Carbon Market In Türkiye And Its Potential Impacts On The Energy Sector

Carbon Market in Türkiye and Its Potential Impacts on the Energy Sector

1. Introduction

The fight against climate change has, in recent years, become a central issue not only in environmental policies but also in economic and legal regulations. One of the most important instruments of this transformation is carbon pricing mechanisms.

In line with its 2053 net-zero emission target, Türkiye is undergoing a significant policy shift towards establishing a carbon market. In this context, the national emissions trading system being developed is not merely an environmental tool; it also constitutes an economic mechanism that will transform the structure of the energy sector.

2. Historical Development of the Carbon Market in Türkiye

The development of the carbon market in Türkiye has initially taken shape through voluntary carbon markets rather than a mandatory system. As Türkiye was not fully integrated into emission trading mechanisms under the Kyoto Protocol, projects have been developed through voluntary carbon markets since 2005.

During this period, carbon credits were generated particularly through renewable energy and energy efficiency projects and were traded in international markets.

3. Legal and Institutional Framework of the Carbon Market in Türkiye

Although efforts regarding the carbon market in Türkiye have been ongoing for a long time, they have recently become more concrete both at the legislative and policy levels. In particular, with the Climate Law adopted in 2025, the legal basis for carbon pricing mechanisms has been established; subsequently, secondary regulations regarding the Emissions Trading System (“ETS”) have come to the agenda.

Under the planned system, a total emission cap will be determined for certain sectors, and emission allowances will be allocated to enterprises within this limit. The ability of enterprises to trade these allowances among themselves will enable the system to function through market mechanisms. This model envisages a structure largely aligned with the European Union Emissions Trading System (“EU ETS”).

The ETS in Türkiye is planned to be implemented gradually. In this regard, the Draft Regulation on the Emissions Trading System sets out the operational details of the system, and it is planned to be launched with a pilot phase in 2026–2027 and become fully operational as of 2028. During the pilot phase, the technical infrastructure and market behavior will be tested, followed by a transition to a fully-fledged carbon market. This approach aims to prevent sudden cost shocks, particularly in the industrial and energy sectors..

4. Economic and Structural Impacts on the Energy Sector

The energy sector is one of the areas most directly affected by carbon markets. The main reason for this is that energy production largely relies on fossil fuels and therefore has a high emission intensity.

First of all, carbon pricing will directly affect energy production costs. Electricity generation facilities using fossil fuels will be required to use allowances or purchase additional allowances to cover their emissions. This will create an additional cost item, especially for coal and natural gas power plants. In the short term, these costs are likely to be reflected in electricity prices.

At the same time, increasing carbon costs will lead to a significant competitive transformation in the energy sector. Low-carbon or zero-emission energy sources will become relatively more advantageous, and investments in these areas will accelerate. This will alter the composition of energy supply and reduce dependence on fossil fuels in the long term.

Another important impact of the carbon market will be observed in energy efficiency and technological transformation. Companies will tend to invest in more efficient production techniques, digital monitoring systems, and carbon capture technologies in order to avoid increasing carbon costs. This will promote technological modernization across the sector.

However, the obligation of facilities to monitor, report, and verify their emissions under the ETS indicates that the carbon market will not only create economic implications but also a significant compliance process. In case of non-compliance, administrative sanctions and additional costs may arise.

5. International Trade and Competition Dimension: CBAM Effect

The establishment of a carbon market in Türkiye is critical not only for domestic market dynamics but also for international trade. The Carbon Border Adjustment Mechanism (“CBAM”) implemented by the European Union imposes additional costs on imports from countries that do not have carbon pricing mechanisms.

Considering that the EU is Türkiye’s largest export market, the absence of a national carbon pricing mechanism may create a serious competitive disadvantage for Turkish producers. Conversely, the implementation of an ETS in Türkiye may reduce the costs that exporting sectors will face under CBAM and strengthen trade alignment.

In this context, the carbon market becomes not only an environmental regulation but also a strategic instrument in terms of foreign trade policy.

6. Risks and Implementation Challenges

Although the carbon market offers significant opportunities, various challenges are likely to arise during its implementation. First, fluctuations in carbon prices depending on market conditions may create predictability issues for businesses.

Moreover, increasing costs for enterprises operating in the energy and industrial sectors may create financial pressure, especially in the short term. This increases the importance of public support mechanisms and transition policies.

Technical infrastructure requirements such as institutional capacity, data monitoring, and verification systems are also critical for the effective functioning of the system. Failure to adequately prepare in these areas may undermine market credibility.

7. Conclusion and Assessment

The establishment of a carbon market in Türkiye is not merely a matter of increased costs for the energy sector but rather a process of fundamental structural transformation. With carbon pricing, emissions will gain an economic value, directly influencing production preferences.

While increases in energy costs and challenges related to the compliance process are expected in the short term, significant gains such as increased renewable energy investments, improved energy efficiency, and the preservation of competitiveness in international trade are anticipated in the long term.

In this framework, the carbon market stands out as a critical policy instrument for Türkiye both in achieving its climate targets and in realizing its economic transformation.

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