Carbon Credits: Risks and Opportunities for Turkish Industry/Exporters

Updated: Nov 5


The legal commitments regarding international climate change instruments initially entered into force with respect to Turkey in May 2004 when it became a party to the United Nations Framework Convention on Climate Change (UNFCC) following the Decision 26/CP.7 (1) which resulted with deletion of its name from the Annex II and recognition of its special circumstances to invoke the “common but differentiated responsibilities” principle (2) under the Convention. Later, Turkey became a party to the Kyoto Protocol in August 2009, yet Turkey was not included in the Annex B that lists countries with binding emission reduction targets, as Turkey was not a party to the UNFCC when the Kyoto Protocol was adopted. Therefore, Turkey has no quantified emission reduction or limitation targets under these legal instruments for the time being.


In the past few days, Turkey has ratified the Paris Climate Accords by committing to reduce its emission increase by %21 by 2030, which sets the framework for climate change mitigation obligations from 2020 onwards. It is known that Turkey wants to have a say in Glasgow Climate Change Conference (November 2021) where “Paris Rulebook” will probably be finalized. Turkey, might thus affect the implementation process.


The abovementioned legal instruments are not the only climate change mitigation commitments Turkey has to observe; as Turkey needs to ensure alignment with the EU Acquis, under Chapter 27- Environment and Climate Change (3). The domestic legislation will hence likely be amended in a manner to adopt climate mitigation rules within the EU Acquis.


Carbon crediting mechanisms set the limits for countries/businesses with respect to greenhouse gas emissions. It is generally referred to as carbon credits or carbon gas as carbon dioxide makes up the vast majority of greenhouse gas emissions. As far as Turkish Industry is concerned, there is no carbon gas emission limit currently since Turkey does not have a legal obligation to implement carbon credits mechanisms when its commitments under the abovementioned legal instruments are taken into account.


However, it seems highly probable that Turkish industry will face with carbon credit pricing implementations as the EU is starting the first phase of Carbon Border Adjustment Mechanism (CBAM) by 2023, where the importers are obliged to report emissions embedded in their goods without any financial consequence for the transition period. And, by the full operation of the CBAM (2026), importers will have to annually declare the amount of embedded emissions in the total goods they imported into the EU and submit the CBAM certificates accordingly. (4) CBAM, therefore will result with additional levies for high carbon emission producers/exporters. The five sectors to be affected by the CBAM are cement, iron and steel, aluminium, fertilisers, electricity for the time being. Nonetheless, the EU Commission will review the progress and might extend the coverage.


Therefore, Turkish exporters in these sectors will have a disadvantaged competitive position if they do not take the necessary steps before the implementation of CBAM. They need to take proactive measures such as transforming their facilities to reduce carbon gas emissions, obtaining carbon reduction certificates in advance. In addition to the CBAM, it is likely that Turkey will adopt climate mitigation measures to catch up in parallel with international developments to seize the opportunities that might be lost otherwise. Regulating a mandatory carbon emission crediting mechanism with carbon taxes is not out of options considering Turkish public’s willingness regarding accession to the EU. Besides, Turkish society is aware of the consequences of the climate change and there is a considerable number of NGOs/pollical figures pushing for stricter carbon gas reduction policies and commitments.


Renewable energy investors and investors with facilities eligible for carbon reduction certificates on the contrary, will have more opportunities since the significance of carbon reduction certificates is climbing up day by day; the financial advantages will soar accordingly as well. Agriculture, renewable energy, waste management, forestry and other energy efficient projects are among sectors that can turn this risk of transition process to a business opportunity.

To sum up, the risky sectors with high carbon gas emissions should start taking steps to mitigate the probable financial disadvantages as there is still enough time to close the gap with their competitors especially in the EU as it is the largest export partner of Turkey. Turkey is renaming its Ministry of Environment and Urbanization as “the Ministry of Environment, Urbanization and Climate Change” and establishing “the Board on Climate Change and Coordination for Harmonization”; so, Turkey is definitely serious about taking legal measures for climate change commitments. In contrast, considering the recently announced EBRD fund of 500 million Euros to Turkey (5) for green economy investments, investors in the climate-friendly sectors will have new business opportunities arising out of this transition process.


KAYNAK

1- https://unfccc.int/resource/docs/cop7/13a04.pdf

2- https://unfccc.int/resource/docs/convkp/conveng.pdf

3- https://www.ab.gov.tr/chapter-27-environment_92_en.html

4- https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_3661

5- https://www.ebrd.com/work-with-us/projects/psd/52781.html, 20 m. Eur co-financed with Clean Technology Fund


YAZAR

Av. Emir BAĞIŞ