Greenhouse Gas Regulations in Europe
What is European Green Deal?
Climate change and environmental degradation are an existential threat for the European Union (EU) and the rest of the world. The European Green Deal (EGD), which was announced for the first time by the European Union Commission on 11 December 2019, is an important transformation program for the European Union in terms of revealing its targets within the scope of combating climate change. The goals of the European Green Deal are stated as the EU's zero net greenhouse gas emissions by 2050, decoupling economic growth from resource use, and leaving no one and no region behind in doing these. With this new growth strategy of the EU, which encourages investments in environmentally friendly, low-carbon technologies, it is foreseen that new business opportunities will be created and new opportunities will arise for companies. In addition, a third of the €1.8 trillion investment of the NextGenerationEU Recovery Plan and the EU's seven-year budget will be used to finance the European Green Deal.
What is Emission Trading System?
The Emission Trading System (ETS) is the EU's leading policy for combating climate change. Accordingly, an upper limit (quota) has been set on the amount of greenhouse gas emissions that can be released from industrial facilities in certain sectors producing within the EU borders. Producers in the EU have to buy emission rights at a price determined by the free market for tons of more than the carbon limit set for them.
Since this situation increases the costs of the producers, it causes the production to be shifted to countries with weaker environmental policies outside the EU, the decrease in the amount of production within the EU and carbon leakage. At this point, a regulation was required to make similar rules applicable to products imported from outside the EU, and thus the Carbon Border Adjustment Mechanism emerged.
What is the Carbon Border Adjustment Mechanism?
The Carbon Border Adjustment Mechanism (CBAM) is the payment of carbon tax to the products of companies that are above the carbon footprint determined by the EU per product imported from the EU and produced by a manufacturer in non-EU countries within the scope of the European Green Deal.
This fee will be expressed in € / CO2-e emitted, reflecting the ETS exactly, calculated based on the weekly average price, but products below €150 will be exempted. Importers within the EU are required to register with the CBAM system, to report the quantities of the goods imported in the previous year and their greenhouse gas emissions until May 31 each year to import the products within the scope of CBAM, to purchase certificates for emissions exceeding the quota when necessary, and they will have to apply to their national authorities to hand over the certificates they have purchased.
Information on greenhouse gas emissions of products subject to CBAM will be provided by the manufacturers outside the EU.
How will the Carbon Border Adjustment Mechanism work?
The Carbon Border Adjustment will primarily apply to the production of the products of companies operating in the following 5 carbon and energy-intensive sectors. The transition period between 01/01/2023 and 12/31/2025 will be given to these priority sectors listed below. During this time, companies will need to calculate, report and verify their carbon footprints. As of 01/01/2026, companies will be subject to carbon tax.
In addition, as of 2026, free greenhouse gas quotas for these sectors will be removed gradually, and completely in 2035.
- Iron and Steel
How much tax will have to be paid for a product to be exported to the EU?
First of all, after calculating the carbon footprint of the product to be exported, there will be a taxation for each 1 ton of CO2-e emitted according to the unit price available in the free market. Currently this fee is trading at around €99.70.
In addition, since the calculation of certificate fees will be made by the relevant country authorities after 2026, free quotas may vary on the basis of sector and importing country, it should be taken into account that these are not included in this calculation.