Climate change has become a growing concern around the world. Factors such as the effects of global warming, the frequency and severity of natural disasters, rising sea levels, and loss of biodiversity show the seriousness of climate change. In solving this problem, the Carbon Border Adjustment Mechanism is an effective tool.
What is the Carbon Border Adjustment Mechanism?
The Carbon Border Adjustment Mechanism is developed to reduce or balance carbon emissions. This mechanism encompasses several processes, including monitoring, reporting, and verifying carbon emissions.
The European Union regulates the carbon emissions of the already operating producers with carbon pricing mechanisms and applies a carbon tax. However, as expected, this situation could not effectively reduce carbon emissions and caused the production to shift to other countries where carbon tax was not applied to show outside the EU, in other words, carbon leakage. To prevent the effect of this rakat advantage in favor of the producers, it has been decided to regulate the Border Carbon Regulation in the EU. The aim is to prevent carbon leakage and protect European producer sectors' competitiveness.
One of the arrangements made in the fight against climate change within the scope of the Green Reconciliation Action Plan is the Carbon Border Adjustment Mechanism, which was established as an equivalent mechanism to the European Union Emissions Trading System. It has been decided to implement the Emissions Trading System, which has been implemented in the EU since 2005, equivalent to carbon prices and within the scope of the import of products. Thus, it aims at preventing carbon leakage that may occur with production in countries with less strict climate change policies.
This mechanism aims to apply a cost equivalent to the carbon costs of certain sectoral products produced within the borders of the European Union to the same products imported into the European Union under the Emissions Trading System (ETS). It is seen that the importer within the borders of the European Union will receive an SKDM certificate within the scope of ETS, according to the greenhouse gas amounts of the product to be imported, in the import of the products in the specified sectors.
Within the scope of SKDM, cement, aluminum, fertilizer, hydrogen, electricity, and iron-steel sectors, which have a high risk of carbon leakage, were decided at the first stage. With the SKDM regulation in these six sectors, the calculation and reporting of greenhouse gas emissions related to the activities of enterprises engaged in manufacturing and trade of their related products has been made mandatory. Thus, it is aimed to prioritize clean production both inside and outside the EU borders and to protect the competitiveness of EU manufacturers. According to the SKDM regulation, the reporting obligation will come into effect on October 1, 2023, with the transition period. Still, the financial commitments will start as of January 1, 2026, and the reporting of Scope 1, Scope 2, and Scope 3 emissions will also need to be verified.
The Importance of the Carbon Border Adjustment Mechanism
The Carbon Border Adjustment Mechanism is fundamental in the fight against climate change. Global warming and climate change cause many problems around the world.
At the beginning of these problems are the deterioration of ecosystems, decreased water resources, decreased agricultural productivity, and depletion of economic resources. The Carbon Border Adjustment Mechanism is an effective tool to combat these problems and create a sustainable future.
Compared to 2005, a reduction of 62% in greenhouse gas emissions that will occur during and after the SKDM transition period is targeted. Thus, greenhouse gases will be allocated based on sectors and products and connected to a certification system, and with the reporting obligation period, the import of products can only be made by enterprises that have the relevant allocations and are authorized. This is expected to increase the carbon cost burden on businesses and enable them to turn to green production technologies as an alternative.
Thanks to these activities, the Carbon Border Adjustment Mechanism is influential in combating climate change and supports sustainable development. Another purpose of the application is to guide producers in countries outside the European Union to reduce their greenhouse gas emissions. In addition, it is aimed to obtain an income source that can be used to combat climate change with SKDM.
The economic benefits of the Carbon Border Adjustment Mechanism cannot be ignored either. GHG reporting, certification process, and trading of carbon allowances drive economic growth.
Carbon credits provide an option companies can use to offset their carbon emissions. In addition, Carbon Border Adjustment Mechanism projects create new job opportunities and accelerate the transition to a green economy.
Although the Carbon Border Adjustment Mechanism is an effective tool in tackling climate change, it faces some challenges. These challenges include a lack of funding, insufficient technological infrastructure, and a lack of international cooperation. However, these difficulties can be resolved, and the Carbon Border Adjustment Mechanism can be further improved.
Given the importance and impact of the Carbon Border Adjustment Mechanism, it is essential to focus more on this issue and examine in more detail how this mechanism works, its applications, and its future.
The following sections will cover the fundamentals, applications, future, and challenges of the Carbon Border Adjustment Mechanism.
Read on to understand the importance of the Carbon Border Adjustment Mechanism in tackling climate change.
Fundamentals of the Carbon Border Adjustment Mechanism
Understanding the fundamentals of the Carbon Border Adjustment Mechanism is essential to understanding how these systems and processes work. In this section, we will cover topics such as the measurement of carbon emissions, Carbon Border Adjustment Mechanism projects, and carbon credits.
Measurement of Carbon Emissions
Carbon emissions are gas emissions that occur due to the release of greenhouse gases into the atmosphere. Gases such as carbon dioxide (CO2), methane (CH4), and nitrogen oxides (NOx) are released into the atmosphere from many sources, such as energy production, transportation, industrial production, and agricultural activities.
Measuring carbon emissions means determining the amount of gas emitted in CO2 equivalent, the carbon footprint. Countries monitor their carbon emissions at the national level by preparing greenhouse gas inventories. These inventories use a variety of data sources to identify emissions from different sectors.
At the corporate level, companies use emissions calculations to determine their carbon footprint. These calculations include direct and indirect emissions from the company's operations.
Companies calculate their carbon emissions by considering factors such as energy consumption, transportation, production processes, and supply chain.
The methods and standards used for measuring carbon emissions may vary. International standards are used to ensure that emissions are calculated and reported consistently.
These include IPCC (United Nations Panel on Climate Change) guidelines and documents such as the ISO 14064 standard.
What is the Carbon Border Adjustment Mechanism, and How Does It Work?
The border Carbon Border Adjustment Mechanism is designed to work in integration with the Emissions Trading System. Determining a carbon upper limit aimaimsp emission emissions at a specific limit, and enterprises are expected to deliver at the as their annual emission allowances. Busin at the end of the yearesses that fall below the limit can sell their budgets, so firms that reduce their emissions make a profit. Producers report their emission emissions from their production and verify it after the transition period, so since the emission rates per product are known despite output in different countries, import taxation is priced by the carbon content of the product (ton/euro) and carbon leakage is aimed to be prevented.
The basic principles of the Carbon Border Adjustment Mechanism are:
Emission reduction: With the border Carbon Border Adjustment Mechanism, organizations that want to be exempt from high fees focus on activities to reduce their carbon footprints resulting from product production scenarios and alternative green technologies. For example, renewable energy projects aim to reduce carbon emissions by reducing the use of fossil fuels.- Verification and certification: The reports of the producers who will report with SKDM every year are verified through a specific process and certified by accredited organizations.
Carbon allowances: With SKDM, developed as a mechanism of the ETS, carbon fees are set for global carbon pricing. According to these fees, companies in each sector have annual carbon allocations based on their emissions resulting from their paid or unpaid production and determined cap values. Companies that emit less emissions than the determined limit at the end of the year can sell their excess allowances and make a profit. However, the companies with a surplus need to purchase offset projects or the allowances of other companies, taking into account the determined carbon fee, and balance their emissions. -
Carbon dioxide offset: The Carbon at the Border regulation mechanism allows projects to offset carbon dioxide emissions. Thus, it is possible to offset increased emissions in one place with a decrease in another. This balancing does not reduce the total carbon emissions globally, but it helps to prevent the increase by keeping it at a certain level.
Embedded Emissions: With the concept of embedded emissions, which are expected to be calculated after the transition period, it is planned to report the emissions arising from the intermediate inputs consumed during production in the emission calculation of complex products. EX: Embedded emissions from the production process of unprocessed aluminum, which is the input material originating from the production process of the aluminum profile in aluminum imports
The Carbon Border Adjustment Mechanism is an effective tool for tackling climate change through emission reduction and carbon offsetting.
In the following sections, we will discuss in detail the emission scopes of the border Carbon Border Adjustment Mechanism, the SKDM Implementation Schedule, Verification and accreditation, and the benefits of SKDM.
Borderline Carbon Regulation Mechanism Emission Scopes -
Scope-1: Direct Emissions: Direct emissions from the production process (including emissions from the manufacturing process of the manufacturer, including emissions from heating and cooling) that occur during the production of the product.
Scope-2: Indirect emissions: Emissions released during the production of electrical energy used in production
Scope-3: Indirect emissions from input: Emissions released during the production of input/intermediate goods used as input in the production of the product and also included in the SKDM product list (emission data released during the production process of the information and to be obtained from the manufacturer from which the information is supplied will be included in the calculation)
The products listed in Annex 1 of the SKDM regulation will be considered in the embedded emission calculation. For inputs that are not included in Annex I of the SKDM Regulation, such as "coke" used as an input in steel production, "alumina (alumina)", which is an input in aluminum production even though it is included in the production process, the greenhouse gas data released in the output of the information is obtained from the suppliers. Will not be required; Inputs not included in Annex I will only be included in the calculation of production process (process) emissions.
Although the obligation brought by the legislation is on the importers, the monitoring, reporting, and verification of the emissions embedded in the product by 2026 will be requested from the manufacturers by the importers. In this context, companies that produce products within the scope of SKDM will need to obtain the relevant emission values from the companies that supply the input products within the range of SKDM.
Role of Manufacturers and Data to Submit for Reporting -
During the transition period, importers will report the direct and indirect emissions associated with the product's production process for all products within the scope of SKDM imported into the EU every quarter, by separating the product and the producer facility.
Role/Responsibility of Manufacturers:
Monitoring buried emissions and collecting data to form the basis for reporting: According to the guiding document to be published by the European Commission
Sharing the calculated emission data with the EU importer responsible for reporting
Reporting data:
Information on products: quantity/type of product/country of origin based on HS Code 8
Information about the facility: Company name / Address / Location / Geographical Coordinate
Information on the production process: Production lines / Parameters
Emissions data: Specific direct and indirect emissions
Carbon charges: carbon charges applicable in the country of production (including inputs)
There is no need for verification of emissions data during the transition period. However, emissions data from the main implementation period, starting as of January 1, 2026, will need to be verified by an accredited verifier. -
A separate implementation regulation will regulate accreditation and emission verification processes, and in this context, the main verification principles, such as the methods to ensure the reliability of the data, the detailed data to be provided, and how the data will be verified, will be set forth. Currently, the verifiers can be anywhere in the world. Still, it is stated that the accreditation of the verifiers can only be done by the authorized accreditation bodies of the EU member states.
Priority Sectors of the Carbon Boundary Regulation Mechanism
- According to the regulation adopted by the European Commission, the mechanism would be applied to the iron-steel, cement, aluminum, fertilizer, and electricity sectors with a high risk of carbon leakage. The products in these sectors were determined based on tariff position, and the tariff positions are given below:
Cement Industry: 2523.10.00, 2523.21.00, 2523.29.00, 2523.30.00, 2523.90.00
Fertilizer Sector: 2808.00.00, 2814, 2834.21.00, 3102, 3105 (except 3105 60 00)
Iron and Steel Industry: 72 (except 7202 and 7204), 7301, 7302, 7303 00, 7304, 7305, 7306,7307, 7308 (excluding 9406), 7309, 7310, 7311, 7326
Aluminum Industry: 7601, 7603, 7604, 7605,7606, 7607, 7608, 7609, 7610, 7611, 7612, 7613,7614, 7616
Electricity Sector: 2716Benefits of the Carbon Border Adjustment Mechanism
Certifications of the Carbon Border Adjustment Mechanism provide environmental and economic benefits. Here are some of these benefits:
Environmental Benefits:
Reducing carbon emissions: The Carbon Border Adjustment Mechanism at the border contributes to the fight against climate change by reducing carbon emissions. Green technologies are prioritized in production, and green investment and emission reduction projects are provided for emissions that cannot be decreased.
Conservation of natural resources: The border Carbon Border Adjustment Mechanism contributes to the preservation of natural resources. It contributes to a circular economy with production processes and raw material input changes. For example, wind energy projects protect fossil fuel reserves by reducing the use of fossil fuels and do not affect natural habitats.
Improved air quality: Border Carbon Border Adjustment Mechanism projects promote the use of clean energy sources and improve air quality. Air pollution caused by the use of fossil fuels is reduced and has positive effects on human health.
Economic Benefits:
New job opportunities: The Border Carbon regulation mechanism encourages the transition to a green economy and creates new job opportunities. It offers employment opportunities in renewable energy projects, energy efficiency solutions, and waste management.
Competitive advantage: A beneficial competitive environment is created between companies with the carbon tax reduction that will be applied to globally seen as valuable producers and increases the company's reputation.
Reducing energy costs: With the border Carbon Border Adjustment Mechanism, producers can reduce energy costs by increasing energy efficiency. For example, energy consumption and operating costs are reduced thanks to energy efficiency projects.
The border Carbon Border Adjustment Mechanism is essential in achieving sustainability goals by providing environmental and economic benefits.
In the following sections, we will consider the Carbon Border Adjustment Mechanism's future and its challenges.
The Future and Challenges of the Carbon Border Adjustment Mechanism
Although the border Carbon Border Adjustment Mechanism is considered an effective tool in tackling climate change, it has a future and challenges. In this section, we will address the future and potential challenges of the border Carbon Border Adjustment Mechanism and propose solutions.
The Future and Potential of the Carbon Border Adjustment Mechanism
The border Carbon Border Adjustment Mechanism plays a vital role in tackling climate change and is expected to become even more critical. Here are some thoughts on the future and potential of the Carbon Border Adjustment Mechanism:
An effective tool in tackling climate change: The border Carbon Border Adjustment Mechanism influentially reduces carbon emissions and tackles climate change. International cooperation is needed to develop the border Carbon Border Adjustment Mechanism further and reduce carbon emissions. Thus, carbon leakage will be prevented.
Impact of new technologies: Technological advances will shape the future of border carbon regulation. Innovations such as renewable energy technologies, energy storage systems, and carbon capture techniques will be essential in reducing carbon emissions. The effect of the Carbon Border Adjustment Mechanism will be observed more clearly when these technologies are directed, together with the green transformation, and put into practice in the short term.
International cooperation and agreements: Climate change is a global problem, and international cooperation is essential for its solution. International agreements can help strengthen and expand the border Carbon Border Adjustment Mechanism. For example, international agreements such as the Paris Agreement support countries' commitments to reduce carbon emissions and increase the efficiency of the regulatory agency.
