The New Rules of the Game

It is a well-known behavior that countries start to pay more attention to the environment in addition to the economy in parallel to the increase of their level of development. Since the votes of the political parties, which attach more importance to environmental policies, have increased, the European Union has begun to put more weight on environmentally friendly production within its economic policy. This new production and consumption style friendlier to nature is primarily defined as a system respecting the boundaries of nature. The scientific basis of this definition was the Planetary Boundaries study published by the Stockholm Resilience Center in 2009, led mainly by European scientists. According to this study, the sustainable development of humanity was only possible if these limits were respected. The developments around this work have started to be implemented in all manufacturing and consumption sectors in Europe.

As the European Union tightened the rules on the environment, companies forced by these rules began to either move production outside of Europe or directly import products produced outside of Europe. Of course, economy and production costs play a significant role as well. Turkey also benefited greatly from this change with its proximity to Europe, and the exports to Europe with the Customs Union accounted for nearly half of all the exports.

It goes without saying that this behavior is also due to the long-term work of Western environmental organizations. The production sector, which continues to be structured in this way, also enabled the greenhouse gas emissions in the European Union to decrease quite rapidly when compared with other regions globally. Of course, the illogicality of the calculation method here is the most important part of this reduction. The greenhouse gas calculation method we use today focuses on who emits how much, rather than who causes how much emissions. In other words, if we gather all heavy industry sectors in a single country and use the products produced in that country, elsewhere, that single country could be seen as the only criminal in the world and the rest of the countries could be seen as innocent in such a calculation method.

However, the consumer, who has become increasingly more conscious in Europe (and perhaps in other developed nations as well), was disturbed by the fact that the environmental limits are tried to be protected only by the products made in Europe, but the same attention is not given to the products imported from other countries. At the same time, since the cost of production that respects these limits is borne by European manufacturers, and as this may cause Europe to lag behind economically, the European Union has found a solution that these limits are to be complied with both in domestic production and in imports. The principle we call the EU Green Deal is based on production in accordance with the limits of the planet at all production locations. In the background, it is a serious change in mentality to calculate environmental damage based on consumption rather than on production. If you are incurring environmental costs in your production stream regardless of whether that product is produced in the EU or Vietnam it does not make any difference for the end-user who consumes the product in Amsterdam. This new mentality, which is formed due to both environmental and economic pressure, will gradually begin to affect global trade in this decade.

Climate change is the most critical of the limits determined in the 2009 study, and the one that is most tightly controlled with international agreements. Therefore, the carbon footprint of the products produced both in Europe and in all other countries that have trade relations with the EU must be determined. With the implementation of a carbon tax at the border, the EU is trying to balance the greenhouse gas difference between domestic production and imports. However, this is only the first of the environmental issues to be addressed within the framework of the EU Green Deal.

Other than climate change, in the next 10 years, water footprint, land use, chemicals that may harm nature or humans, chemicals that may harm the ozone layer, impact on biodiversity, use of fertilizers and chemical pesticides, and causing air pollution will also be included in the Green Deal and possibly within the framework of a border tax. While it is sufficient to attach a laboratory report to the products that are currently exported today, it will be necessary to certify that these productions are produced by paying attention to the above-mentioned factors in the near future.

For this reason, it is very useful for the producers outside of the EU to be able to predict the regulations that will be necessary for their production before serious restrictions start to be implemented by measuring the environmental footprint as well as the carbon footprint of their products and services. The EU Green Deal can be expected to spread to other countries in a short time because the only element that currently prevents these rules to be employed is the World Trade Organization. As soon as the World Trade Organization accepts the protection of the borders for sustainable development, all countries that want to protect their own economies can quickly put into effect similar protectionist systems. Therefore, it is necessary to start working on this path by accepting that the Green Deal is not just a carbon tax, but covers all environmental issues so far neglected as externalities.

Although we consider the Conference of the Parties to the Framework Convention on Climate Change (COP) as the most important climate meeting of the year, in fact, an even more important "climate meeting" is the World Economic Forum held in Davos at the beginning of the year. Before the World Economic Forum meetings, the Global Risk Report, which consists of elements that may pose a threat to the economy, is published. When this report was first published in 2007, it listed the most important threats as infrastructure collapse, chronic diseases, and rising oil prices. Last year, this ranking turned into extreme weather events, inaction in the face of the climate crisis, and natural disasters. In other words, the world of finance today is much more sensitive to environmental problems than a decade ago. For this reason, at this year's World Economic Forum meetings, we should not be surprised if an addition to the WTO rules is seriously discussed. WTO may later consider protection against goods and services that cause environmental damage, not as economic protectionism. Therefore it may soon be possible for countries to easily implement Border Carbon Tax-like applications.

The economy, which sees the environmental problems it has created as an externality, has still not changed its view. But now the environmental problems we have, are more likely considered as a serious cause of damage to the global economy. That's why it seems that sustainability, or at least environmental sustainability, that we've been circling around for years, will soon be included in the actual game. So far, most companies have prepared sustainability reports and mostly said afterward, "well, what are we going to do with this now?" It would be beneficial to take those sustainability reports off the shelf and examine them carefully. Those reports tell us what we did last year, not what we should do next year. However, it is impossible to move forward without a proper understanding of where we are. Therefore, no matter which industry or business you are in, in the very short term you have to start playing the game with these new rules. Especially if you want to export the goods or services you produce.