The European Green Deal and Its Effects on Export

What is the European Green Deal?

Global warming, climate change and greenhouse gas emission issues have become a global agenda item especially since the 1990s. Within the scope of combating these problems, many studies are carried out at the regional or international level.

The linear economics idea of 'buy-build-use-throw' is one that cannot be sustained anymore. This idea, which started in the Industrial Period and progressed strongly until today, is in conflict with the idea of a clean environment. We see that moving to a circular economy is most beneficial for our environment, and many countries adopting this approach. The circular economy is an approach that aims to keep the use of materials to a minimum in areas such as production and consumption, increases reuse, and includes recycling.

The Paris Climate Agreement was signed in 2015, and almost all of the countries in the world have made some commitments to reduce greenhouse gas emissions and global warming. In this sense, the European Union (EU) is the leader that encourages other countries.

The main purpose of the consensus is to create a cleaner and more sustainable world. It also includes the steps to be taken for this. With this agreement, the EU aims to reduce greenhouse gas emissions to net zero by 2050, not to depend on any source in economic growth, and to develop not only a country or region, but the whole world as a whole.

Who Was Affected by the Green Deal?

This agreement is of great importance not only for EU member states, but also for all countries that have political, economic and geographical relations with the EU. Public and private sector organizations and those published in international organizations fall within the scope of the agreement. The European Green Deal regulates the EU's relations with all other states, institutions and organizations.

Businesses that cannot meet the necessary criteria will not be able to enter the EU market. This means that companies that sell products mainly to EU countries will terminate their export activities if they do not take the necessary actions. Because, the agreement brings common criteria for all products and services with commercial value, not a specific product or product group like the regulations implemented in the past.

What changed after the Green Deal?

One of the most important issues in the European Green Deal is Carbon Border Adjustment Mechanism which refers to pricing, in other words taxation, of carbon in products exported to the EU in order to reduce greenhouse gas emissions.

With this regulation, the EU transfers its responsibility for reducing carbon emissions to its commercial stakeholders and tries to ensure that they adopt it. Companies, public and private sector organizations that escape this responsibility will have to withdraw from the EU market.

No company will be able to pass through customs as easily as before, especially chemical-based food, medical, cosmetic products, electrical appliances and personal protective products.

On the other hand, it aims to make radical changes in consumer and business behavior. It is now inevitable for companies to turn to sustainable products and investments in order to stay in the EU market and increase their market share. The EU uses pricing instruments such as taxes to ensure this in the new economic order and works to keep the balance in the market stable while reaching the final climate targets.

How Does the European Green Deal Affect Trade?

EU has world’s largest export market with 80 countries. A large part of both import and export activities are carried out with EU countries which is 16%. EU has a great impact on other countries through trade. Thus, non –EU coutries need to read the memorandum well and correctly in order to keep their relations with the European Green Deal strong and sustainable. EU plans to carry out all import and export activities within a new international trade in a new environmental system in short time. EU helps third countries to develop their socio-economic situation and attain the 2030 Sustainable Development Goals (SDG).

Effects of the Green Deal on Exports?

The lack of information access is expected to continue for 2 more years which will cause problems for both in EU and non-EU companies. Cost of modifying production environment, adapting new technologies and systems will increse after the European Green Deal (EGD).

The first rule to be brought to prevent carbon emissions is to narrow down the production areas that cause this to a high degree. That is, sectors that require high energy are affected. In response to this, the projection of the European Commission is that carbon leakage at the border may occur in some production areas by 2030. These areas include coal, iron-steel, aluminum and cement, textiles, chemicals, synthetic rubber, glass and glass products, ceramics, paper pulp and some agricultural products.

Companies can adapt to the new system more easily by taking steps to reduce carbon emissions in production areas with individual investments. Different steps such as investments that will reduce emissions, investments that aim to use other types of energy, and the use of electric vehicles in production areas will make it easier for companies to adapt. However, if we look at the cost situation of these investments, we will see that they have high additional costs.

The "New Climate Regime Report Through the Lens of Economic Indicators" published by the Turkish Industrialists' and Businessmen's Association stated the additional costs incurred in exports as follows:

1. If the carbon price per ton in the European Union is 30 Euros, the carbon bill at the border is 478 million Euros. When other goods used in production are added, this fee increases to 1085 million Euros.

2. In the case of a carbon price of 50 euros, together with the Border Carbon Regulation (SKD) in the EU, emissions from final goods are 797 million euros. When other goods used in production are added, this fee increases to 1809 million Euros.

3. The additional amount to be paid by the exporting companies if they do not take these situations into account and continue to produce carbon (depending on whether the carbon fee is 30 or 50 euros per ton):

·       In the cement industry it is 13.2-22 percent

·       Iron and Steel it is 1.7-2.8 percent

·       Chemical industry it is 1.1-1.9 percent

·       Automotive industry it is calculated as 0.7- 1.2 percent

The burden of these costs is not decided to whom it will be given on but this may end with high production costs.

EU-based companies will get subsidies and R&D programmes from EU and will adapt earlier than other companies while colloboration with other countries is necessary and it is the plan of EGD.

Green Reconciliation Working Group's guidelines for working principles

The steps that Turkey should take into account are to maintain and improve its competitiveness in the EU market. As long as the right steps are taken, it is possible to increase its market share. To support this, a Working Group was formed under the leadership of the Ministry of Commerce and a comprehensive plan was prepared, the "Green Reconciliation Action Plan". This plan is a plan that aims to progress in line with Turkey's previous purpose and target. These are a plan that aims to reduce ecological scarcity by using resources efficiently and aiming at sustainability without disturbing the environment.

At the first stage, the Action Plan team aims to deal with companies specifically and eliminate these effects due to the adverse effects of the SKD system on exporting companies.

After the adoption of the directive, specialized work teams will be established in industrial areas such as recycling after use, investments supporting this transformation, environmentally friendly energy, transportation use, sustainable agriculture, steel, textile, aluminum, cement, and studies will be started for the realization of relevant actions. Afterwards, project proposals, financing and legislative needs will be determined.

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