Carbon Border Adjustment Mechanism

What is the Carbon Border Adjustment Mechanism (CBAM)?

With the European Green Deal, the need for a broader assessment of carbon restrictions has led to the introduction of the "Carbon Border Adjustment Mechanism" (CBAM). The CBAM will work by applying a tax on a per-ton basis, depending on the amount of carbon emitted during the production of goods exported to Europe.

The CBAM Regulation entered into force in Turkey on January 1, 2023. A transition period will last until December 31, 2025, and the CBAM will be implemented gradually. It will be fully enforced starting January 1, 2026.

The first phase of the CBAM, known as the "Fit for 55 Package," includes sectors with high carbon intensity, such as electricity, cement, iron and steel, fertilizers, and aluminum. Companies in these sectors will be subject to a carbon tax on exports to the EU starting in 2026.

During the transition period between 2023 and 2026, no tax payments will be required; however, companies will be required to report the direct and indirect emissions of their products every three months. After 2026, tax obligations will begin based on the border values. Additionally, many sectors outside of the five designated sectors are planned to be included in this mechanism in the coming years.

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

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

• Preventing Carbon Leakage: To prevent low-cost imports from countries with looser carbon policies from providing an unfair competitive advantage to producers in the EU.
• Reducing Global Emissions: To contribute to global sustainability goals by encouraging producers outside the EU to reduce their carbon emissions.
• Ensuring the EU Reaches its Green Deal Goals: To support the industrial transformation in line with the goal of achieving net-zero carbon emissions by 2050.
• Balancing Commercial Competition: To maintain the competitiveness of companies subject to carbon pricing within the EU.

Carbon Border Adjustment Mechanism (CBAM) Services

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

Reporting Consulting: We assist companies with the preparation and submission of reports required under CBAM. Our expert team manages the entire reporting process in compliance with the latest regulations and standards.

Data Analysis and Carbon Calculations: We conduct the necessary data analysis to accurately calculate and report the carbon emissions generated by a company's production processes, providing transparent and verifiable results.

Strategy Development: We develop customized strategies for companies to comply with CBAM regulations, creating action plans to minimize carbon costs.

Risk Management: We identify potential risks that may arise during the CBAM compliance process in advance and offer solutions to minimize these risks.

Sectors Covered by the Carbon Border Adjustment Mechanism

In the initial phase, the sectors covered by the Carbon Border Adjustment Mechanism (CBAM) are as follows:

• Iron and Steel
• Cement
• Aluminum
• Fertilizers
• Electricity
• Hydrogen

These sectors were selected due to their carbon-intensive production processes and significant presence in international trade. It is expected that more sectors will be included in the future.

How Does the Carbon Border Adjustment Mechanism Work?

The 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 are required to declare the amount of carbon emitted during their production processes.
• Carbon Cost Calculation: A carbon price corresponding to the emissions per product is determined.
• Carbon Certificate Purchase: EU importers purchase carbon certificates based on the emissions level calculated under CBAM.
• If the Country Has a Similar Carbon Pricing System: If the exporting country has its own carbon pricing system that is considered equivalent to the CBAM, no additional payment may be required.

Global Economic Impacts of the Carbon Border Adjustment Mechanism (CBAM)

The implementation of CBAM is expected to have significant effects on global trade and industry:

• Pressure on Developing Countries: CBAM could create significant cost increases for countries with carbon-intensive production processes that export to the EU. Countries dependent on fossil fuel-based industries may become disadvantaged in terms of competitiveness.
• Changes in Supply Chains: CBAM will encourage the global supply chain to shift toward lower-carbon technologies in production processes.
• Encouraging Green Investments: Countries that do not have carbon pricing systems will be forced to invest in low-carbon production technologies. This may increase interest in renewable energy and sustainable production projects.
• Price Increases: Due to CBAM, the cost of imported carbon-intensive products may rise, which could result in price increases for consumers.

Possible Outcomes of the Carbon Border Adjustment Mechanism (CBAM) for Turkey

As one of the EU's largest trading partners, Turkey will be directly affected by the CBAM. For Turkish industries to comply with CBAM, the following steps will be necessary:

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

Sectors such as iron and steel, cement, and aluminum will need to quickly adapt to the CBAM. For Turkey to maintain its commercial relations with the EU, it is critical to implement carbon pricing mechanisms, such as the Emission Trading System (ETS),without delay.

Ensure CBAM Compliance with Climeteo!

The Carbon Border Adjustment Mechanism (CBAM) is not only a trade policy but also a mechanism that encourages the global transition to low-carbon production. For countries with strong economic ties to the EU, like Turkey, ensuring compliance with CBAM is of critical importance.

In the long term, countries and companies investing in low-carbon production processes will gain a competitive advantage and reach sustainable development goals more quickly. Therefore, early compliance with CBAM will strengthen Turkey's position in the global market and accelerate the transition to a green economy.

With our CBAM reporting and consulting services, we support your company in operating sustainably in the European market.