Carbon Border Adjustment Mechanism (CBAM)

What Is the Carbon Border Adjustment Mechanism (CBAM)?

The Carbon Border Adjustment Mechanism (CBAM) is a climate policy instrument developed by the European Union (EU) to balance carbon emissions associated with imported goods. Its main objective is to determine the carbon cost of products entering the EU market by taking into account the carbon intensity of their production processes.

By placing climate responsibility at the core of cross-border trade, CBAM aims to reshape global trade in a more sustainable manner. Introduced as part of the European Green Deal, this mechanism assigns a carbon cost to imported products, ensuring that EU producers and international suppliers are assessed under the same emission standards. In this way, the risk of carbon leakage is reduced, and climate performance becomes a key factor of competitiveness.

CBAM is not only a regulatory obligation but also a strategic opportunity. Companies that adopt low-carbon production methods, establish transparent supply chains, and develop clear carbon reduction strategies can go beyond compliance and gain a competitive advantage in international markets.

From an investor perspective, CBAM provides a clear framework for assessing climate-related risks and opportunities, directing capital toward companies aligned with the transition to a low-carbon economy. As such, CBAM functions simultaneously as a compliance tool, a mechanism for ensuring fair trade, and a strong market signal supporting sustainable growth.

Carbon Border Adjustment Mechanism (CBAM) Regulation

The CBAM Regulation refers to the legal framework that entered into force in 2023, adopted by the European Parliament and the Council. The regulation requires importers to report carbon emissions, pay carbon costs aligned with the EU Emissions Trading System (ETS),and ensure transparency in reporting. Its primary objective is to prevent the risk of “carbon leakage” and to establish a fairer global carbon market.

In Türkiye, the CBAM Regulation entered into force on January 1, 2023. A transition period will apply until December 31, 2025, during which CBAM will be implemented gradually. Full implementation will begin on January 1, 2026.

The first phase of the Carbon Border Adjustment Mechanism, introduced under the “Fit for 55 Package,” covers carbon-intensive sectors such as electricity, cement, iron and steel, fertilizers, and aluminum. Companies operating in these sectors will be subject to a carbon levy on their exports to the EU starting in 2026.

During the transition period between 2023 and 2026, no financial payments will be required; however, companies must report direct and indirect emissions associated with their products on a quarterly basis. After 2026, tax obligations will apply based on defined threshold values. In addition, many sectors beyond the initially covered five are expected to be gradually included in the mechanism in the coming years.

According to the Circular Economy Action Plan under the European Green Deal, sectors such as food, water, nutrients, electrical and electronic equipment, packaging and plastics, textiles, batteries, accumulators, and construction materials will also be required to calculate and report their carbon emissions.

The main objectives behind the implementation of the Carbon Border Adjustment Mechanism (CBAM) are as follows:

• Preventing Carbon Leakage: Avoiding unfair competitive advantages for low-cost imports from countries with less stringent carbon policies.
• Reducing Global Emissions: Encouraging producers outside the EU to reduce carbon emissions, thereby contributing to global sustainability goals.
• Achieving the EU Green Deal Targets: Supporting industrial transformation in line with the goal of reaching net-zero carbon emissions by 2050.
• Balancing Trade Competition: Protecting the competitiveness of companies within the EU that are subject to carbon pricing mechanisms.

Why Is CBAM Important?

The Carbon Border Adjustment Mechanism (CBAM) stands out as one of the most strategic instruments under the European Union’s Green Deal. This mechanism not only supports environmental sustainability but also plays a key role in ensuring fair competition in international trade.

By imposing additional costs on the entry of high–carbon-emission products into the European market, CBAM encourages producers to shift toward low-carbon manufacturing. In this way, carbon-intensive sectors are incentivized to adopt cleaner and more efficient production methods. As a result, the risk of carbon leakage is reduced, and a global impact is created in achieving climate targets.

Moreover, CBAM is critically important for both companies and investors. While companies engaged in low-carbon production gain a competitive advantage in international markets, investors are able to channel their capital toward climate-aligned and sustainable businesses. In short, CBAM serves as a tool that brings together environmental responsibility and economic opportunity, shaping the future direction of both trade and sustainable growth.

When Will CBAM Start?

The Carbon Border Adjustment Mechanism (CBAM) is being implemented through a two-phase transition process:

• CBAM Transitional Period: Between October 1, 2023 and December 31, 2025, only emissions reporting is mandatory.
• CBAM Full Implementation Period: As of January 1, 2026, the phase in which carbon costs will be effectively paid begins.

During this process, the EU provides comprehensive technical guidance to importers to ensure the transparent and effective functioning of the system.

Which Companies Are Required to Comply with the Carbon Border Adjustment Mechanism (CBAM)?

CBAM is mandatory for all industrial companies exporting to the European Union. In particular, companies operating in the following sectors must prepare for CBAM compliance:

• Iron and steel producers
• Cement manufacturers
• Aluminum producers
• Fertilizer and hydrogen producers
• Electricity exporters

These companies must verify and register their carbon emission reports before selling their products to the EU market.

Which Products Are Covered by the Carbon Border Adjustment Mechanism (CBAM)?

The initial scope defined by the European Commission includes the following product groups:

• Iron and steel products
• Aluminum
• Cement
• Electricity
• Fertilizers
• Hydrogen

How Does CBAM Work?

The Carbon Border Adjustment Mechanism (CBAM) requires importers to purchase carbon certificates based on the carbon footprint of products exported to the EU. The mechanism operates as follows:

• Carbon Reporting: Companies exporting products to the EU must declare the amount of carbon emissions released during their production processes.
• Carbon Cost Calculation: A carbon price corresponding to the emissions per product is determined.
• Purchase of Carbon Certificates: EU importers purchase carbon certificates under CBAM in line with the calculated emission levels.
• If a Similar Carbon Pricing System Exists in the Country of Origin: If the producing country applies its own carbon pricing mechanism and it is recognized as equivalent to CBAM, additional payments may not be required.

Why Should the Carbon Border Adjustment Mechanism (CBAM) Be Implemented?

The primary objective of CBAM is to enhance the effectiveness of global climate policies by preventing carbon leakage. If carbon pricing were applied only within the EU, producers could shift their production to countries with weaker environmental regulations in order to avoid emission obligations. CBAM aims to prevent this imbalance and reduce carbon emissions on a global scale.

Impacts of the Carbon Border Adjustment Mechanism (CBAM) on the Global Economy

CBAM is reshaping global trade dynamics. According to the International Monetary Fund (IMF),integrating carbon costs into cross-border trade encourages the wider adoption of carbon pricing while potentially reducing the competitive advantage of carbon-intensive countries. This dynamic is triggering a wave of transformation, accelerating investments in low-carbon production in developing economies.

The expected major impacts of CBAM on global trade and industry include:

Pressure on Developing Countries: CBAM may lead to significant cost increases for countries engaged in carbon-intensive production and exporting to the EU. In particular, countries with industries heavily dependent on fossil fuels may face competitive disadvantages.

Transformation of Supply Chains: CBAM is expected to encourage the adoption of lower-carbon technologies across global supply chains.

Incentives for Green Investments: Countries without carbon pricing mechanisms will be compelled to invest in low-carbon production technologies, increasing interest in renewable energy and sustainable manufacturing projects.

Price Increases: As a result of CBAM, the costs of importing carbon-intensive products may rise, potentially leading to higher prices for consumers.

Impacts of the Carbon Border Adjustment Mechanism (CBAM) on Turkiye

Due to Türkiye’s strong trade relationship with the European Union, CBAM directly affects export-oriented sectors such as iron and steel, aluminum, cement, fertilizers, and electricity. According to OECD analyses, approximately 40% of Türkiye’s exports are destined for the EU, making carbon reporting and cost alignment critical for the competitiveness of Turkish companies. As a result, interest in investments aimed at sustainable production is increasing rapidly.

To ensure compliance with CBAM, industrial companies in Türkiye need to take the following steps:

• Invest in production processes that reduce carbon emissions
• Develop carbon pricing mechanisms aligned with border carbon regulations
• Strengthen emissions measurement and reporting systems
• Accelerate the transition to renewable energy sources

How Is the Carbon Border Adjustment Mechanism (CBAM) Implemented?

The CBAM process begins with importing companies submitting a carbon declaration prior to exporting goods to the EU. Companies calculate their direct and indirect emissions generated during the production phase in accordance with the methodology defined by the EU. They then register in the EU CBAM system and complete their declarations by purchasing the required number of CBAM certificates (carbon certificates). This process is monitored through a digital platform and verified by EU authorities.

Climeteo Carbon Border Adjustment Mechanism (CBAM) Services

We provide tailored reporting and consultancy services to companies seeking to comply with the new regulations under the Carbon Border Adjustment Mechanism (CBAM).

• Reporting Consultancy: We support companies throughout the preparation and submission of CBAM-required reports with our expert team, managing the entire reporting process in full compliance with the most up-to-date regulations and standards.
• Data Analysis and Carbon Calculations: We conduct the necessary data analyses to accurately calculate and report carbon emissions arising from production processes, delivering transparent and verifiable results.
• Strategy Development: We develop customized strategies to ensure compliance with CBAM regulations and create action plans aimed at minimizing carbon-related costs.
• Risk Management: We identify potential risks that may arise during the CBAM compliance process in advance and provide solutions to minimize these risks.

Ensure CBAM Compliance with Climeteo!

Climeteo is a sustainability consultancy brand that provides strategic and technical support to businesses throughout the CBAM process.

We calculate your company’s carbon footprint in accordance with EU standards, manage the verification process, and prepare complete and accurate CBAM compliance reports. Climeteo also strengthens your carbon compliance in export processes by neutralizing residual emissions through offsetting projects.

The Carbon Border Adjustment Mechanism (CBAM) is not merely a trade policy; it is a mechanism that encourages the global transition to low-carbon production. For countries like Türkiye with strong economic ties to the EU, achieving CBAM compliance is of critical importance.

In the long term, countries and companies that invest in low-carbon production processes will gain a competitive advantage and reach sustainable development goals more rapidly. Therefore, early alignment with CBAM will strengthen Türkiye’s position in global markets and accelerate the transition to a green economy.

Through our CBAM reporting and consultancy services, we support your company in operating sustainably within the European market.