Recent Developments
Climate change is reshaping production and trade globally, and the effects of climate change on the one hand and new trends in the global trade system on the other have become the main drivers of developments in the world economy. Since economic activities are the most major contributor to global warming, certain restrictions are stipulated and improvements are targeted in all processes causing global warming, particularly carbon emissions. Within the scope of the European Green Deal (“EGD“), the European Union (EU) is introducing regulations in many areas to address climate change with a holistic approach.
In this regard, there have been important developments in EU environmental legislation in recent weeks. The European Commission, i) published the Carbon Border Adjustment Mechanism (“CBAM“) Self Assessment Tool, and ii) postponed the effective dates of the Regulation (EU) 2023/1115 on Deforestation-free Products (“EUDR“).
I. CBAM Self Assessment Tool
The European Commission adopted the “Fit for 55” package on 14 July 2021 to ensure that the EU’s climate, energy, land use, transport and taxation policies were revised to achieve a 55% emission reduction by 2030 compared to figures in 1990. The relevant package includes regulations in various fields such as renewable energy, energy efficiency, new emission performance standards for light vehicles, greenhouse gas emissions from land use, alternative energy infrastructures, effort sharing in emission reduction, the Emissions Trading System (ETS), and the framework legislation on CBAM, one of the most significant components that will also affect international trade.
Regulation (EU) 2023/956 (“CBAM Regulation“), which is the fundamental legal framework of the CBAM, was published in the Official Journal of the EU on 16 May 2023. With the CBAM, the EU aims to equalize the carbon price for domestic and imported goods in the cement, iron and steel, aluminum, fertilizer, hydrogen, and electricity sectors. In other words, the CBAM envisages that the carbon pricing equivalent to the ETS, which has been implemented in the EU since 2005, will also be applied at the import stage for goods covered by the CBAM.
The CBAM Regulation entered into force on 1 October 2023, limited to the report obligation. However, the period between 1 October 2023 and 31 December 2025 has been designated as a transitional period and no financial obligation will arise during this period. The transitional period will serve the purposes of establishing the implementation principles, collecting data, and identifying the problems for improving the implementation principles, and necessary improvements and secondary legislation arrangements will be made within the framework of the experience during this period. In the transitional period until the end of 2025, no charges will be imposed for emissions embedded in imported products, while the implementation period, in which financial obligations are triggered, will commence on 1 January 2026.
Today, the European Commission announced the development of the CBAM Self Assessment Tool for companies importing into the EU on 23 September 2024. The CBAM Self Assessment Tool has been developed to enable actors importing into the EU during the transitional period to find out whether they are subject to the CBAM for the relevant good by indicating information such as the good’s eight-digit Combined Nomenclature (CN) code, the good’s country of origin, the good’s value and quantity, and the intended purpose of importation, so that they have an overview of the reporting requirements.
Nevertheless, the European Commission stated that, during the transitional period, the CBAM Self Assessment Tool will be kept up to date, however that it cannot be guaranteed to fully reflect the official legislation.
The CBAM Self Assessment Tool is available here.
II. Postponement of the EUDR
The EUDR, setting the conditions for EU market access for the sectors most responsible for deforestation and forest degradation under the EGD, was published in the Official Journal of the EU on 9 June 2023 and entered into force gradually.
The EUDR requires proof that: i) products such as soya, beef, palm oil, wood/tree products, cocoa, coffee and certain products derived from them (i.e., chocolate, furniture, tires and leather), which use these products as inputs in production, have not caused deforestation in placing these products on the EU market; and ii) wood and wood products have not caused deforestation as well as forest degradation, and they were produced in accordance with the legislation of the relevant country. Moreover, economic operators must complete the three-stage due diligence processes, including: i) collecting information; ii) risk assessment; and iii) risk mitigation within the scope of the import procedures of the relevant products into the EU, and in this regard, they must disclose the suppliers of the product, the geolocation coordinates of the place of production and proof that they have not caused deforestation. Economic operators must conduct a risk assessment according to the information provided and complete the process of mitigating potential risks. The relevant products cannot be imported into the EU unless the information within the scope of the above-mentioned due diligence process is disclosed.
In the first stage, the effective date of the EUDR was set as 30 December 2024 for large-scale enterprises and 30 June 2025 for SMEs. However, it was announced that the European Commission submitted a proposal to the European Council and the European Parliament on 2 October 2024, granting an additional 12 months for the enforcement of the EUDR, and it was approved on 3 December 2024 as a result of the negotiations between the European Council and the European Parliament.
In this regard, the enforcement date of the EUDR has been postponed until 30 December 2025 for large-scale enterprises and 30 June 2026 for SMEs.
The EUDR is available here, and the proposal to postpone the enforcement date of the EUDR is also available here.
Conclusion
As the effects of climate change are widely felt nowadays, initiating preparations for compliance with the EU’s CBAM is of utmost importance for Turkish enterprises, with a significant portion of their foreign trade being with the EU. The CBAM Self Assessment Tool launched by the European Commission provides guidance to enterprises during the transitional period in terms of the necessary measures to be taken.
Furthermore, the postponement of the effective date of the EUDR has provided an additional period of almost one year for large scale enterprises and one and a half years for SMEs to take the necessary measures. During this period, enterprises operating in the sectors related to such products must follow the necessary steps to comply with legislation to continue their trade with the EU smoothly.
Considering the impact of climate change, which is primarily attributed to economic activities, on production and global trade, the sensitivity of companies complying with relevant environmental regulations is of greater importance than ever.
