EU CBAM certificates should be tradeable: Turkey

Turkey, one of the countries most exposed to the EU's carbon border adjustment mechanism (CBAM), has suggested allowing the measure's certificates to be traded, similar to EU emissions trading system (ETS) allowances, a Turkish official said at an industry event in Berlin this week.

Allowing a CBAM certificate to be traded would enable an importer in the EU to have some credit allocated to them beyond what is necessary to cover the emissions content of the imported commodity, Turkey's deputy permanent representative to the EU, Bahar Guclu, said at the Innovate4Climate conference in Berlin. This would mirror the functionality of EU ETS allowances, Guclu said.

Turkey has made this proposal to the European Commission but is yet to receive a response, Guclu told Argus on the sidelines of the conference.

Under current rules, EU importers will have to purchase and surrender CBAM certificates issued by the bloc that will not be tradeable on the secondary market. Purchasers will be allowed to hold the certificates for up to two years, and sell a maximum of a third of those purchased back to the EU if they are not needed.

Guclu also pointed out certain discrepancies that Turkey has noted in the measure, such as a number of Turkish companies that would not fall under the EU ETS if they were based in the EU now falling under the CBAM because they exceed the turnover threshold, even though their overall emissions are low.

This "unfairness" may need to be remedied in the future by introducing a threshold focusing on emissions rather than corporate earnings, German economic affairs and climate action ministry policy officer, Philipp Voss, conceded. Voss negotiated the CBAM at EU level on behalf of Germany.

But introducing a CO2 threshold will make the CBAM even more complicated from an administrative point of view, Voss said. The CBAM is dealt with by customs officers, who "don't know anything about carbon so far", Voss said.

The CBAM is "not complete", Voss stressed, but the measure already appears to set the right incentives. Turkey is aiming to launch its ETS next year, ahead of the CBAM's full launch in 2026 following its current transitional phase.

The CBAM has also played a role in the planned development of South Africa's carbon tax, the director of environmental and fuel taxes at South Africa's treasury, Sharlin Hemraj, said. South Africa's carbon tax, initially set at $16/t CO2, will be introduced in 2026.

Some "interesting" interactions with the CBAM might arise in the context of emerging UN-regulated carbon markets under Article 6 of the Paris climate agreement, International Emissions Trading Association council director and chief executive of Canadian climate and energy law firm Resilient, Lisa DeMarco, said.

An exporting country, or an exporter from a country with higher emissions intensity, might choose to attach internationally traded mitigation outcomes from Article 6 to a product, which the EU may or may not accept, DeMarco said. "I think we'll get some interesting trade dispute resolutions," DeMarco said.

By Chloe Jardine