CBAM and the End of Free Allocations: What's in Store for Companies?

Big Change: How Free ETS Allowances Are Going Away and Industry's Green Transition Accelerates with CBAM

A Tool to Prevent Carbon Leakage: What were Free Allowances?

The main purpose of free allowances was to prevent "carbon leakage". In order to prevent its own producers from shifting their production to other countries due to high emission taxes, the European Union was providing these free allowances to certain sectors as an incentive. This meant,"You continue your production here, don't go to Turkey, and I will provide you with some tax reductions and incentives."

CBAM Arrives, Justice is Served: Why Incentives Are Going Away?

With the introduction of CBAM, the rules of the game have been equalized. Producers outside Europe will now also have to pay a carbon tax when they sell products into Europe. This has ensured fairness between producers inside Europe and producers outside.

Because of this fairness, the incentives that the European Union gave to protect its own producers, i.e. free allowances, are no longer needed. As the European Union has made clear, free allocations will gradually disappear over time, thanks to this new balance introduced by CBAM.

Time to Transform for All Firms

The gradual removal of these subsidies represents an important transformation for both European and Turkish producers:

• For European Producers: Europe is now sending a clear message to its own companies:"We have done justice. You don't need to go to another country anymore, because you will face the same tax obligations there. So keep investing here." This is a strategy aimed at protecting investments in Europe.
• For Producers in Turkey and Other Countries: For producers outside Europe, the message is:"If you adopt the production methodologies and environmental standards of European companies, if you adopt green transformation, then we will start not charging you these taxes. Therefore, you have to improve and transform yourself."

This makes it imperative for companies in Turkey to invest in green production techniques, digital transformation and sustainability. While at first glance it may seem like a burden, this obligation offers a positive contribution to the renewal of Turkey's production models and techniques, and a strategic opportunity to increase its global competitiveness in the long run.