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Carbon Border Adjustment Mechanism and EU Sustainable Development Goals

Fintech vs Banking

Turkiye
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For almost every industry, sustainability involves adopting environmentally and socially responsible practices throughout a company's operations, from sourcing and production to sales and customer engagement. This includes reducing carbon emissions, promoting fair labor practices, supporting the product lifecycle, leveraging blockchain and digital systems, ensuring supply chain transparency, and maintaining ethical governance standards. Therefore, environmental sustainability policies need to be integrated into internal company rules, and, in particular, stakeholders in every sector need to take more responsibility for ESG practices.

Especially as customers become more conscious about sustainability in their purchasing processes, they want companies to be more accountable. This situation also puts pressure on the markets due to investor expectations. As analysts begin to score companies on their ESG contributions, the London Stock Exchange has unveiled plans for a Voluntary Carbon Market (VCM) to make it easier for companies to meet their net-zero targets. The US Securities and Exchange Commission (SEC) and the EU Sustainable Finance Disclosure Regulation (SFDR) require publicly traded companies to report their ESG performance by January 2024. According to the Green Deal and other regulations adopted by the European Commission in 2020, it aims to reduce emissions by 55% by 2030 and to achieve a net-zero economic transformation by 2050. The EU Taxonomy Regulation reveals which activities and transactions of companies are compatible with the Green Deal and net-zero targets.activities and transactions of companies are compatible with the Green Deal and net-zero targets.

The Border Carbon Regulation Mechanism (SKDM), which envisages that the costs determined according to the carbon intensity of the production of commercial products within the EU borders will be applied as taxes to third countries for goods imported into the EU countries, is of great importance. Per the SKDM, it regulates the taxation of companies that reach certain thresholds in the production process for products exported to the EU, such as iron, steel, cement, aluminum, fertilizer, hydrogen, and electricity, which may be at risk of carbon leakage, according to the amount of greenhouse gas tons released, starting from 2026. According to TUSIAD data, in scenarios where the carbon price is 30 €/ton, it is predicted that Turkey will pay 1,074 billion € annually to the EU, and if it is 50 €/ton, the figure will be approximately 1,777 billion €.    
 
The SKDM transition process will start in the EU on October 1, 2023, and is expected to last until October 31, 2023. During this period, importers in the EU are obliged to report emissions every three months. As of December 31, 2024, companies must obtain "SKDM declarant" status to import products within the scope. It is expected that the financial obligations will be in the regulation, which is likely to come into force permanently on January 1, 2026; the situation of exporters in non-EU countries and countries that do not implement the Emission Trading System (ETS) and other additional obligations will be clarified over time.
 As of January 1, 2026, importers established in the EU must declare each year the number of products imported into the EU in the previous year and their embodied greenhouse gas emissions.

What should Turkish companies do?

Although SKDM imposes a non-financial reporting obligation on importing companies in the EU, these companies will request that non-EU companies conduct a study on the products supplied in their supply chains. For this reason, exporting companies in Turkey must first complete a detailed analysis of whether the products subject to export are within the Customs Tariff Statistics Position (GTİP) scope. If the product exported by Turkish companies is in this category, a report must be prepared for importing companies in the EU, specifying carbon footprint measurement and direct and indirect emission amounts, as stipulated in the SKDM.

Since it is anticipated that financial reporting and exporting companies will also be included in the regulation, which will come into force permanently on January 1, 2026, It is vital for Turkish exporting companies operating in sectors such as iron, steel, cement, aluminium, fertilizer, hydrogen, and electricity to start preparations to fulfill their obligations under the regulation and to follow the additional obligations that will be foreseen in the process.

By Ezgi Anasiz, Associate, KP Law

KP Law at a Glance

Based in Istanbul, Turkey, KP Law is an independent full-service law firm providing multidisciplinary solutions to the clients worldwide. With over 55 lawyers and specialists, KP Law makes the best of agile & holistic approach as a strategic partner to your business with well analyzed reality checks, risk monitoring and pragmatic solutions. The firm has a distinguished status with built trust, a consistent high quality and stands out as a preferred vendor of Big4 as well as large size consultancy firms. Thanks to this accumulated knowledge and track record international experience, the team is intensely committed to high quality strategic approach and value-based delivery with commercial awareness and deep understanding of industry dynamics.

KP Law is led by Founding Partner Att. Onur Kucuk, a skilled negotiator, trusted by top executives, multinational clients to advise on critical projects and large-scale, cross-border transactions with 25+ years of experience in corporate and M&A. He leverages his professional and communication skills to be an inspiring leader for each and every one of his teams. He is a prominent speaker, author, and lecturer with contributions to industry publications and mainstream press, in cooperation with various organizations including Harvard Business Review Türkiye, Bahçeşehir University, and Board Membership Mentoring and Development Program and member of International Bar Association (IBA).

Our Services: KP Law has a leading practice focused on Mergers and Acquisitions, Corporate, Commercial Law, Intellectual Property, Employment and Contracts, Data Protection & Technology, Tax Law, Capital Markets, Arbitration as well as Litigation and Arbitration across a wide range of industries with particular emphasis on the retail, industrial manufacturing, fintech, e-commerce, and energy sectors.

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