August 6, 2021
August 6, 2021
Turkish companies that export cement, aluminium, electricity, and steel to the European Union could face additional costs estimated at EUR 399-771 million with the introduction of the carbon border in 2026.
Turkey is among the top ten exporters of cement, aluminium, and steel to the EU, so it is set to be heavily affected by the carbon border adjustment mechanism (CBAM).
The additional costs amount to EUR 771 million in the first year, or EUR 399 million if just the direct emissions are charged
A study by the European Bank for Reconstruction and Development (EBRD) found businesses in Turkey would be paying EUR 771 million more in 2026 than the average measured between 2017 and 2019, or EUR 399 million if just the direct emissions would be charged.
According to the Fit-for-55 package, presented last month by the European Commission, CBAM will be introduced in 2026, after the preparatory period from 2023 to 2025. The commission said the tax would be paid only on direct emissions, but that by the end of the transitional period it would evaluate whether to extend its scope to more goods, including indirect emissions (like those from the electricity used in production).
The EBRD study is a result of cooperation with the Ministry of Environment and Urbanization on CBAM’s consequences for Turkey. The aim is to foster an informed debate about the monetary implications and transitional risks for Turkish exporters to the EU.
CBAM payments can represent up to 50% of current prices for cement, 18% for aluminium and 9% for steel
The study found CBAM payments can represent a significant share of current prices for some products, for instance up to about 50% for cement, 18% for aluminium and 9% for steel. In total, CBAM payments would represent 0.07% of Turkey’s gross domestic product forecast for 2023, provided that the commission’s proposal enters into force at the beginning of that year, the EBRD said.
In addition to delivering cost estimates, the study analyses ways to adjust to the coming changes and their medium- and long-term implications.
Turkey already has a measurement – a reporting and verification system similar to the EU emissions trading system or ETS, but in order to meet and enhance its climate targets, the country could ratify the Paris Agreement, set sectoral and national net zero carbon targets and introduce a national emissions trading scheme.
Access to financing will be conditioned by climate risk management
The analysis also warns Turkish companies that, in order to access financing, climate consideration and, in particular, climate risk management would be increasingly important. The EU and the G7 plan to make requirements of the Taskforce on Climate-Related Risk Disclosures mandatory.
Carbon pricing is an example of climate transition risk
One such climate transition risk is carbon pricing, and financiers will want to know how corporations are managing them. Carbon markets across the world are growing, and carbon prices, which have almost doubled in the EU this year, are placing increasing pressure on emitters to decarbonise.
Şule Kılıç, EBRD Deputy Head of Turkey, said the international lender is working on a set of strategic policy choices for the government to mitigate trade risks and foster domestic low-carbon economic development in line with the EU climate policy objectives.
Together with advising on policy, the EBRD is offering financing.
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