A new era in Turkish exports to the EU

The first phase of the European Union’s (EU) Border Carbon Regulatory Mechanism (SKDM), covering the iron and steel, aluminum, fertilizer, electricity and cement sectors, will come into force from 1 October 2023, and this transition period will last until 2026.

SKDM, which was implemented with the aim of limiting environmental impacts and combating climate change, will affect many sectors exporting from Turkey to the EU.

Türkiye IS AT THE TOP OF THE COUNTRIES THAT WILL BE AFFECTED

In the 2022 Export Report published by the Turkish Exporters Assembly (TİM), Russia, China, Turkey, England, South Korea, India, Brazil, the United States and Egypt; It was stated that it is one of the countries that will be immediately affected by the measure because it represents the largest exporters of the selected products.

The report notes that while the regulation will encourage companies exporting to the EU to reduce their carbon emissions, on the other hand, it will also create a competitive environment for carbon reduction between countries and companies, and that Turkey will include iron , steel and aluminum. , cement and steel among the sectors where the carbon tax will be applied at the border in the first stage. It was reported to export a significant amount of fertilizers to the EU.

The report highlights that these sectors will be immediately affected by the regulation in the first phase.

The report indicates that Scope 3 will be used to calculate the carbon emissions of exporting companies in the border carbon tax, and that the carbon emissions that arise both in the production phase, in the production of electricity used, as in the production and supply phase of the inputs used will be taken into account.

WHAT WILL THE NEW REGULATION BRING?

Under the new mechanism, companies importing from EU countries will be required to purchase SKDM certificates to pay the difference between the carbon price paid in the country where they produce and the carbon price in the EU.

With the new mechanism, sectors that export a lot from Turkey to EU countries will be able to feel the effects of the new policy up close.

In particular, sectors that have the potential to produce large amounts of carbon emissions, such as electricity, aluminum, fertilizers, iron and steel, and cement, may be most affected by new regulations.

By imposing high carbon taxes on imported products from these sectors, the EU aims to encourage importers to switch to lower-carbon production methods. In addition to the impact of the application on these sectors, it is also important to consider how the measures adopted in this context will affect the sectors at a sectoral level.

THE TAX BURDEN OF THOSE WHO REDUCE CARBON EMISSIONS WILL ALSO REDUCE

The carbon taxes that countries will pay on SKDM exports are calculated using several assumptions.

In the study conducted by the United Nations Conference on Trade and Development (UNCTAD) for developing and developed countries in 2021, the carbon emissions to be captured in their exports were calculated by measuring current carbon emissions in 6 sectors to which that the countries exported as of 2020, taking into account their differences with respect to the EU reference values.

With the calculation made, it was assumed that $44 would be paid for 1 ton of excess carbon emissions.

In the calculation made for Turkey, which is also included in the TİM report, the cement and glass sector faces a 12.3 percent carbon tax on exports to the EU with carbon emissions values ​​of 2020, while 1.1 percent for paper products and 1.2 percent for aluminum. The tax was calculated at 2.9 percent for iron and steel, 1.2 percent for refinery petroleum products and 2 percent for chemicals and fertilizers.

As sectors reduce their carbon emissions, the carbon tax rate and burden they will face will also decrease.

FEATURED SECTORS

Bengisu Özenç, director of the Sustainable Economy and Finance Research Association (SEFİA), stated that SKDM will be applied in the first 5 carbon-intensive sectors (cement, iron and steel, aluminum, fertilizers and electricity) and considering export volumes of the EU. For Turkey, the cement, iron-steel and aluminum sectors stand out.

Özenç said: “These sectors are called ‘hard to decarbonize’ sectors around the world. Because, for example, as in the case of electricity, these are not sectors in which technologies that allow the transition from fossil fuels to renewable energies are not yet widely used. “While some processes in these sectors are suitable for electrification or switching to alternative materials allows for emissions reductions, there is still a serious need to disseminate new technologies to achieve net zero targets,” he said.

Noting that Turkey has accelerated its efforts to comply with the SDDM, especially with the motivation brought by the possible negative effects on exports, Özenç said that while analyzing the current situation in such sectors, possible decarbonization paths and technological needs , in the future On the other hand, studies continue to establish an emissions trading system in the country. This is what he stated.

THE TOTAL COST FOR Türkiye IS 2.5 BILLION DOLLARS

Özenç stated that he expects the sectors to be negatively affected if Turkey does not take any precautions and said: “The report prepared by SEFIA and announced by the Climate Change Presidency says that if no precautions are taken, the total cost that Turkey will face until In 2032 could be 2.5 billion dollars annually.” .” saying.

Özenç noted that according to the same study, SKDM costs decrease if Turkey implements a national emissions trading system (ETS). Özenç stated that with more ambitious ETS prices, while SKDM costs decreased further, the decrease in emissions could be achieved at the highest level, and said:

“In addition, it seems possible to create resources for investments that can provide economic and social benefits and accelerate decarbonization through ETS revenues. As can be understood from here, Turkey setting a more ambitious decarbonization target and quickly enacting the policies that will make it possible will mean greater competitiveness and economic and social benefit in a changing and transformative global order, rather than generating serious economic costs as feared. . .” (AA)