Carbon Pricing and Border Policy: Effects on Export Competitiveness in Türkiye

Turkiye has adopted an increasing number of environmental regulations since the early 2000s. However, the country still faces important challenges in the field of green transition and energy efficiency. According to OECD (2019), the country remains one of the OECD economies with the highest greenhouse gas (GHG) emission growth and a very low percentage of national expenditure on environmental protection over GDP compared to more advanced countries. The “dirtier” production in Turkiye has shaped its integration into global value chains, especially in carbon-intensive industries such as cement, iron and steel, glass, chemicals etc. Turkish producers in these industries benefit from relatively lower environmental compliance costs compared to producers in advanced countries. In addition, geographical proximity to the European market and the Customs Union strengthen Turkish producers’ position as key suppliers to the European Union (EU). This pattern has been reinforced by the introduction of the EU Emissions Trading System (EU ETS), which has increased production costs within the EU and, thus, enhanced the relative price advantage of carbon-intensive exports from non-ETS countries, including Turkiye. In this work, we want to provide some descriptive and econometric evidence to understand how the environmental policies implemented and planned by the EU have affected and will affect the Turkish economic system. More specifically, we will focus on the role of the EU ETS that came into force in 2005 as well as the Carbon Border Adjustment Mechanism and their implications for Turkiye’s export competitiveness.