EU GREEN DEAL AND ITS IMPACT ON TURKISH COMPANIES

The Green Deal and digital transformation are seen as the “twin transformations” that will drive post-pandemic economic recovery in Europe. While planning for a greener and cleaner world, new sectors, jobs and markets will open up. Demand for green products and services will increase. Those who take the first steps, make the first investments and adapt first in this initiative will be the “green market leaders”.

Although at first glance, the European Green Deal appears to be an environment-focused initiative, it is also a new growth strategy. By regulating carbon at the border, the EU will also apply Green Deal rules for partner countries in imports and exports.

Rather than being a decarbonization roadmap, the Communication is a comprehensive strategic vision that includes the decoupling of economic growth and resource use, a major transformation in agriculture and industry, a just and inclusive transition with the slogan “leaving no one behind”, and the Union’s role as a global climate actor. True to its name, the Green Deal is not a consensus text where all sides hope to find common ground, so it is not a complete blueprint that will fully satisfy climate activists. Instead, it aims to resolve the issues of all parties in an inclusive way, with as much common ground as possible. It also offers the EU the opportunity to play a challenging but ambitious role as a global climate leader.

The key elements of the agreement that distinguish it from any other green roadmap are,

Establish a Just Transition Mechanism to ensure that the process is fair and inclusive, with the support of those who will be most economically and socially affected by the transformation process,
With Green Finance, mobilizing both public and private sector resources for comprehensive investment needs and executing sustainable investment plans,
The EU taking the diplomatic lead in ensuring that the rest of the world plays its part in the climate crisis through intensive Climate Diplomacy,
as a means of transformation aimed at sustainable development.

The European Green Deal and the Border Carbon Regulation can be considered as risks for Turkey, but also as new opportunities as a means of transformation aimed at sustainable development.

What does the European Green Deal Cover?

The scope of the European Green Deal is summarized under seven strategies:

Biodiversity: Taking measures to protect ecosystems that are already in a delicate balance.
Farm to Table: Ensuring sustainable farming methods.
Clean Energy: Minimizing the need for fossil energy sources and using natural energy sources (solar, geothermal, wave, wind, etc.) that do not cause carbon emissions.
Sustainable Industry: Promote sustainable and environmentally friendly production.
Construction and Renovation: Reduce operational carbon emissions by making the construction sector more sustainable.
Sustainable Movement: Promote the use of environmentally friendly and minimally carbon-emitting means of transportation.
Pollution Elimination: Taking measures to remove pollution (air, water and soil) quickly and effectively.

The European Green Deal is focused on tackling key climate challenges such as global warming and the sustainability of water resources. In this context, it has designed the Border Carbon Regulation to prevent carbon leakage and to ensure that this process is also adopted by commercial stakeholders. It is also intended to eliminate the financial disadvantage that European firms currently face due to the carbon emission taxes they pay. For this purpose, countries/companies with less stringent climate change regulations are expected to be subjected to taxation (carbon tax) by taking into account their carbon content during exports to the EU.

This situation may reshape the concept of competitive advantage and will closely affect countries like Turkey that export to the EU. This is because countries with low emissions will be able to trade with the EU tax-free or with very low taxes, while countries with high emissions, such as China and Turkey, will incur additional carbon costs. With the European Green Deal, Turkish companies will soon have to meet carbon emission criteria when exporting to the EU.

In addition, the inclusion of sustainability and Paris Agreement implementation provisions in the EU’s Free Trade Agreements in the process could have critical economic and trade implications for Turkey.

Companies seeking investment will need to meet the EU’s Green Deal compatibility criteria, both in terms of loans and attracting investors as shareholders in their companies, or for publicly listed companies to attract foreign investment. Otherwise, they will either be able to receive this financing at an expensive rate or they will not have access to this financing and investment.

For example, development banks such as the European Bank for Reconstruction and Development (EBRD) have investments in Turkey in many different ways, and since there is a possibility that they will not lend to Turkish companies that cannot achieve sustainable, green transformation after a while, or will lend at a high cost, or may be cut off at some point, this legislation must be adapted to Turkey, otherwise Turkish companies will be negatively affected in many ways.

It was stated that a fund called “fair transformation mechanism” will be allocated to disadvantaged groups and sectors in the EU to enable them to realize green transformation. Since Turkey is also in the Customs Union, if some negotiations are made and pressure elements are created for Turkish companies to benefit from these funds, this will have very important contributions to the economy.

The Carbon Regulation at the Border, which is part of the European Green Deal, closely concerns every sector that exports to the EU. However, sectors with high carbon emissions such as cement and construction, textiles, agriculture and food, industry, retail and energy are expected to be affected much more.

These 6 sectors are the sectors with the highest carbon emissions (scope 1-2) according to the TUSIAD 2020 report, as well as the sectors with the highest import activities with the EU.

1. Cement and Construction Sector

As the sector with the highest carbon emissions, the cement and construction sector is one of the sectors that may face the highest financial burden. Under the Border Carbon Regulation, it is expected that the main raw materials of cement, such as clinker and limestone, will be taxed first, followed by products such as paper and organic chemicals.

2. Retail Sector

The retail sector follows the cement sector in terms of CO2 emissions from production, logistics, distribution and transportation, and greenhouse gas emissions from the export of goods and services.

For this reason, it is aimed to make the food sector sustainable and measurable with its environmental footprint on food source and nutritional value (Ecolabel, etc.) and to provide accessible healthy food within the scope of the farm-to-table strategy.

3. Textile Sector

The textile sector is one of Turkey’s most export-oriented sectors with the EU. However, it is also one of the sectors that will face the highest costs from the Border Carbon Regulation, as it causes high carbon emissions due to the intensive use of electricity in the production phase.

4. Agriculture and Food Sectors

The Farm to Table strategy of the European Green Deal is directly related to the agriculture and food sectors. In this context, it is aimed to reduce pesticide use by 50% and fertiliser use by 20% by 2030, while organic agriculture is expected to be emphasised.

5. Industry Sector

The industrial sector is one of the sectors where the biggest transformation will take place as it is one of the sectors that cause the highest greenhouse gas emissions. Therefore, a greener, circular and digitalised industrial strategy is expected to be pursued under the European Green Deal.

6. Energy Sector

One of the sectors prioritised by the European Green Deal is the energy sector. The sector, which is one of the most important areas among the 7 strategies, is also one of the sectors where reforms will be experienced frequently since it is responsible for 72.8% of Turkey’s greenhouse gas emissions.

In this context, the Energy Efficiency Directive established by the EU is a resource that the Turkish energy sector can benefit from on its way to sustainability, such as integrating various energy sources such as electricity, gas, buildings, transport and industry, replacing fossil fuel use with renewable energy and encouraging the use of clean energy.

How will B’s climate targets affect citizens in Turkey?

If Turkish companies lose their competitiveness or if they cannot realise this green transformation and have to pay carbon tax, if they have more expensive access to financing, this will of course increase the costs of companies and reduce their competitiveness. Therefore, this situation will most likely be reflected in the prices of the products or services they produce.