The Relationship Between Recycling and the CBAM: Circular Economy, Embedded Emissions, and Türkiye’s Industrial Competitiveness

The European Union’s Carbon Border Adjustment Mechanism (CBAM) seeks to impose a carbon cost, aligned with the EU Emissions Trading System, on the embedded emissions of carbon-intensive imported products. Its principal objectives are to prevent carbon leakage, narrow the carbon-cost differential between EU and non-EU producers, and encourage trading partners to adopt lower-carbon production methods. Recycling can reduce the embedded carbon intensity of CBAM-covered products by decreasing demand for primary raw materials, energy consumption, and production-related greenhouse gas emissions. The relationship between CBAM and recycling therefore extends beyond environmental policy and directly affects production costs, raw-material trade, and international competitiveness. Nevertheless, the treatment of recycled inputs in emissions calculations, the traceability of scrap materials, and the distinction between pre-consumer and post-consumer scrap create important risks related to regulatory loopholes and new forms of carbon leakage. This study examines the relationship between CBAM and recycling with particular reference to the iron and steel and aluminium sectors and evaluates the opportunities and policy requirements arising for Türkiye. It argues that recycling represents an important decarbonisation instrument capable of reducing CBAM liabilities, but that its effectiveness will remain limited without reliable emissions measurement, low-carbon electricity, a sufficient supply of high-quality scrap, and robust traceability systems.

1. Introduction

The European Union’s climate policy has increasingly moved towards pricing carbon emissions not only within domestic production but also in imported products. One of the principal instruments of this transformation is the Carbon Border Adjustment Mechanism, established under Regulation (EU) 2023/956. Following a transitional reporting period, CBAM entered its definitive phase, including financial obligations, on 1 January 2026. The mechanism initially covers iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen. During the definitive phase, authorised CBAM declarants are required to surrender CBAM certificates corresponding to the embedded emissions of the goods they import. The price of these certificates is linked to allowance prices under the EU Emissions Trading System (European Commission, 2026a).

CBAM’s primary function is to reduce the cost differential between production within the EU, where carbon emissions are priced, and production in countries with lower or no explicit carbon prices. It is thereby intended to prevent carbon leakage, which may occur either when production moves to jurisdictions with less stringent climate policies or when more carbon-intensive imported goods replace EU production. The effects of the mechanism, however, are not confined to carbon pricing. CBAM may also influence production technologies, energy sources, input composition, and recycling investments in third countries.

The relationship between recycling and CBAM emerges within this context. The use of iron and steel scrap or secondary aluminium can eliminate or reduce some of the highly energy-intensive stages associated with mineral extraction and primary metal production, thereby lowering emissions per unit of output. Other conditions being equal, a producer using a larger share of recycled material may report lower embedded emissions and consequently face a lower CBAM liability.

Recycling, however, cannot automatically be regarded as a zero-carbon activity. The collection, sorting, processing, transportation, and remelting of scrap also require energy and generate emissions. Furthermore, an inability to verify the origin of scrap may create opportunities for double counting, misrepresentation of recycled content, or the separation of low-carbon output intended for the EU market from more carbon-intensive production destined for other markets. Such practices could weaken the environmental integrity of CBAM.

This study addresses the following research question: Through which channels does CBAM influence the economic value of recycling and the transition towards circular production, and what are the implications of this relationship for Türkiye?

2. Conceptual Framework: From Carbon Pricing to the Circular Economy

The circular economy seeks to move production and consumption systems away from the linear “extract–produce–use–dispose” model by retaining products, components, and materials within the economy for as long as possible. Reuse, repair, remanufacturing, and recycling constitute some of its principal strategies. The relationship between resource efficiency and climate policy is especially strong in energy-intensive industries. Replacing primary materials with secondary inputs can reduce both natural-resource extraction and the energy required for production.

CBAM is not, in itself, a recycling policy. It is a trade-related carbon-pricing instrument that converts the embedded emissions of imported products into a financial liability. Nevertheless, CBAM can create an incentive for recycling through the following simplified cost relationship:

If increasing the proportion of recycled material reduces the embedded emissions of a product, it will also reduce the corresponding CBAM liability. Recycling investments that were previously assessed primarily in terms of scrap prices, energy costs, and product quality therefore acquire additional economic value through their capacity to avoid carbon costs.

This relationship operates through three principal channels:

1. The technology channel: Technologies capable of using higher shares of scrap—including electric arc furnaces, remelting facilities, advanced separation systems, and refining technologies—become more attractive.
2. The raw-material channel: High-quality and traceable scrap becomes more economically valuable, transforming secondary materials into strategic low-carbon inputs.
3. The information and governance channel: Companies must develop product-level carbon accounting, material traceability, and verified emissions-data systems.

CBAM therefore shifts recycling away from its conventional position as the final stage of waste management and places it at the intersection of industrial, trade, and climate policy.

3. CBAM’s Capacity to Promote Recycling

3.1. Reducing Embedded Emissions

The CBAM liability is primarily determined by the emissions embedded in the imported product. The European Commission’s implementing rules require emissions from relevant production processes and precursor materials to be attributed to the resulting products. For actual emissions data to be accepted, facility-level activity data, emissions factors, and production quantities must comply with established monitoring and verification requirements (European Commission, 2023).

In primary iron and steel production, the reduction of iron ore using coke generates substantial direct emissions. Scrap-based production in electric arc furnaces largely avoids this stage. Similarly, primary aluminium production is highly electricity-intensive because it involves transforming bauxite into alumina and then producing aluminium through electrolysis. Remelting aluminium scrap generally requires considerably less energy.

Increasing the recycled content of a product can therefore reduce the emissions intensity subject to CBAM. The size of this advantage nevertheless depends on the carbon intensity of the energy used in the recycling process. An electric arc furnace operating in a coal-intensive electricity system will have higher embedded emissions than an equivalent facility supplied with renewable or other low-carbon electricity. Recycling and energy-system decarbonisation should consequently be understood as complementary rather than substitutable strategies.

3.2. Changes in the Economic Value of Scrap

CBAM may encourage producers not only to use more scrap but also to secure scrap of higher quality and verifiable origin. In high-grade steel and aluminium alloys, the accumulation of copper, phosphorus, iron, or other unwanted elements can reduce material performance and restrict subsequent applications. Not all scrap therefore possesses the same economic or environmental value.

Technologies that separate scrap according to chemical composition, digital material passports, advanced sensors, and artificial-intelligence-assisted sorting systems may become increasingly important under CBAM. The shift from low-grade scrap of uncertain origin to high-quality, traceable scrap can enable producers both to substantiate their emissions calculations and to manufacture higher-value products.

Rapidly increasing demand for high-quality scrap may, however, intensify competition over a limited supply. Because steel products often have long service lives, much of the metal produced today will not return to the scrap market for many years. Recycling cannot therefore replace all primary production in the short or medium term. According to the World Steel Association, approximately 680 million tonnes of steel were recycled in 2021, but the available supply of scrap remains insufficient to satisfy total demand for new steel products (World Steel Association, 2024).

3.3. Changing the Financial Returns on Recycling Investment

In the absence of carbon pricing, the return on a recycling investment is generally calculated according to energy savings, input costs, and avoided waste-disposal expenses. CBAM adds the avoided carbon liability to this calculation. It may therefore shorten the payback period of investments in:

• Scrap collection and sorting infrastructure;
• Electric arc furnaces;
• Aluminium remelting facilities;
• Closed-loop systems for manufacturing scrap;
• Industrial symbiosis;
• Product and material traceability;
• Recycling facilities powered by renewable energy.

From this perspective, CBAM can strengthen the economic incentives supporting circular production. Rossetto (2023), for example, argues that CBAM may encourage greater scrap use in the steel industry and create a mutually reinforcing relationship between carbon markets and the circular economy.

4. Sectoral Assessment

4.1. Iron and Steel

Iron and steel provide the clearest example of the relationship between CBAM and recycling. The conventional blast furnace–basic oxygen furnace route largely depends on iron ore and coking coal, whereas steel scrap is the principal input in electric arc furnace production. The choice of production route is therefore one of the main determinants of a product’s carbon intensity.

CBAM may affect the iron and steel sector in two principal ways. First, scrap-based producers may obtain a cost advantage in the EU market by supplying products with lower embedded emissions. Second, ore-based producers may face increased pressure to raise their scrap ratios or adopt direct-reduced iron, low-carbon hydrogen, carbon capture, and related technologies.

Nevertheless, scrap-based production is not completely emissions-free. The source of electricity used in an electric arc furnace, the use of natural gas and carbon-containing auxiliary materials, and overall facility efficiency all influence the final emissions value. The European Environment Agency similarly notes that although electric arc furnaces enable recycling-friendly steel production, their emissions advantage is strengthened when electricity generation is also decarbonised (European Environment Agency, 2026).

Recycling may therefore reduce CBAM liabilities through two simultaneous transformations: replacing primary material with scrap and replacing carbon-intensive electricity with low-carbon energy. Focusing exclusively on scrap content while ignoring the energy system would produce an incomplete assessment of the relationship between recycling and CBAM.

4.2. Aluminium

The substantial difference in energy use between primary and secondary aluminium production makes recycling a powerful decarbonisation strategy. The treatment of aluminium scrap under CBAM methodology nevertheless raises important regulatory questions.

A particularly contested issue concerns how emissions should be attributed to pre-consumer and post-consumer scrap. Treating all scrap as a zero-emission input could create an incentive to reclassify aluminium that was originally produced through carbon-intensive primary processes and only minimally processed as “recycled.” Conversely, transferring the entire emissions history of primary production to secondary aluminium could penalise recycling and weaken circular-economy incentives.

The issue reflects the difference between the cut-off approach and lifecycle-allocation approaches in carbon accounting. Under a cut-off approach, scrap is released from the emissions associated with its previous product system and only the emissions arising from collection, sorting, transportation, and reprocessing are attributed to the new product. Under lifecycle allocation, the impacts and benefits of primary production and recycling may be distributed across successive product cycles.

The cut-off approach is generally more practical for the administration of CBAM but may be more vulnerable to regulatory arbitrage. A lifecycle approach may provide a more comprehensive environmental assessment but is more difficult to implement consistently across international supply chains.

In December 2025, the European Commission proposed extending CBAM to selected downstream products and addressing some forms of production scrap to reduce circumvention risks. However, proposals concerning recycled aluminium, particularly the treatment of post-consumer scrap, remain contested. It is therefore essential to distinguish between rules already in force and proposed amendments that have not yet completed the legislative process.

5. Regulatory Risks and Contradictions

5.1. From Carbon Leakage to Scrap Leakage

By increasing the cost of carbon-intensive products, CBAM may increase the strategic value of scrap used in low-carbon production. This creates a new trade-policy concern commonly described as “scrap leakage.” If scrap generated within the EU is exported to third countries offering higher prices, European recycling facilities may struggle to obtain sufficient inputs. Conversely, restrictions on scrap exports could reduce recyclers’ revenues, depress domestic scrap prices, and weaken incentives for collection and sorting.

There is therefore no automatic alignment between CBAM and the circular economy. Unless carbon pricing, waste-shipment rules, scrap trade, and industrial policy are designed in a coordinated manner, regulation in one area may create unintended market distortions in another.

For Türkiye, this issue is particularly important because its electric arc furnace steel industry has historically depended heavily on imported scrap, including scrap originating in the EU. Changes in EU waste-shipment policies or measures designed to retain scrap within the European market could increase Türkiye’s input costs even if its scrap-based production route provides a relative carbon advantage.

5.2. Resource Shuffling and Greenwashing

A producer may direct its low-carbon or high-recycled-content production exclusively to the EU while continuing carbon-intensive production for other markets. Under this practice, often described as resource shuffling, the reported carbon intensity of EU imports falls without producing an equivalent reduction in the producer’s overall emissions.

In the absence of reliable traceability, companies may also overstate the share of scrap in their products or allocate the same low-carbon material to more than one product group. The following measures are required to reduce these risks:

• Facility- and product-level mass-balance systems;
• Documentation of scrap origin;
• Separation of pre-consumer and post-consumer scrap;
• Independent verification;
• Monitoring of energy consumption and electricity sources;
• Digital product and material passports.

The environmental integrity of CBAM therefore depends not merely on measuring emissions at the factory gate but also on the quality and comparability of data across complex international supply chains.

5.3. The Problem of Treating Secondary Materials as Zero-Emission Inputs

Applying a zero-emission factor to recycled content provides a straightforward way to promote recycling. It may, however, overlook emissions generated through collection, transportation, preparation, and remelting and thereby create artificial cost advantages between facilities.

At the opposite extreme, transferring all historical emissions from primary production to the recycled product would penalise circularity. A more balanced approach would exclude emissions belonging to the material’s previous product lifecycle while including the actual emissions generated through scrap collection, sorting, transportation, pre-treatment, and remelting. This would reward recycling without equating recycled content with an absence of emissions.

6. Implications for Türkiye

Türkiye is among the countries most likely to be affected by CBAM because of its close trade relationship with the EU and its export capacity in carbon-intensive sectors. At the same time, Türkiye’s substantial reliance on electric arc furnaces and scrap inputs in steel production creates a potentially important transition advantage.

Türkiye has long been one of the principal buyers of steel scrap exported from the EU. With suitable energy and traceability policies, this industrial structure could be converted into a competitive advantage under CBAM. A high scrap-use ratio alone, however, will not be sufficient. The continuing role of fossil fuels in Türkiye’s electricity generation increases the embedded emissions of steel produced in electric arc furnaces.

A strategy integrating recycling with CBAM compliance in Türkiye should therefore be based on four pillars.

First, recycling industries should be integrated with renewable energy. Renewable electricity procurement by electric arc furnaces and aluminium remelting facilities would reduce both operational emissions and the CBAM liabilities attached to exported products.

Second, domestic scrap collection capacity should be strengthened. Türkiye’s dependence on imported scrap creates exposure to exchange-rate movements, international scrap prices, and EU waste-shipment policies. Recovering more metal from municipal waste, end-of-life vehicles, appliances, machinery, buildings, and infrastructure would improve material security.

Third, product-level carbon accounting and digital traceability should be developed. Small and medium-sized enterprises may experience difficulty documenting which scrap materials were used in each production batch and how much energy was consumed. Shared data infrastructures, accredited verification services, and sector-specific emissions-calculation guidelines could reduce these compliance costs.

Fourth, a national carbon-pricing system should be introduced and aligned with CBAM. Under the CBAM framework, a carbon price effectively paid in the country of origin may be deducted from the corresponding liability, subject to the applicable conditions. A Turkish emissions trading system could therefore retain carbon revenues within Türkiye rather than allowing the equivalent economic value to be transferred through CBAM payments. These revenues could subsequently be used to finance industrial decarbonisation.

World Bank research indicates that approximately one-fifth of Turkish firms have adopted waste minimisation, recycling, or waste-management practices. This finding suggests that Türkiye possesses an institutional and industrial foundation for circular-economy development, although these practices have not yet spread throughout the economy (World Bank, 2025).

Türkiye’s existing scrap-based steel capacity should therefore not be treated as a completed transition. It is more accurately understood as a technological foundation that must be complemented by electricity-sector decarbonisation, improved scrap quality, verified carbon data, and regulatory alignment with the EU.

7. Policy Recommendations

To transform recycling into an effective instrument for reducing CBAM exposure, Türkiye should pursue the following policies:

1. A national digital traceability system should be established for metal scrap, recording its origin, chemical composition, ownership chain, and processing history.
2. Pre-consumer, post-consumer, domestic, and imported scrap should be reported as separate categories.
3. Long-term renewable electricity procurement agreements should be promoted for electric arc furnaces and remelting facilities.
4. Industrial symbiosis programmes should be expanded in organised industrial zones so that by-products from one enterprise can be used as inputs by another.
5. Informality in scrap collection and sorting should be reduced, while data sharing between municipalities, producers, recyclers, and public authorities should be improved.
6. Recycling incentives should be linked not only to the quantity of scrap used but also to independently verified emissions reductions.
7. Türkiye’s emerging emissions trading system should be aligned, as far as possible, with CBAM monitoring, reporting, and verification methodologies.
8. Shared carbon-accounting platforms and sectoral verification centres should be established for small and medium-sized enterprises.
9. Any restrictions or incentives concerning scrap imports and exports should be assessed jointly in terms of recycling rates, industrial input requirements, trade obligations, and supply security.
10. Product design should promote recyclability, dismantling, repair, and material purity in order to secure future supplies of high-quality secondary raw materials.
11. Public procurement policies should incorporate product-level carbon-intensity and recycled-content criteria without relying solely on unverified environmental claims.
12. Carbon revenues should be directed towards electricity decarbonisation, recycling infrastructure, low-carbon industrial technologies, and support for vulnerable firms and workers.

8. Conclusion

The relationship between CBAM and recycling demonstrates the growing convergence between carbon pricing and circular-economy policy. Recycled inputs can reduce the use of primary raw materials and lower the embedded emissions—and therefore the CBAM liabilities—of iron, steel, and aluminium products. Scrap is consequently becoming more than a low-cost production input: it is emerging as a strategic resource that affects carbon costs, supply-chain resilience, and export competitiveness.

Recycling does not, however, create an unconditional environmental advantage under CBAM. Carbon-intensive electricity, low-quality scrap, inadequate traceability, resource shuffling, and regulatory arbitrage involving recycled content may substantially reduce its climate benefits. The quantity of recycled content must therefore be considered together with the carbon intensity of the recycling process and the verified origin of the material.

Türkiye may obtain a relative advantage under CBAM because of its experience in scrap-based steel production. Converting this potential into a lasting competitive advantage will depend on decarbonising electricity generation, expanding domestic high-quality scrap supplies, developing verified product-level carbon data, and establishing a national carbon-pricing system.

CBAM should consequently be understood not only as an external cost affecting Türkiye’s exports to the EU but also as a structural pressure capable of accelerating resource efficiency, technological upgrading, and the transition to circular industrial production. Whether this pressure results in genuine industrial transformation or merely short-term regulatory compliance will depend on Türkiye’s ability to coordinate its recycling, energy, industrial, trade, and climate policies.

References

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