CBAM and Türkiye: Sectoral Interactions, Benefits and Costs

As of 2024, ninety percent of the 195 countries that are parties to the Paris Agreement adopted emissions reduction targets, and 95 countries have declared a net-zero carbon commitment (World Bank Group, 2024). These 95 countries account for 85% of global energyrelated emissions. Although governments have developed an extensive array of policies to combat climate change, significant implementation gaps remain. Developed economies are increasingly turning to industrial policy options that accelerate the green transition. In the United States, for example, under the Inflation Reduction Act (IRA), a “Private Sector Clean Energy Industrial Investment Plan” valued at USD 110 billion was announced. Similarly, the European Union supports the provision of affordable, reliable, and sustainable energy through the Net-Zero Industry Act. On the other hand, starting from early 2025, both the change in administration in the United States1 and its withdrawal from the Paris agreement, and concerns over balancing the Green Deal with competitiveness in the EU2 pose the risk of slowing down the process in the coming years. This report primarily relies on the prevailing dynamics as of 2024, operating under the assumption that, despite fluctuations and delays, the overall trajectory toward decarbonization will remain intact. While the quantitative figures presented in this report may differ over time, the key assessments regarding Türkiye’s relevant industrial sectors are expected to remain valid.

Executive Summary

Since January 1, 2026, the European Union (EU) has levied a carbon price on imports of selected products to the EU known as the Carbon Border Adjustment Mechanism (CBAM). Despite initial concerns from Turkish producers, the effects of the EU CBAM on the Turkish economy are limited and could even benefit Türkiye’s steel and manufacturing exporters. Furthermore, the EU CBAM has triggered a notable increase in Türkiye’s climate ambitions, which culminated with the adoption of a Climate Law in 2025 and the planned rollout of a Turkish Emissions Trading System (ETS). Nonetheless, the EU CBAM and the future Turkish ETS raise legitimate concerns for the workers in upstream, emissions-intensive sectors affected by decarbonization. This policy brief leverages a New Quantitative Trade Model combined with household-level consumption and occupational data to quantify these effects and formulate policy recommendations. We show that the negative economic consequences of the EU CBAM can be dampened by accelerating the decarbonization of Türkiye’s industry and by increasing the mobility of workers to cleaner sectors. The introduction of a Turkish ETS will generate fiscal revenues, which can be used to compensate the workers most affected by the climate policy.

Introduction

As part of an initiative to strengthen its climate policies, in 2026, the European Union (EU) started requiring emissions certificates on the imports of basic materials. This so-called Carbon Border Adjustment Mechanism (CBAM) primarily aims at leveling the playing field in the EU market by extending the EU carbon price to foreign exporters to the EU market.1 Therefore, even before its implementation, the EU CBAM attracted significant attention from the EU’s trade partners, which raised concerns about the possible negative effects on their economies. These concerns were particularly strong in Türkiye, since the EU is the largest export market for Turkish firms.2 In response, the Turkish government ratified the Paris Agreements in 20213 and adopted its first climate law in 2025, which establishes a national Turkish Emission Trading System (ETS).

Conclusion

In our analysis, we have highlighted that the EU CBAM brings challenges and opportunities to Türkiye. While some sectors in Türkiye are already relatively cleaner than their competitors and will benefit from the EU CBAM, upstream energy sectors and their employees will sustain losses. Policies that support the decarbonization of Turkish industries while enabling the transition of the workforce toward cleaner sectors of the economy are needed to increase the gains and reduce the losses caused by the EU CBAM. The introduction of the Turkish ETS will generate significant resources to face these challenges: its fiscal revenue can not only compensate the losers of the new climate policy, but it can also be used to support the decarbonization of the Turkish economy. The successful implementation of the Turkish ETS would also signal Türkiye’s commitment to multilateral cooperation to trade and diplomatic partners.