Carbon border adjustment mechanism and its potential impacts on Türki̇ye's exports

One of the most critical issues at the center of today's global economy and international policies is undoubtedly global warming and climate change. This issue has become increasingly important since the second half of the twentieth century and was first brought to the international agenda with the Stockholm Conference held in 1972. Since the Stockholm Conference, the number of multilateral environmental agreements has significantly increased. Following major milestones such as the 1992 Rio Summit and the 1997 Kyoto Protocol, Paris Agreement was adopted in 2015, committing all countries to reducing greenhouse gas emissions on a global scale after 2020. At the level of the European Union (EU), the European Green Deal (EGD), announced on December 11, 2019 emerged as a comprehensive strategy directly targeting carbon emissions. The EGD is defined as the EU's new growth strategy, which aims to make Europe the world's first climate-neutral continent by 2050, with the goal of net-zero greenhouse gas emissions. One of the most prominent mechanisms within this framework is the Carbon Border Adjustment Mechanism (CBAM), which seeks to promote environmentally friendly production methods, reduce environmental damage in industrial processes, and indirectly mitigate the risk of carbon leakage. In other words, CBAM is designed to prevent industrial firms from gaining a competitive advantage by relocating production outside Europe to circumvent carbon-related taxes, while also promoting the green transition at the global level. Under this mechanism, products with high carbon intensity imported from countries not participating in the European Union Emissions Trading System (EU ETS) will be subject to an additional carbon cost at the EU's borders. Countries with their own functioning emissions trading system (ETS) will be partially exempt from these costs. At this point, Türkiye is among the countries that are still in the process of establishing a national ETS, which makes this issue particularly relevant for its export sectors. This thesis examines the theoretical foundations and international dimension of climate change in a chronological framework and analyzes the externalities caused by greenhouse gas emissions and the policy instruments developed to mitigate them. Furthermore, it explains the backround of process the implementation of CBAM, while exploring the functioning of ETS and their global applications. In the analysis section, Türkiye's export structure to the EU in carbon-intensive sectors covered by CBAM (aluminum, iron and steel, cement, and fertilizer) is examined in detail. Sector-based risk matrices have been constructed to evaluate the vulnerability of these sectors to CBAM implementation, particularly in terms of their export dependence on the EU and the burden of carbon costs. Based on the findings, recommendations have been developed.