A Brief Overview of the Carbon Border Adjustment Mechanism (CBAM)

A Brief Overview of the Carbon Border Adjustment Mechanism (CBAM)

Nilgün Aytekin // 04.10.2024

The European Union (EU) has taken significant steps toward its goal of becoming carbon-neutral by 2050, as part of its climate change mitigation strategy. On May 10, 2023, the EU implemented the Carbon Border Adjustment Mechanism (CBAM), which aims to prevent carbon leakage and encourage producers outside the EU to reduce their emissions. This regulation is a key part of the EU’s efforts to reduce carbon emissions, and it contributes to the global fight against climate change.

What is CBAM?

CBAM is a system designed to impose a carbon cost on goods imported into the EU from carbon-intensive sectors. While producers within the EU already bear costs for their carbon emissions, importers have been exempt from such costs. CBAM seeks to eliminate this imbalance between domestic production and imports. The initial phase of CBAM targets imports from carbon-intensive sectors, such as:

Firms operating in these sectors will be required to report the carbon footprint of their products.

What Does the Transition Period Tell Us?

Before full implementation, a transition period has been introduced, lasting from October 1, 2023, to December 31, 2025. During this phase, importers will only need to report the carbon emissions of their products without incurring any financial obligations. This period allows companies operating in the targeted sectors to adapt to the system and serves as a testing phase to better understand how CBAM will operate before its full application.

How Will CBAM Work?

The mechanism involves a pricing system for the carbon emissions embedded in imported goods, following these key steps:

CBAM Reporting: Importers must report the carbon emissions associated with the production of the goods they import, in accordance with the guidelines established under CBAM regulations.

Financial Obligations: After the transition period, importers will be required to pay for the carbon emissions of their products based on the carbon price set under the EU Emissions Trading System (ETS).

What Should Turkish Firms Do?

To comply with CBAM, Turkish firms, particularly those in sectors such as steel, aluminum, and cement, must accurately calculate their carbon footprint and develop strategies to reduce their carbon emissions. Adapting to these processes is essential for maintaining competitiveness in the EU market. Companies that prioritize environmentally friendly production methods will find significant opportunities in this new trade landscape. By optimizing production processes and reducing carbon emissions, Turkish firms can gain a competitive edge in the EU market.

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