The European Union, where Turkey makes almost half of its exports, stipulates that as of January 1, 2026, the carbon footprint of all products to be shipped to the European Union in 6 sectors (iron-steel, aluminum, cement, fertilizer, electricity, and hydrogen) must be measured and a carbon tax must be collected per ton released into the environment.

This condition means alarm bells are ringing for countries trading with the EU like Turkey, because if Turkey cannot create a carbon market for the products produced in these 6 sectors, it will have to pay a carbon tax in accordance with the 'carbon border adjustment' application.

In the upcoming period, terms such as carbon footprint and carbon market will begin to occupy a serious place not only for those interested in environmental issues but also in the lives of industrial and economic circles, institutions, and companies. Companies will have to calculate and document how much emissions they release into the environment as a result of their activities and pay taxes on the carbon they release.

Carbon Tax

The EU has developed an application called the Carbon Border Adjustment Mechanism (CBAM) to prevent companies from moving their activities to countries where climate policies are not strict and to minimize carbon leakage. According to this regulation, no matter where production takes place in the world, the harmful gases released into the environment will be accounted for, and carbon will be priced just like all other commodities. Carbon emissions will have a price in the created carbon market, and producers will pay a carbon tax equal to the amount of emissions they release into the environment.

With the Carbon Border Adjustment Mechanism, the EU plans to implement carbon pricing equivalent to the Emissions Trading System (ETS) it has been implementing since 2005, and to apply this pricing to products imported into the union in 6 sectors for now. The EU foresees the period between October 23, 2023, and December 31, 2025, as a transition period where importers have the obligation to report their carbon footprints, and as of January 1, 2026, the Carbon Border Adjustment Mechanism will be fully operational and companies will have to pay this tax at the EU border if they do not pay carbon tax in their own countries.

If countries trading with the EU create a carbon market on the same level as the EU and price carbon emissions within themselves, they will not face any other obstacles when exporting to the EU other than documenting their carbon emissions and the taxes paid.

Thus, environmental policies will become effective not only in a specific region but in a much wider geography.

The purpose of the EU's Carbon Border Adjustment Mechanism is to put a globally fair price on the carbon released into nature during the production of carbon-intensive goods and to encourage cleaner industrial production in all foreign countries trading with the EU, ensuring that environmental policies are followed globally.

Relationship Between Emissions Trading System and CBAM

Emissions released into the environment with the increasing production after industrialization have been ignored for long centuries, pushing the global warming level to critical points. Emissions, which have been considered an externality in economics for a long time, gained a commodity identity thanks to the Emissions Trading System. With the ETS, the maximum amount of emissions that can be released into the environment was determined and allocated to producers free of charge or via auction.

The origins of the carbon footprint and Carbon Border Adjustment applications go back to the Emissions Trading System (ETS). The upper limit set for greenhouse gas emissions is gradually being reduced in the EU, which promises to approach the target set in the Paris Agreement on the one hand and to minimize the damage caused by emissions to the environment on the other.

Since greenhouse gas emissions have gained the identity of a commodity that must be reduced over time or kept at a certain value with the Emissions Trading System, they have a cost. This gives producers an incentive to reduce their emissions.

Which Sectors Should Prepare in Turkey?

A total of six sectors, namely iron-steel, aluminum, cement, fertilizer, electricity, and hydrogen, fall within the scope of the EU's Carbon Border Adjustment Mechanism. In addition to direct emissions, emissions arising from the production of electricity used in the production process must also be calculated in certain products.

Products within the scope of this mechanism will be subject to carbon tax regulation both if they are directly imported into the EU and if they are used as inputs in the production of other Carbon Border Adjustment Mechanism products. In addition, carbon leakage risks will be re-evaluated within two-year periods and the scope will be expanded.

All sectors covered by the Emissions Trading System are expected to be included in the Carbon Border Adjustment Mechanism by 2030.

How Are State Institutions in Turkey Preparing for the New Era?

The Carbon Pricing Department was established on June 21, 2022, within the Climate Change Presidency affiliated to the Ministry of Environment, Urbanization and Climate Change, and studies on the emissions trading system and other market-based mechanisms and economic instruments were initiated.

During the transition period between October 23, 2023, and December 31, 2025, importers importing products covered by the Carbon Border Adjustment Mechanism are required to report on the products they import in that quarter within the following 1 month for each quarterly period.

What Should SMEs Do?

SMEs in Turkey need to prepare for this coming wave. This preparation should primarily be done by conducting awareness and information studies on the subject, and subsequently by training experts on carbon footprint measurement and providing training to SMEs.