness of the fuel operators’ infrastructure (tank farms for blending) and the stability of the legislative framework. Technically, the market can adapt quickly if the rules of the game remain consistent.
— How attractive is the domestic market for producers today compared to export opportunities?
Every market is complex and highly competitive. You have to fight for your place in each one. However, the domestic market primarily needs to be deregulated.
— How is the price of bioethanol formed for the domestic market compared to export contracts?
— Export prices are tied to European quotations (such as Argus or Platts). The price on the domestic market also tracks these indicators (export parity), but it inevitably factors in risks and financial costs associated with administration, particularly the cost of servicing tax promissory notes.
— What role do tax and regulatory conditions play in shaping these market priorities?
— They play a pivotal, decisive role. Regulatory barriers and tax administration act as a filter that directs Ukrainian bioethanol toward the European border instead of allowing it to bolster Ukraine’s energy independence.
— Are we correct in understanding that the difference in tax regimes is a determining factor?
— Absolutely. Exporting is a direct and clear operation with a zero tax rate. Domestic sales at a zero rate for blending purposes require the issuance and redemption of bank-guaranteed (avaled) tax promissory notes, the presence of tax posts, and carry colossal risks of fines for the slightest formal errors.
— What changes could make the domestic market more attractive for producers?
— First, digitalization and the simplification of control: replacing archaic tax posts with electronic accounting and the e-Excise system. Second, simplifying the mechanism for guaranteeing targeted use (promissory notes) for compliant fuel market players. Overall, we need to implement EU directives, according to which alcohol denatured for non-food production (such as bioethanol) should be an excise-exempt commodity.
Tax Posts and Fiscal Instruments
— Which features of the current taxation and bioethanol circulation model do you find most sensitive for market participants?
— The most sensitive issues are the “tax post” institution (the physical presence of State Tax Service representatives at production and blending sites) and the complex procedure for issuing, circulating, and redeeming tax promissory notes. This freezes companies’ working capital and creates a constant stress factor due to potential formal nitpicking. One gas station chain calculated that using a promissory note adds about 0.80 UAH per liter to the cost of bioethanol.
— What does the process of purchasing bioethanol on the domestic market look like in practice?
— To buy bioethanol at a zero rate, a fuel company must issue a bank-guaranteed promissory note for the amount of the excise duty (which is massive—over 133 UAH per 1 liter of 100% alcohol) and register it. Then, transportation takes place under control, and blending occurs under the supervision of a tax post. Only after documented confirmation of the blending process is the note redeemed. Any logistical or paperwork delay risks the collection of the full excise amount.
— Do you see opportunities to simplify existing procedures while maintaining effective control?
— There is no need to reinvent the wheel—we just need to implement European legislation and make bioethanol that is denatured (including with gasoline) a completely excise-free product. Such products are very easy to control; a small department within the BES (Bureau of Economic Security), SBU, or National Police would suffice. How many people do you think it takes to monitor 10 plants?
— Are alternative approaches to taxation or administration being discussed in the industry?
— Experts have repeatedly proposed shifting the focus of control from the transportation of intermediate raw materials (bioethanol) to the control of the final product (gasoline with biocomponents). There is also talk of phasing out promissory notes for licensed operators with impeccable reputations.
— What steps could help ensure equal access to resources for different categories of market participants?
— Maximum transparency in blending rules. Currently, it is very difficult for small and medium-sized gas station chains to invest in their own blending bases due to the high entry threshold into the excise warehouse and promissory note system. Simplifying administration would allow not just market giants but a wider circle of operators to purchase bioethanol. Ideally, we could follow the example of the US or Sweden, where blending can be done directly at gas stations through specialized blender pumps.
— What is your vision for the optimal bioethanol circulation model in Ukraine?
— The European model. It is based on Sustainability Certificates (ISCC), electronic volume reporting, the absence of tax posts, and strictly functioning CO2 emission reduction quotas. The emphasis should be on ecology and transparent digital accounting, not on fiscal pressure.
Legislation and 2026 Deadlines
— How do you assess the timeframe for market adaptation?
— On one hand, the postponement gave fuel operators extra time to re-equip tank farms and set up logistics. On the other hand, any delay “chills” the market. If there is no hard deadline, or if it keeps shifting, investments in domestic infrastructure are put on pause.
— What should a balanced market model look like?
— A balanced model is one where the state gains energy independence and taxes from transparent, legal gasoline; operators have stable and achievable blending rules without the risk of million-hryvnia fines over formalities; and producers have a guaranteed domestic market.
Practical steps needed right now:
- Adoption of bylaws that clearly regulate blending procedures without “grey” zones.
- Launch of an electronic system for administering excisable goods.
- Abolition of excessive fiscal pressure for legal biofuel producers.
The introduction of new bioethanol standards is not just a technical change in gasoline formulation—it is a test of the state’s ability to form a modern, competitive, and predictable fuel market. As the industry’s position shows, Ukraine has sufficient resources and potential for a successful transition. However, clear rules of the game, modern administration, and a level playing field remain the key factors.
