Climate change represents one of the most significant dangers that the world is currently facing. A variety of measures are taken to mitigate climate change, and the global shift to a low-carbon economy drives national sustainable development goals.
As public awareness of environmental protection and climate change has grown, many countries have adopted numerous environmental regulations. The Paris Agreement, the European Union (“EU”) Green Deal, and the UN Climate Change Conference (COP26) are some of the efforts to reduce greenhouse gas emissions. The Green Deal encompasses comprehensive and impactful measures to combat climate change. The roadmap for the Green Deal outlines various fields of application, along with corresponding tools and strategies, including clean energy, sustainable industry, construction and renovation, more sustainable food systems, and pollution prevention (European Commission, 2022). One of these tools is “Carbon Border Adjustment Mechanism” (CBAM), which was devised to restrict and ultimately eliminate carbon emissions. The European Council and the European Parliament negotiators have stated that the regulations on CBAM will be effective as of 1 October 2023.
- Carbon Border Adjustment Mechanism (CBAM)
The Green Deal establishes strategies to decrease carbon emissions by 55% before 2030 and achieve net zero by 2050. The Carbon Border Adjustment is a practice included in the draft proposal of “Fit for 55”, which endorses the climate targets of the EU. Under the CBAM, a “carbon emission tax” will be imposed at specific rates at the EU border, calculated based on the carbon content of certain imported products.[1]
The primary aim of the Carbon Border Adjustment is to prevent carbon leakage, which occurs when companies relocate their production to countries with fewer emission constraints. Thus, the goal is to deter producers from seeking out countries that undermine efforts to combat climate change, have inadequate carbon regulations, or lack any regulations in this regard. The measures will concern goods imported from non-EU countries and apply to the direct greenhouse gas emissions from the manufacturing of the relevant products during the three-year transition period until 2026.
- Risks and Opportunities for Türkiye
It was stipulated in Presidential Circular no. 2021/15 published in the Official Gazette that the necessary steps would be taken to comply with the EU regulations released on 14 July 2021. Accordingly, a “Green Deal Action Plan” prepared by the Ministry of Trade was announced.
Starting from 1 January 2023, the transitional provisions applicable to importers’ reporting obligations for the products they import will be enforced in accordance with the CBA. Hence, when importing products to various member states, importers are required to report to one of the National Authorities. The reporting requirement is intended to ease the burden on importers and prevent significant trade disruptions. These CBAM initiatives will clearly promote green transformation and sustainability policies in Türkiye.[2]
In relation to CBAM, the European Green Deal represents a crucial transformation tool for Türkiye’s sustainable development efforts. As such, an alternative Green Economy Transition scenario that prioritizes reducing emissions, directing funds toward green business transformation, and emphasizing renewable energy and energy efficiency will lead to substantial improvements in carbon emissions reduction. With its efforts towards enhancement and alignment, Türkiye is expected to embrace low-carbon production, which will give it a competitive edge over countries with high carbon footprint, and in turn, boost its market share in exports to EU countries.
- Industries Subject to CBAM Requirements
The Carbon Border Adjustment developments have a huge impact on the exporting industries in Türkiye, as the European Union plays a vital role in exports. In adherence to the “net zero” policy, the state and the private sector must take structural measures by making the necessary updates to their production processes.
CBA will initially impact the products of the cement, fertilizer, electricity, iron-steel, hydrogen and aluminum industries that are imported into the EU. Therefore, the industries that have a high risk of carbon leakage and release large amounts of carbon emissions have been given priority in this regard. Accordingly, producers in the relevant industries must possess CBAM certificates for their imports to the EU. They must also provide proof of purchasing free allowances at the carbon price traded within the EU’s Emissions Trading System. However, the proposal sets forth some exemptions for electricity imports. Thus, the exemption will apply to third countries/regions with an electricity market integrated with that of the EU through market coupling if they are committed to carbon neutrality by 2050.
The transition to CBAM is expected to change companies’ production structures and reporting standards. As a result of these changes, the concept of “environmental, social and governance” (ESG) will gain greater significance in the reporting standards of companies. Therefore, companies will need to adopt a more comprehensive reporting framework that encompasses ESG.
Given that CBAM has a direct impact on businesses both within and outside the EU, companies must evaluate the necessary aspects. Consequently, it is crucial to delegate internal responsibilities for managing the regime, assess the carbon footprint and possible consequences of EU imports in view of the Carbon Border Adjustment Mechanism, and begin preparing for the requirements of transition to CBAM.
Sources:
- EUROPEAN COMMISSION (2020). A European Green Deal. Accessed on 04.03.2021, https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en.
- Evrim İmer-Ertunga, Ömer Kayhan Seyhun. “Sınırda Karbon Düzenleme Mekanizması Ve Türkiye’nin İhracatına Olası Etkileri” Ege Stratejik Araştırmalar Dergisi (Volume 13, Issue 1, 2022, pp. 1-13. DOI: 10.18354/esam.1119230) https://dergipark.org.tr/en/download/article-file/2438805
- Istanbul Mineral and Metals Exporters’ Association, “Sınırda Karbon Düzenleme Mekanizmasında Son Durum”. https://immib.org.tr/tr/sinirda-karbon-duzenleme-mekanizmasinda-son-durum
- Republic of Türkiye Ministry of Energy and Natural Resources. “İklim Değişikliği ve Uluslararası Müzakereler”. https://enerji.gov.tr/bilgi-merkezi-iklim-degisikligi-ve-uluslararasi-muzakereler
- “Yeşil Mutabakat Eylem Planı” https://www.resmigazete.gov.tr/eskiler/2021/07/20210716-8.pdf
[1] Evrim İmer-Ertunga, Ömer Kayhan Seyhun. “Sınırda Karbon Düzenleme Mekanizması Ve Türkiye’nin İhracatına Olası Etkileri” Ege Stratejik Araştırmalar Dergisi (Volume 13, Issue 1, 2022, pp. 1-13. DOI: 10.18354/esam.1119230) https://dergipark.org.tr/en/download/article-file/2438805
[2] Evrim İmer-Ertunga, Ömer Kayhan Seyhun. “Sınırda Karbon Düzenleme Mekanizması ve Türkiye’nin İhracatına Olası Etkileri” Ege Stratejik Araştırmalar Dergisi (Volume 13, Issue 1, 2022, pp. 1-13. DOI: 10.18354/esam.1119230) https://dergipark.org.tr/en/download/article-file/2438805
