Legal Framework Of The Emissions Trading System In Turkey And An Assessment On The Draft Regulation

Introduction

The fight against climate change has, today, gone beyond environmental policies and become an issue at the core of economic and commercial regulations. Within the scope of international policies aimed at reducing greenhouse gas emissions, carbon pricing mechanisms are becoming increasingly widespread; in particular, many countries, led by the European Union, aim to control emissions through market-based instruments. Emissions Trading Systems (“ETS”), one of the most common examples of these instruments, encourage the transition to low-carbon production by enabling the management of carbon emissions through an economic value.

In Türkiye, the legal infrastructure of climate policies has reached an important stage with the entry into force of the Climate Law. Following this development, the Draft Regulation on the Turkish Emissions Trading System (“Draft”), prepared by the Directorate of Climate Change, was presented to public opinion in the Official Gazette dated July 9, 2025 as the first comprehensive secondary legislation for the establishment of a carbon market. The said Draft aims to determine the procedures and principles regarding the establishment of a national carbon pricing mechanism in Türkiye and sets forth the implementation framework of the emissions trading system.

Objectives and Purpose of the Draft

Beyond being merely a technical regulation, the Draft is considered an important part of Türkiye’s green transformation strategy. Draft aims to establish an integrated structure by combining existing practices regarding the monitoring, reporting and verification of greenhouse gas emissions with a carbon pricing mechanism. Accordingly, it is envisaged that the emission monitoring and reporting processes, which have been implemented for a long time, will be integrated within the same system together with market-based carbon pricing instruments.

Relationship with European Union Legislation

Another important aspect of the Draft regulation is its aim to strengthen Türkiye’s alignment with international climate policies. Within the scope of the Carbon Border Adjustment Mechanism (“CBAM”) introduced by the European Union, the establishment of a national emissions trading system is of critical importance in reducing the financial burdens that companies operating in carbon-intensive sectors may face. In this context, an ETS to be established in Türkiye is expected to enable the pricing of carbon costs domestically, thereby both preserving the competitiveness of export-oriented sectors and contributing to the financing of green transformation investments.

Phased Transition Process

On the other hand, the regulation envisages that the national emissions trading system will be implemented within the framework of a phased timeline. Accordingly, in the first stage of the system, a pilot period will be applied; during this period, free allocation mechanisms and market functioning will be tested. Following the pilot phase, it is planned to move to the implementation period in which the system will become fully operational. This approach aims to facilitate the adaptation of both regulatory authorities and obligated installations to the system.

Key Provisions of the Draft

• Scope of the ETS: Pursuant to the Draft, the ETS is designed to cover Category B installations (installations with annual emissions, calculated prudently based on installed capacity, exceeding 50,000 tons of CO₂ (eq) and equal to or less than 500,000 tons of CO₂ (eq), including transferred CO₂ but excluding CO₂ originating from biomass) and Category C installations (installations with annual emissions, calculated prudently based on installed capacity, exceeding 500,000 tons of CO₂ (eq), including transferred CO₂ but excluding CO₂ originating from biomass). However, certain installations belonging to public institutions and organizations are excluded from the scope of the system. Institutions, campuses, headquarters, and facilities belonging to schools, universities and hospitals, as well as defense industry organizations, are excluded from the scope of the ETS, limited to their respective activities. On the other hand, if an installation covered by the ETS subsequently falls outside the scope, such installation shall continue to be subject to ETS obligations until the end of the system year in which the change occurs. This regulation aims to preserve the annual integrity of the system.
• Greenhouse Gas Emission Permit: Within the scope of the Draft, it is mandatory for operators included in the ETS to obtain a greenhouse gas emission permit from the Directorate of Climate Change in order to continue their activities. This permit constitutes a fundamental prerequisite for operators to carry out activities that result in greenhouse gas emissions. The Draft also includes detailed provisions regarding the application procedures for emission permits, their validity periods, renewal, amendment, and revocation. In this context, the emission permit mechanism is structured as one of the core administrative tools of the ETS.
• ETS Cap and Allocation: The Draft also regulates the cap and allocation mechanism, which form the basis of the emissions trading system. Accordingly, the total amount of emissions determined under the ETS will be based on an emissions intensity approach. The determined cap will be announced in the Official Gazette through the National Allocation Plan following the submission of verified greenhouse gas emission reports for the relevant system year. Emission allowances created within this cap will be issued and placed on the market through the Registry System.
• Functioning of the ETS Market: The Draft also includes provisions regarding the market dimensions of the emissions trading system. Accordingly, allowances will be offered for sale in the primary market in accordance with the auction schedule determined and announced by the Authority. Following the publication of the National Allocation Plan, the auction calendar is expected to be announced to the public and market participants. In addition, secondary markets will be established where market participants may carry out the purchase and sale of allowances. Through these markets, allowances may be traded continuously.
• Registry System: Under the ETS, transactions such as the issuance, holding, transfer, surrender and cancellation of allowances will be carried out through the Registry System. This system is designed as a central infrastructure to ensure that the ETS market operates in a transparent and traceable manner. It is envisaged that a separate account will be opened in the name of each operator for each installation on this system, and operators will carry out their transactions for the installations under their responsibility through these accounts.
• Institutional Structure: The Draft regulates not only the market mechanisms but also the administrative structure of the system. In this context, institutional bodies such as the Carbon Market Board and the Advisory Board are envisaged in order to monitor the functioning of the carbon market and contribute to policy-making processes.
• Monitoring, Reporting and Verification Processes: The Draft also includes comprehensive provisions regarding the monitoring, reporting and verification of greenhouse gas emissions. Within this framework, installations carrying out certain activities are required to regularly monitor, report and undergo independent verification processes with respect to their emissions. This mechanism is considered one of the fundamental elements of ensuring the effective and reliable functioning of the ETS.
• Sanctions: Various sanctions are also envisaged in case of violation of the obligations set forth under the Draft. Accordingly, administrative fines ranging from TRY 500,000 to TRY 7,000,000 may be imposed on operators acting in breach of the legislation. It is understood that this sanction mechanism is designed to ensure the effectiveness of the system and to encourage compliance with obligations.

Assessment and Conclusion

The Draft constitutes a significant step towards the establishment of a carbon market in Türkiye. With the Draft, it is aimed to complement the current system, which has so far been limited to the monitoring and reporting of greenhouse gas emissions, with a market-based mechanism that also includes carbon pricing. This approach is expected to provide an institutional foundation for Türkiye’s transition to a low-carbon economy in line with its 2053 net zero emission target.

From an industrial perspective, the ETS stands out as a regulation that may impose new costs and compliance obligations, particularly for enterprises operating in energy-intensive sectors. However, by establishing a market mechanism that incentivizes emission reductions, the system may also create a competitive advantage for enterprises that invest in clean technologies and reduce their emission intensity. In this respect, it appears that the ETS is designed not as a tool restricting industrial production, but rather as a policy instrument encouraging a transformation towards increased efficiency in production processes and reduced carbon intensity. On the other hand, the establishment of a national emissions trading system is also of strategic importance in terms of reducing the costs that Turkish industry may face under the European Union’s CBAM. The implementation of carbon pricing in Türkiye may enable at least part of carbon costs to be priced domestically and allow these resources to be used in financing green transformation investments.

In this context, the Draft sets forth the legal framework for the establishment of a carbon market in Türkiye and signals the beginning of a new period that will require the close monitoring of compliance processes and implementation mechanisms by both regulatory authorities and industrial organizations in the coming period.

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