Green steel and the roadmap for low-carbon production

In this regard, the Treaty on the Functioning of the European Union (TFEU) is meaningful and valid only for EU member states. Türkiye is not a party to the TFEU; the only path to becoming a party is through full EU membership.

Through the TFEU, the EU holds exclusive competence over customs tariffs, trade defence instruments, import conditions, and measures relating to trade with third countries.

The Carbon Border Adjustment Mechanism (CBAM) is positioned at the intersection of the EU's environmental policy and foreign trade. CBAM was enacted through Regulation 2023/956, adopted under the European Green Deal and directly applicable in EU internal law.

The TFEU grants the EU authority to regulate imports. The EU Regulation on CBAM was issued based on this authority, and its scope of application is the EU customs border. Those affected by this mechanism are non-EU producer countries that sell goods to the EU. In this respect, CBAM is being effectively applied to the trade of third countries as a foreign trade condition rather than an extension of the EU's internal environmental policy. Internal market protection is achieved through foreign trade instruments. It is possible to say that the impact stems not from rules but from the market border.

This phenomenon is defined in the literature as the "Brussels Effect." The Brussels Effect refers to the phenomenon where rules that the EU legally applies only to its own internal market become de facto global standards in other countries due to the economic size and attractiveness of the EU market.

The meaning of the Brussels Effect for the iron and steel sector is clear: the carbon-intensive production model is ceasing to be a sustainable competitive advantage at the global level as long as the EU market exists. Therefore, the issue should be read from a market sustainability perspective rather than environmental sensitivity.

CBAM is a de facto trade mechanism demonstrating that competition in the iron and steel sector is being redefined through carbon costs and that access to the EU market is shaped by this practical reality.

The EU first made carbon costs mandatory in the internal market through the ETS, then prevented these costs from leaking across borders through CBAM. Thus, carbon has been transformed into a global competition parameter — through the ETS in the internal market and CBAM at the border.

The ETS (Emissions Trading System) is a market-based regulatory mechanism that ties each unit of emissions to a tradeable right, aiming to keep greenhouse gas emissions below a certain cap. For iron and steel plants, the ETS transforms carbon from an abstract environmental indicator into a direct balance sheet item.

While the ETS operates within production to turn carbon into a cost element, CBAM operates at the border to prevent this cost from being nullified through products from outside the EU. Within this integrated structure, carbon is becoming both the determinant of competition and the essential element of financial sustainability in the iron and steel sector.

The ETS redistributes competition in iron and steel not between plants but between production processes

The impact of the ETS on the iron and steel sector manifests not at the plant level but at the process level. In the blast furnace–BOF route, carbon is a chemical input of production, making emissions structural and unavoidable. In contrast, in EAF production, carbon is primarily an indirect cost element arising from electricity generation. Therefore, while the ETS structurally makes BOF production more expensive, it creates a manageable and optimisable cost area for EAF production.

The critical threshold of Türkiye's EAF advantage is the electricity mix

Türkiye's EAF-dominated iron and steel production structure initially offers a significant competitive advantage in the global trade order transitioning to the ETS–CBAM regime; however, this advantage is neither automatic nor permanent. The low-carbon production potential of EAF is driven not directly by the production process but essentially by the carbon intensity of the electricity used. As long as the electricity generation mix maintains a fossil fuel dominance, indirect emissions from EAF plants increase and this advantage gradually weakens in terms of CBAM calculations.

Competitive advantage cannot be maintained in a trade regime where carbon cost is priced at the border

Therefore, the sustainability of Türkiye's EAF superiority depends on: securing access to green electricity, managing carbon costs within a predictable national ETS framework, and addressing the scrap supply chain together with its carbon footprint. Otherwise, even if EAF is technically on the right side, it cannot maintain competitive advantage in a trade regime where carbon cost is priced at the border.

"CBAM should be evaluated along the axes of competitiveness, current account balance, and industrial policy"

Iron and steel sector actors formulate their demands regarding the electricity mix threshold not as an environmental expectation but as a strategic infrastructure necessity for export sustainability under CBAM. This approach signals that the issue should be evaluated not solely under energy or environmental policy headings but along the axes of competitiveness, current account balance, and industrial policy.

Green transition and carbon regulations in the iron and steel sector must now be addressed by thinking together about market access, competitiveness, and long-term industrial policy — not just under the heading of compliance. In this framework, opening space for discussions fed by the sector's own internal dynamics, on technically and legally solid ground, is important both for producers to position themselves correctly and for Türkiye to demonstrate that it is addressing this transformation within a rational framework.