The Age of Carbon Costs Has Begun for Turkish Industry

This is the full text of the poster presented by our founder Hakan Bilgehan as an academic contribution to WindEurope’s 2026 Madrid summit.

“The European Union’s Carbon Border Adjustment Mechanism entered its definitive phase, including financial obligations, on 1 January 2026. A study examining Türkiye’s exports of iron and steel, aluminium, fertilisers, electricity and cement shows that carbon-intensive production could cause a significant loss of competitiveness, particularly in the electricity and cement sectors. However, a national Emissions Trading System and investments in low-carbon production could help ensure that carbon revenues remain in Türkiye.”

By Hakan Bilgehan

The European Union’s climate policy is no longer limited to environmental targets. The EU Emissions Trading System and Carbon Border Adjustment Mechanism have become economic instruments that directly affect industrial production, investment decisions and international trade.

Our study, presented as a poster at the WindEurope event in Madrid, examines the potential impact of the EU’s carbon pricing policies on Turkish industry, focusing on iron and steel, aluminium, fertilisers, electricity and cement. Its central finding is clear: competitiveness in the European market will increasingly depend not only on product prices, but also on the amount of carbon released during production.

Carbon is no longer an invisible production cost

The EU Emissions Trading System is based on a cap-and-trade model. A ceiling is placed on the total emissions generated by installations covered by the system, and companies must hold an emission allowance for every tonne of carbon dioxide they release.

Companies that reduce their emissions can sell their unused allowances. Those producing more emissions must purchase additional allowances from the market. Carbon emissions therefore become a direct cost reflected in companies’ production and investment decisions.

However, while producers within the EU pay a carbon price, imported products from countries with less stringent environmental standards may not carry the same cost. This creates a significant competitive imbalance. The relocation of production to countries with weaker carbon regulations is referred to as “carbon leakage.”

The Carbon Border Adjustment Mechanism was developed to reduce this imbalance.

CBAM’s definitive phase began in 2026

During the transitional period between 1 October 2023 and 31 December 2025, the primary obligation for importers was to report the embedded emissions of imported products. The definitive phase, which includes financial obligations, began on 1 January 2026.

CBAM currently covers selected products in the iron and steel, aluminium, cement, fertiliser, electricity and hydrogen sectors. EU importers are required to declare the emissions embedded in imported goods and surrender the corresponding number of CBAM certificates.

Certificate prices are determined according to allowance auction prices under the EU Emissions Trading System. The European Commission set the CBAM certificate price at €75.36 per tonne for the first quarter of 2026 and €75.28 for the second quarter. If a carbon price has already been paid and can be documented in the country where the product was manufactured, that amount may be deducted from the CBAM obligation.

The importance of establishing a carbon pricing system in Türkiye is therefore not limited to reducing emissions. Any carbon price not paid domestically may effectively be paid at the EU border through CBAM. A national Emissions Trading System could instead keep this revenue in Türkiye and allow it to be used to finance industrial transformation.

Why is Türkiye’s industrial structure vulnerable?

Türkiye has a high volume of trade with the EU and a strong production base in energy-intensive industries. Iron and steel, aluminium and cement occupy an important position in the country’s industrial exports.

At the same time, the continued high share of fossil fuels in electricity generation affects more than the energy sector. The electricity consumed in manufacturing also increases the indirect emissions embedded in other industrial products. The carbon intensity of the energy system is therefore becoming a common factor determining the competitiveness of a wide range of exports.

The study used production, export and emissions data for 2018–2021 to estimate the costs that might have arisen if CBAM had been fully implemented during those years. The results should therefore not be interpreted as a definitive forecast of present-day export losses. Instead, they represent a historical stress test demonstrating the sensitivity of Turkish industry to carbon prices.

Annual costs across five sectors reached €496 million

According to the calculations, the total potential carbon cost across the iron and steel, aluminium, fertiliser, electricity and cement sectors would have amounted to approximately €124 million in 2018, €122 million in 2019, €147 million in 2020 and €496 million in 2021.

The substantial variation between the years was caused not only by changes in production and export volumes, but also by the increase in carbon prices under the EU Emissions Trading System.

When a fixed carbon price of €93.67 per tonne is applied, the total estimated cost for the years examined falls within a range of approximately €420–577 million. This demonstrates that even the same volume of exports can face a considerably higher financial burden when carbon prices increase.

These calculations are primarily based on direct emissions generated during production. More extensive inclusion of indirect emissions arising from electricity use and other inputs could increase the potential costs faced by some industries.

Electricity and cement are the most vulnerable sectors

One of the study’s most striking findings is that electricity and cement face the greatest potential burden in proportion to their export revenues.

The estimated carbon cost of electricity exports reached as much as 77.8% of their export value in 2021. This indicates that a fossil fuel-dependent generation structure could make electricity exports extremely vulnerable economically. A carbon cost of this magnitude could largely eliminate the commercial viability of electricity exports.

For cement, the estimated cost was equivalent to 59.4% of the sector’s export value in 2021. Cement production releases substantial amounts of carbon dioxide through both fuel consumption and the chemical processes involved in clinker production. Changing the energy source alone may therefore be insufficient. Reducing clinker content, using alternative binders, recovering waste heat and introducing carbon capture technologies must also become part of the sector’s transformation agenda.

Although the fertiliser sector has a relatively limited export volume, its estimated cost ratio of 27% in 2021 also represents a significant competitiveness risk.

The ratios calculated for iron and steel and aluminium appear lower, but these industries have much larger export volumes. Consequently, even a relatively low carbon-cost ratio can create a financial burden of tens or hundreds of millions of euros.

CBAM is more than a tax collected at the border

CBAM is often treated simply as a new customs duty. In reality, the mechanism is also transforming companies’ production and data infrastructures.

Manufacturers exporting to Europe must now monitor not only product quantities, prices and origins, but also the embedded emissions generated during production. If installation- and product-specific information is unavailable, the use of default emission values may result in higher costs, even for producers whose actual carbon performance is relatively favourable.

Companies therefore need to establish monitoring, reporting and verification systems, measure energy consumption at production-line and product-group level, and determine the carbon content of inputs supplied by third parties.

Carbon accounting is no longer merely one section of a sustainability report. It has become a core industrial capability that can affect product prices and access to the European market.

Türkiye’s national ETS is strategically important

The adoption of Türkiye’s first Climate Law established a legal foundation for a national Emissions Trading System. The design of this system will be critical in determining the emissions cap, the proportion of allowances distributed free of charge, the installations covered and the use of revenues generated by the system.

If carbon pricing is designed solely as an additional financial burden on industry, it could place pressure on production and employment in energy-intensive sectors. If the revenue is directed towards energy efficiency, renewable energy, electrification, green hydrogen and low-carbon production investments, however, it could accelerate industrial transformation.

Recognition of the carbon price effectively paid in Türkiye could also reduce the amount payable under CBAM at the European border. In this way, the money could be invested in Türkiye’s industrial transformation rather than transferred to the EU.

Low-carbon production is becoming a competitive advantage

Türkiye has significant capabilities in wind energy equipment, solar power, electrified production technologies and European industrial supply chains. Maintaining this advantage will depend on whether the growth in renewable energy capacity is reflected in the electricity actually consumed by industrial facilities.

Priority measures for manufacturers include:

• Establishing product- and installation-level embedded-emissions calculation systems,
• Separating products covered by CBAM according to their customs codes,
• Measuring energy consumption at production-line level,
• Making renewable energy use verifiable,
• Accelerating energy-efficiency and electrification investments,
• Developing low-carbon raw material and supplier alternatives,
• Incorporating carbon price fluctuations into export contracts and investment plans.

CBAM does not necessarily have to result only in export losses for Türkiye. Companies that move early towards low-carbon production could gain an advantage over more carbon-intensive competitors in the same market. Europe’s efforts to decarbonise its supply chains could also create opportunities for new investments and higher-value production in Türkiye.

The cost will increase as transformation is delayed

The study’s central conclusion is that Türkiye’s potential CBAM cost is not determined solely by European Union regulations. The country’s energy mix, industrial carbon intensity, companies’ ability to generate reliable emissions data and the design of the national carbon market will be equally decisive.

As carbon prices rise, the cost of delaying the transition will increase. Electricity and cement emerge as the most vulnerable sectors, while iron and steel and aluminium remain critical because of their high trade volumes.

The choice facing Türkiye is therefore not whether it will pay a carbon price. The real question is whether that price will be paid at the European border or converted into an instrument that finances industrial transformation within Türkiye.

From this perspective, CBAM is not merely a border measure. It has become one of the principal factors likely to shape Türkiye’s future industrial policy.

This article is based on the findings of Hakan Bilgehan’s master’s thesis, “Carbon Pricing in EU, Evaluation of the Relationship Between Carbon Emissions and Reflections on Türkiye,” completed at Marmara University’s Institute of European Studies, Department of European Economics and Business, and the related poster presented at the WindEurope event in Madrid. The calculations represent counterfactual scenarios based on data from 2018–2021.

Current CBAM information: European Commission – CBAM definitive regime, 2026 CBAM certificate prices, Türkiye’s Directorate of Climate Change – Climate Law and ETS.