Executive Summary
This report provides a quantitative analysis of the financial impact of the EU's Carbon Border Adjustment Mechanism (CBAM) on Turkey's steel and cement sectors. Key findings:
- Turkey is the third-largest source of EU steel imports and the second-largest source of cement imports
- CBAM costs range from EUR 30 to 70 per tonne across different EU ETS price scenarios
- The steel sector faces an estimated EUR 400-900 million annually, while cement faces EUR 80-180 million
- Electric arc furnace (EAF) based steel production has a significant cost advantage over blast furnace (BOF) production
- A national carbon pricing mechanism has the potential to significantly reduce CBAM costs
Turkey's Steel and Cement Exports to the EU
Steel Sector
Turkey is one of the world's largest steel producers. According to the World Steel Association, Turkey produced approximately 33.7 million tonnes of crude steel in 2023 (World Steel Association, 2024). The EU is one of the most important markets for Turkish steel exports.
A structural advantage of the Turkish steel sector is that the majority of production takes place in electric arc furnaces (EAF). According to the Turkish Steel Producers Association (TCUD), approximately 70 percent of Turkish steel production is EAF-based (TCUD, 2024). EAF production has significantly lower direct CO2 emissions per tonne compared to integrated blast furnace production.
Cement Sector
Turkey is one of the world's largest cement producers, and the EU market is an important export destination. According to the Turkish Cement Manufacturers' Association (TCMA), the sector ranks among the global top ten by annual production capacity (TCMA, 2024).
Cement production is inherently carbon-intensive due to chemical process emissions (clinker calcification). Reducing these emissions is technically more challenging compared to the steel sector.
CBAM Cost Estimation Methodology
Calculation Framework
CBAM cost is calculated as:
CBAM Cost = Embedded Emissions (tCO2) × CBAM Certificate Price (EUR/tCO2)
The CBAM certificate price is linked to the weekly average of EU ETS allowance prices (Regulation 2023/956, Article 21).
Emission Intensity Values
| Product | Production Method | Emission Intensity (tCO2/tonne product) |
|---|---|---|
| Crude steel | Blast furnace (BOF) | 1.8 - 2.2 |
| Crude steel | Electric arc furnace (EAF) | 0.4 - 0.8 |
| Cement (clinker) | Conventional | 0.6 - 0.9 |
| Cement (blended) | Low clinker ratio | 0.4 - 0.6 |
According to the World Steel Association's CO2 data collection methodology, EAF-based production averages 0.6 tCO2/tonne, while BOF-based production averages 2.0 tCO2/tonne emission intensity (World Steel Association, 2024).
Price Scenarios
| Scenario | EU ETS Price (EUR/tCO2) | Description |
|---|---|---|
| Low | 50 | Lower bound under current market conditions |
| Base | 75 | 2024-2025 average price range |
| High | 100 | Potential increase aligned with EU climate targets |
Steel Sector: Cost Analysis
Scenario-Based Cost Estimates
Assuming Turkey's annual steel exports to the EU of approximately 8-10 million tonnes (TurkStat, 2024):
| Scenario | EAF Steel (per tonne) | BOF Steel (per tonne) | Total Sector (annual) |
|---|---|---|---|
| Low (EUR 50) | EUR 30 | EUR 100 | ~EUR 400M |
| Base (EUR 75) | EUR 45 | EUR 150 | ~EUR 600M |
| High (EUR 100) | EUR 60 | EUR 200 | ~EUR 900M |
Turkish Steel's Competitive Advantage
The EAF-dominated structure of the Turkish steel sector represents a significant advantage in the CBAM context. At the same EU ETS price, the CBAM cost for Turkish EAF steel can be as low as one-third of Indian or Russian BOF steel. This is a structural advantage that no amount of process optimization can replicate in BOF-dominant steel industries.
To quantify this advantage at the base case (EUR 75/tCO2):
| Competitor Country | Dominant Method | CBAM Cost/tonne | vs. Turkish EAF |
|---|---|---|---|
| Turkey (EAF) | EAF | EUR 45 | Reference |
| EU (internal) | Mixed | EUR 75 (via ETS) | +67% |
| Russia | BOF | EUR 158 | +251% |
| India | BOF | EUR 165 | +267% |
| China | BOF | EUR 150 | +233% |
| Brazil | Mixed (high EAF) | EUR 68 | +51% |
Turkish EAF steel is the lowest-cost option for EU importers under CBAM — but this advantage has a critical dependency.
The Grid Emission Factor: Protecting the Advantage
The EAF advantage depends on Turkey's electricity generation mix. EAF production consumes approximately 400-550 kWh per tonne of steel. With Turkey's current grid emission factor of approximately 0.45 kgCO2/kWh, each tonne of EAF steel carries approximately 0.18-0.25 tCO2 in indirect (electricity-related) emissions.
Under the CBAM Regulation, indirect emissions are included for certain products including steel and aluminium. This means the grid emission factor directly impacts CBAM costs for EAF producers.
Turkey's grid is decarbonizing — renewable energy capacity has grown significantly in recent years, with solar and wind installations accelerating. Every reduction in the grid emission factor automatically reduces the CBAM cost for EAF steel exports. Conversely, any increase in coal-based power generation would erode the EAF advantage.
For individual facilities, corporate PPAs (Power Purchase Agreements) with renewable energy generators offer a way to reduce facility-specific indirect emissions below the grid average — potentially achieving near-zero indirect emissions for CBAM purposes. The Commission's CBAM guidance document specifies conditions under which contractual electricity sources can be used instead of grid averages (European Commission CBAM Guidance, 2024).
Cement Sector: Cost Analysis
Scenario-Based Cost Estimates
Assuming Turkey's annual cement and clinker exports to the EU of approximately 3-4 million tonnes:
| Scenario | Clinker (per tonne) | Blended Cement (per tonne) | Total Sector (annual) |
|---|---|---|---|
| Low (EUR 50) | EUR 40 | EUR 25 | ~EUR 80M |
| Base (EUR 75) | EUR 60 | EUR 38 | ~EUR 130M |
| High (EUR 100) | EUR 80 | EUR 50 | ~EUR 180M |
Cement Reduction Levers
Limited but effective levers exist for reducing emission intensity in the cement sector:
- Reduce clinker ratio: Lower the clinker share in cement blends using alternative binders
- Alternative fuels: Substitute fossil fuels with biomass or waste-derived fuels
- Energy efficiency: Investments in kiln and grinding process efficiency
- Carbon capture: CCS/CCUS technologies in the long term (not yet widely commercial)
Carbon Pricing and CBAM Interaction
Turkey's planned ETS under Climate Law 7552 will directly impact CBAM costs. According to the CBAM Regulation (Article 9), the carbon price paid in the country of origin can be deducted from CBAM certificate costs (European Parliament and Council, 2023).
CBAM cost scenarios if Turkey has a functioning ETS:
| Turkey ETS Price | CBAM Net Cost (Base EU ETS: EUR 75) | Savings Rate |
|---|---|---|
| None | EUR 75/tCO2 | 0% |
| EUR 25/tCO2 | EUR 50/tCO2 | 33% |
| EUR 50/tCO2 | EUR 25/tCO2 | 67% |
| EUR 75/tCO2 | EUR 0/tCO2 | 100% |
This table clearly demonstrates the strategic importance of national carbon pricing for exporters.
OECD and International Perspective
The OECD Steel Committee has highlighted the potential of carbon border measures to reshape global steel trade (OECD, 2023). As the most comprehensive instrument combining the EU's climate targets with trade policy, CBAM is also paving the way for other countries to consider similar mechanisms.
JRC (European Commission Joint Research Centre) technical reports indicate that default emission values are calculated from sectoral averages and that using actual facility data would result in lower CBAM costs in many cases (JRC, 2023).
Conclusions and Recommendations
Short-Term Actions (0-12 months)
- Conduct facility-level emissions inventories and compare with EU methodology — the gap between actual data and default values represents immediate cost savings
- Establish proactive data sharing protocols with EU importers — a standardized data package demonstrating verified low-emission production creates commercial advantage
- Integrate CBAM cost impact into financial planning — model base, low, and high EU ETS price scenarios against export volumes
- Contract with an accredited CBAM verifier early — capacity is limited and demand is growing
Medium-Term Actions (1-3 years)
- Accelerate energy efficiency investments — waste heat recovery, process optimization, and motor replacement projects with 1-3 year payback
- Sign renewable energy PPAs — for EAF steelmakers, renewable PPAs can reduce indirect emissions and further strengthen the CBAM cost advantage
- Expand low-clinker product portfolio in the cement sector — shifting from CEM I to CEM II and CEM III products can halve cement CBAM costs per tonne
- Monitor TR-ETS developments and prepare for carbon price deduction — once operational, every Euro of Turkish carbon price reduces CBAM costs
Long-Term Strategic Planning (3-10 years)
- Develop a decarbonization roadmap aligned with SBTi — setting science-based targets signals commitment to international customers and investors
- Evaluate transformative technologies — hydrogen-based DRI for steel (potential 90%+ emission reduction), CCS for cement (addressing unavoidable process emissions)
- Integrate EU ETS price trends into strategic portfolio planning — the structural trend is toward higher carbon prices, making early decarbonization investments increasingly valuable over time
- Position for a post-CBAM world — as more countries adopt carbon border measures (UK CBAM, Canada CBAM considerations), low-emission production capacity becomes a universal export advantage, not just an EU-specific one