Difference in climate policies of countries/regions and also difference in the level of carbon prices lead to carbon leakage risk. To address and eliminate this risk, European Union (EU) proposed carbon border adjustment mechanism (CBAM) firstly in European Green Deal in 2019 and European Parliament approved CBAM in June 2022. By considering the important trade volume of Turkey with EU, effects of CBAM on Turkish economy and carbon-intensive exporter sectors will be important. Although the impact of carbon pricing on national economies are widely researched, there are very few studies focused on carbon pricing in Turkey. In our study, 2019 social accounting matrix (SAM) of the Turkish economy is constructed; carbon cost is found with input-output model and potential impacts of CBAM are investigated by using SAM multipler analysis. It is found that Turkish exports to the EU in 2019 contained 39.6 Mt CO2e emissions; 15 Mt CO2e of scope 1, 10.9 Mt CO2e of scope 2 and 13.7 Mt CO2e of scope 3. Carbon cost of CBAM on the Turkish exporters, under three carbon price scenarios (45€-71€-100€/tCO2e), is found as €1.8-€2.8-€4 billion annually and calculated carbon costs constitute 2.1%, 3.4% and 4.8% of total export revenues, respectively. Decrease in sectoral exports by the amount of respective carbon cost is given as an exogenous shock and SAM multiplier analysis is carried out to examine the effects of this shock on GDP, sectoral outputs, and demand. Moreover, coverage of freely allocated emissions under CBAM are also evaluated and results are discussed from the perspective of free allocation.

This is a joint work with Prof. Ebru Voyvoda and Dr. Bora Kat.