TARGET OF THE BORDER CARBON REGULATION MECHANISM: INPUTS THAT CREATE CARBON LEAK…

Levent SOYSAL
Dr. Ayşe Özgür ÖZSAR
UGM TEST AND ANALYSIS LABORATORY

The European Green Deal, with its "Carbon Border Adjustment Mechanism (SKDM) / (CBAM), prioritizes the fight against carbon leakage at the global level. Considering that Turkey considers the EU as its "largest export market," CBAM forces the Turkish economy into a green transformation. In this regard, it should not be ignored that the increase in manufacturing industry exports may be possible by transitioning to production processes in which greenhouse gas emissions decrease.

The Border Carbon Adjustment Mechanism (CBAM), which was implemented "to prevent carbon leakage," is Compliance with 55, which includes the plans presented by the European Union (EU) to reduce carbon emissions by at least 55% by 2030. It is one of the important parts of the package.

IT WAS POSTPONED BY 9 MONTHS DUE TO EU BUREAUCRACY

CBAM, which was expected to cover the iron and steel, cement, aluminum, electricity, and fertilizer sectors in the first phase, was aimed to be launched with a 3-year transition period starting from January 1, 2023. However, the implementation was postponed for nine months due to EU bureaucracy. The European Parliament (EP) and the EU Council agreed on this issue on December 13, 2022. Accordingly, CBAM will come into force with all its provisions after a three-year transition period as of October 1, 2023.

NO FINANCIAL OBLIGATIONS DURING THE TRANSITION PERIOD…

There will be no financial obligations during the transition period; Only direct and indirect emissions will be reported every three months. If carbon payment has occurred in another country, this will be noted in the report. Financial obligations will begin on January 1, 2026.

In the EU, the adoption of binding legal regulations on member states typically involves the collaboration of three distinct EU bodies. In this process, the European Commission drafts regulatory proposals, which are then approved by the European Parliament and the EU Council, leading to a consensus.

THE FIRST CBAM DRAFT WAS PUBLISHED ON JULY 14, 2021

In this context, the first CBAM draft was published by the European Commission on July 14, 2021, and presented to the European Parliament and the EU Council. According to this first draft text, CBAM was envisaged to cover the iron and steel, aluminum, fertilizer, cement, and electrical energy sectors. Product groups based on GTIP within the scope of SKDM in the draft text are listed in List 1.

THE EU COUNCIL ANNOUNCED THAT IT HAS REACHED AN AGREEMENT ON MARCH 15 2022

On March 15, 2022, the EU Council announced that it had reached a general agreement on the draft CBAM regulation prepared by the European Commission and published the draft regulation text. The draft regulation text includes additional GTIPs expected to be included in the existing sectors. Product groups based on GTIP that the EU Council deems appropriate to be added to the scope of CBAM are in List 2.

THE EUROPEAN PARLIAMENT REACHED CONSENT ON JUNE 22, 2022

On June 22, 2022, the European Parliament agreed to expand CBAM to include the organic chemicals, hydrogen, ammonia, and plastic sectors and published the draft CBAM regulation containing the relevant changes. List 3 contains the product groups based on GTIP, included in the draft text in question, and which the European Parliament deems appropriate to be added to the scope of CBAM.

With the European Parliament consensus dated June 22, 2022, it was envisaged that organic compounds, hydrogen, ammonia, and polymers (plastic) should be included within the scope of CBAM. However, in the statement on December 12, only some of the inputs used in producing products within the scope of CBAM were included.

According to the agreement reached on December 12, 2022, hydrogen, alum cement, additional aluminum and iron-steel products, iron-steel screws, bolts, fasteners, agglomerated iron ore, ferro-manganese, ferro-chrome, ferro-nickel, kaolin and Other kaolin clays are among the products added to CBAM. GTIPs of the added products are in List 4.

EXPANSION OF CBAM SCOPE IS EXPECTED

On the other hand, it is stated in the published regulation that the Commission will analyze to expand the scope of CBAM to include all sectors within the scope of the EU ETS by 2030, including organic chemicals and polymers, before the end of the transition period.

CBAM FORCES THE TURKISH ECONOMY TO GREEN TRANSFORMATION

The European Green Deal prioritizes the fight against carbon leakage at the global level with CBAM. Considering that Turkey considers the EU its "largest export market," CBAM forces the Turkish economy to undergo a green transformation. In this regard, it should not be ignored that the increase in manufacturing industry exports may be possible by switching to production processes in which greenhouse gas emissions decrease.

List 1: GTIPs included in the draft regulation prepared by the European Commission:

(In order of product group, product, GTIP, and greenhouse gas)

Cement

Cement Clinkers / 2523.10.00 / CO2

Portland Cement, white cement, whether or not artificially colored / 2523 21 00 / CO2

Other Portland Cement / 2523.29.00 / CO2

Other hydraulic cement / 2523.90.00 / CO2

Electric

Electrical Energy / 2716.00.00 / CO2

fertilizers

Nitric acid; Sulfonic acids / 2808.00.00 / CO2, N2O

Pure ammonia or aqueous solutions of ammonia / 2814 / CO2

Potassium Nitrate / 2834.21.00 / CO2, N2O

Nitrogenous mineral or chemical fertilizers / 3102 / CO2, N2O

Mineral or chemical fertilizers containing two or three of the plant nutrients such as nitrogen, phosphorus, and potassium; other fertilizers; Products of this chapter in tablets or similar forms or in packages with a gross weight not exceeding 10 kg / 3105 / CO2 N2O

Iron and Steel

Iron and Steel (excluding 7202 Ferro Materials and 7204 Ferro Waste and scrap of cast iron, iron or steel; by remelting of iron or steel waste and scrap) / 72 / CO2

Sheet piles of iron or steel, whether or not made from drilled or assembled parts; profiles welded in iron or steel / 7301 / CO2

Railway and tramway track material of iron or steel; specially manufactured with rails, counter rails, switch tongues, switch hubs, cross-sections and switches, tension rods, threaded rails, sleepers, algebras, cushions and corners, saddles, compression plates and crampons, connection plates, and rods for laying, adding or fixing the rails. other parts / 7302 / CO2

Pipes and tubes, hollow profiles, of cast iron / 7303.00 / CO2

Tubes and hollow profiles (seamless) of iron (other than cast iron) and steel / 7304 / CO2

Other thin and thick pipes (welded, riveted, or similarly closed) of iron or steel (those with circular inner and outer cross-sections and an outer diameter exceeding 406.4 mm) / 7305 / CO2

Other tubes and hollow profiles of iron or steel (e.g., open seam or welded, riveted, or otherwise closed) / 7306 / CO2

Pipe fittings (such as couplings, elbows, and sleeves) of iron or steel / 7307 / CO2

Construction (other than prefabricated structures of heading 94.06) and construction parts (bridges, bridge parts, sluice gates, towers, pylons, piers, columns, scaffolding, roofs, doors, windows, and their frames and door thresholds, shutters, railings), of iron or steel such as bars); Sheets, bars, profiles, pipes, and the like, of iron or steel, prepared for use in construction / 7308 / CO2

Tanks, cisterns, vats, and similar containers of iron or steel for any substance (other than compressed or liquefied gas) with a volume exceeding 300 liters and without mechanical or thermal equipment, whether or not heat-insulating or with coated internal surfaces / 7309 / CO2

Tanks, cisterns, barrels, casks, boxes, and similar containers of iron or steel for any substance (other than compressed or liquefied gas) with a volume not exceeding 300 liters and without mechanical or thermal equipment (whether or not heat-insulating or with coated internal surfaces) / 7310 / CO2

Vessels for compressed or liquefied gases of iron or steel / 7311 / CO2

Aluminum

Virgin aluminum / 7601 / CO2 and PFCs

Aluminum powders and flakes / 7603 / CO2 and PFCs

Aluminum bars and profiles / 7604 / CO2 and PFCs

Aluminum wires / 7605 / CO2 and PFCs

Aluminum sheets, sheets, strips of a thickness exceeding 0.2 mm- rectangular (including square) / 7606 / CO2 and PFCs

Sheets and strips of aluminum, printed or unprinted, whether or not fixed on a support of paper, cardboard, plastics, or the like, of a thickness excluding the support not exceeding 0.2 mm / 7607 / CO2 and PFCs

Thin and thick tubes made of aluminum / 7608 / CO2 and PFCs

Aluminum pipe fittings (couplings, elbows, sleeves, and similar) / 7609 00 00 / CO2 and PFCs List 2: Additional GTIPs included in the draft regulation prepared by the Council of the European Union

(With product group, GTIP, product order)

Cement / 2523.30.00 / Cement; stemmed

Iron and Steel / 7326 / Other articles of iron or steel

Aluminum

7610 / Construction of aluminum (other than prefabricated structures of 94.06), parts of construction, and aluminum sheets, rods, profiles, tubes, and the like for construction

7611.00.00 / Tanks, cisterns, vats, etc. of aluminum. Containers (not for compressed/liquid gas); volume> 300 Lt, without mechanical/thermal device

7612 / Tanks, casks, barrels, drums, etc., of aluminum. Containers (not for compressed/liquid gas); volume <= 300 Lt, without mechanical/thermal device

7613.00.00 / Receptacles of aluminum for compressed or liquefied gas

7614 / Stranded wires, cables, plaited ropes, and the like of aluminum, not electrically insulated

7616 / Other products of aluminum

List 3: Additional GTIPs included in the draft regulation prepared by the European Parliament

(GTIP, with product order)

29 / Organic chemical products

39 / Plastics and their products

List 4: Additional GTIPs included in the scope of SKDM upon agreement of the European Parliament and the EU Council

(With product group, GTIP, product order)

Iron and Steel

7202.21 / Ferro-silicon

7202.30 / Ferro-silico-manganese

7202.50.00 / Ferro-silico-chrome

7202.70.00 / Ferro-molybdenum

7202.80.00 / Ferro-tungsten and ferro-silico-tungsten

7202.91.00 / Ferro-titanium and ferro-silico-titanium

7202.92.00 / Ferro-vanadium

7202.93.00 / Ferro-niobium

7202.99 / Other Ferro-alloys

7202.99.10 / Ferro-phosphorus

7202.99.30 / Ferro-silico-magnesium

7202.99.80 / Other Ferro-alloys

2601.12.00 / Iron ores and enriched iron ores (other than roasted iron pyrites) (agglomerated)

7318 / Screws, bolts, nuts, locks, hook screws, rivets, pins, wedges, washers (including spring washers), etc., made of iron or steel

7326 / Other articles of iron or steel

chemicals

2804.10.000 / Hydrogen

Resources:

1. https://immib.org.tr/tr/yesil-sozluk

2. https://www.semtrio.com/blog/eu-ecolabel-eko-etiket-nedir-ve-nerelerde-yılilir

3. Aşıcı, A. A. (2021) “Why Should Turkey Adapt to the Global Climate Regime?”, TESEV Evaluation Notes 2021/4, Istanbul.

4. Yeldan, A. E., Acar, S., Aşıcı, A. A. (2021) Potential Effects of the EU's Carbon Border Adjustment Mechanism on the Turkish Economy", Environment, Development and Sustainability, 1-33. doi: 10.1007/s10668-021-01779-1.

5. https://eur-lex.europa.eu/resource.html?uri=cellar:a95a4441-e558-11eb-a1a5-01aa75ed71a1.0001.02/DOC_2&format=PDF Ministry of Commerce Green Deal Action Plan 2021