"Carbon trading," also known as "emissions trading," refers to the trading of emission allowances granted to operators for greenhouse gas emissions within carbon markets. Operators become "system participants" upon completing the registration process under the emissions trading system ("ETS"). System participants acquire greenhouse gas emission allowances through auctions, under the scheme referred to as "allocation," which constitutes the primary carbon market. The allowances obtained through auction by operators are then subject to commercial transactions between operators via bilateral agreements; this constitutes the secondary carbon market. Together, the primary and secondary carbon markets form the "carbon markets." The mechanism that governs these markets is referred to as the Emissions Trading System, and it is operated by the Energy Markets Operation Joint Stock Company ("EPIAS") in Turkiye; accordingly, EPIAS is referred to as the market operator.
In this regard, the ETS is a market-based environmental policy instrument developed for the purpose of limiting greenhouse gas emissions. The regulations envisaging the carbon trading market in this manner have not yet entered into force in Turkiye.
1. Pilot Phase of the Emissions Trading System in Turkiye
In Turkiye, the legal framework concerning emission reduction and carbon trading continues to evolve within the scope of national legislation. In this context, the pilot phase of the ETS is expected to be implemented in 2025, with the aim of reducing carbon emissions and ensuring sectoral alignment.
2. The Paris Agreement and Turkiye's Commitments: The 2053 Net-Zero Carbon Target
The ETS is a mechanism that imposes an upper limit on greenhouse gas emissions and enables the trading of emission allowances allocated within this limit. While restricting the total amount of emissions nationwide within a certain framework, the system allows companies and institutions to transfer emission rights through trading. Under the quotas set for each unit of emission, entities that exceed their emission allowances may purchase rights from low-emission entities to achieve balance. In this manner, the reduction of greenhouse gas emissions is encouraged through market mechanisms, and emission control is ensured with due regard to economic efficiency. Within this framework, a series of regulations are being enacted to establish the legal infrastructure of the ETS.
The Paris Agreement, adopted in 2015 at COP21 (the 2015 United Nations Climate Change Conference), aims to reduce global greenhouse gas emissions and enhance socioeconomic resilience against climate change. Turkiye ratified the Paris Agreement by Presidential Decision dated 7 October 2021 and has declared its target of achieving net-zero carbon emissions by 2053.
The Climate Change Presidency was established under the Ministry of Environment, Urbanization and Climate Change by Presidential Decree No. 85 dated 29 October 2021. The Energy Market Regulatory Authority ("EMRA") established the Department of Energy Transition in 2022, initiating certification and regulatory processes concerning emission reductions. For instance, the Charging Services Regulation, which entered into force on 2 April 2022, set forth the principles for the development of electric vehicle charging infrastructure and constitutes a significant regulation aimed at reducing carbon emissions from vehicle fuels, which represent one of the largest sources of carbon emissions.
3. Draft Regulation on the Emissions Trading System: 2023
The Draft Regulation on the Operation of Carbon Markets, prepared and to be implemented by the EMRA, was opened for public consultation in 2023, and its development process is planned to be completed by 2026. This draft regulation aims to establish the legal framework of Turkiye's ETS and to define the principles governing the functioning of the system.
The pilot phase is a critical stage for testing the ETS before its full implementation and for making the necessary regulatory adjustments. Finalization and publication of the draft regulation will provide the required legal basis for initiating the pilot phase. Furthermore, the Climate Law currently under consideration by the Grand National Assembly holds significant importance in laying the legal groundwork for the ETS. In this context, with the clarification of developments, the pilot phase is expected to commence within the year 2025 and to last for a minimum of two years. The necessity of a pilot phase lasting at least two years is being emphasized during the transitional period. Following the pilot phase, the first implementation phase is targeted to begin in 2026. During this process, the purpose of the pilot phase is to assess the effectiveness of the system and to identify any potential shortcomings, thereby enabling the necessary improvements. In this way, a smooth transition to the full implementation phase of the ETS is intended to be achieved.
The key milestones regarding the initiation of the pilot phase and the transition to the implementation phase were outlined in the presentations made by the National Carbon Pricing Specialized Working Group in 2024 as follows:
- 15 October 2024: Publication of the 2025 National Allocation Plan in the Official Gazette, marking the beginning of the pilot phase (As of the date of publication of this text, the pilot phase has not yet commenced and has been deferred to 2025);
- 1 January 2026: Commencement of financial obligations under the European Union's Carbon Border Adjustment Mechanism (CBAM);
- 15 October 2026: Conclusion of the pilot phase and commencement of the first implementation phase;
- 30 June 2035: Termination of the first implementation phase upon the submission of allowances to the Climate Change Presidency in an amount equivalent to the emissions reported for the year 2034.
However, given that the pilot phase has been deferred to the year 2025 and had not yet commenced as of the date of publication of this document, it can be asserted that the previously announced schedule has been postponed accordingly.
4. Emissions Trading System and Carbon Pricing Mechanisms
The emissions trading system comprises two fundamental components of carbon pricing: the ETS and the Carbon Tax mechanisms.
i. Emissions Trading System
The ETS establishes an upper limit on greenhouse gas emissions for facilities operating in certain sectors and allows for the buying and selling of emission allowances (allocations) within this limit. Under this system, the total volume of emissions is capped nationwide, and a specific amount of emission allowances is allocated to operators. Operators may sell any surplus allowances in the market if they reduce their emissions or, subject to applicable conditions, purchase additional allowances if they exceed their emission limits. This mechanism incentivizes operators to reduce emissions and provides market-based flexibility.
ii. Carbon Tax
The carbon tax is a tool referred to among carbon pricing mechanisms in the draft Climate Law; however, its specific details have not yet been regulated within the draft. As envisaged, the carbon tax imposes a direct cost on carbon emissions resulting from the combustion of fossil fuels. This tax is applied to fuels based on their carbon content and aims to encourage operators to transition to cleaner energy sources. The carbon tax functions as an economic incentive for emission reductions while also contributing to the national budget.
With the implementation of the ETS, specific emission quotas will be allocated to industrial facilities and such allocations will be distributed by the Ministry of Environment, Urbanization and Climate Change. These emission quotas may be purchased through auctions or from the spot market by EPIAS, as regulated by the EMRA. Greenhouse Gas Emission Reports, verified by independent auditors, will serve as one of the fundamental data sources for monitoring compliance with emission reduction targets.
Moreover, in cases where the emission limits established under the ETS are exceeded, the imposition of an additional carbon tax is being planned. Final decisions regarding the operation of the carbon pricing mechanism are expected to be made by the relevant regulatory authorities.
In light of the foregoing, efforts to establish the ETS and carbon pricing mechanisms in Turkiye are ongoing, and the enactment of the relevant regulations is being planned.
5. Sectoral Implementations and Transformations
During the ETS pilot phase, various sector-specific implementations have been introduced to support emission reduction:
Transportation: The use of electric vehicles and energy-efficient public transportation systems is being promoted.
- Regulation on Electric Vehicle Charging Services (entered into force on 2 April 2022)
Industry and Energy: The transition to clean energy is being accelerated through solar power plants (SPPs) and wind power plants (WPPs). The "netting model" enables the consumption of renewable energy generated in one region to be offset in another.
- Regulation Amending the Regulation on Licensing in the Electricity Market (dated 17 December 2024)
Buildings and Infrastructure: Energy-efficient building projects and green certification systems are being expanded.
- Regulation on the Procedures and Principles for the Certification of Sustainable Green Buildings and Sustainable Settlements (dated 8 December 2014)
Energy Balancing: The aggregator license has been developed to ensure the balance between energy generation and consumption.
- Regulation on Aggregator Activities in the Electricity Market (dated 17 December 2024)
- Regulation Amending the Regulation on Balancing and Settlement in the Electricity Market (dated 17 December 2024, effective as of 1 January 2025)
- Regulation Amending the Regulation on Ancillary Services in the Electricity Market (dated 17 December 2024, effective as of 1 March 2025)
6. Conclusion and Evaluation
Turkiye has been progressively strengthening its policies and legal framework aimed at reducing emissions. The successful implementation of the ETS pilot phase is of critical importance for the future of the carbon market. The National Emissions Trading System is expected to commence its pilot implementation in 2025, and upon the completion of carbon pricing mechanisms, the effectiveness of the applications is anticipated to increase, along with the introduction of various accompanying regulations.
References:
- Draft Climate Law – Turkish Grand National Assembly website
- Green Deal Action Plan – Ministry of Trade website (https://ticaret.gov.tr )
(https://ticaret.gov.tr/data/60f1200013b876eb28421b23/MUTABAKAT%20YE%C5%9E%C4%B0L.pdf)
- Climate Council Report 2022 – Ministry of Environment, Urbanization, and Climate Change
(https://iklim.gov.tr/db/turkce/dokumanlar/iklim-surasi-3135-20241024123150.pdf )
- Climate Council Commission Advisory Decisions 2022 – Ministry of Environment, Urbanization, and Climate Change
(https://www.csgb.gov.tr/Media/xnylrhpr/iklim-%C5%9Furas%C4%B1-sonu%C3%A7-bildirgesi.pdf )
- National Carbon Pricing Specialized Working Group Meeting Presentations (https://iklim.gov.tr/db/turkce/haberler/files/Sunumlar.rar)
- Draft Regulation on the Operation of Carbon Markets – Energy Market Regulatory Authority website
(https://www.epdk.gov.tr/Detay/Icerik/4-13184/karbon-piyasalarinin-isletilmesine-iliskin-yonetm)
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