A. Intro
The control of greenhouse gas emissions has, in recent years, become one of the core instruments in combating climate change and has been placed at the center of environmental and energy policies in many countries. In this context, carbon pricing mechanisms have assumed a strategic role in the integration with global climate policies. Many countries, particularly the European Union ("EU"), have been reinforcing their regulatory frameworks in this field through market-based instruments such as the Emissions Trading System ("ETS"). Türkiye has joined this transformation by laying the groundwork for a carbon pricing system through the Climate Law No. 7552 ("Law"), and, accordingly, the Turkish Emissions Trading System Draft Regulation ("Draft") has been prepared by the Climate Change Presidency and submitted for public consultation until 4 August 2025. While the Draft sets out the implementation principles regarding the ETS, it also includes both the technical infrastructure concerning the functioning of the national carbon market and the instruments aimed at ensuring alignment with the EU Carbon Border Adjustment Mechanism ("CBAM").
In this regard, the legislative approach outlined in our previous work titled "What Does the Draft Climate Law Introduce?" (*see also: https://kesikli.com/news-insight/2025-05-05-what-does-the-draft-climate-law-introduce/* ) is carried to a more concrete policy plane through this Draft Regulation. This assessment examines the scope, legal basis, and implementation tools of the Draft, and, taking into account its relationship with the Law, addresses the legal and structural steps Türkiye is taking in building a carbon market.
B. Scope of the Draft
The Draft sets out the procedures and principles regarding the monitoring, reporting, and verification ("MRV") of greenhouse gas emissions, the issuance of emission permits, the establishment and operation of the national ETS, the institutional structure relating to market operations, and the duties and responsibilities of natural and legal persons as well as the competent authorities within this framework.
C. Scope of the ETS and Emission Permits
Pursuant to the Draft, the Türkiye ETS ("TR-ETS") covers Category B and C facilities, aiming to prioritize the inclusion of high carbon-intensity activities in the market mechanism. Category B refers to facilities—excluding CO₂ from biomass but including transferred CO₂—with prudently estimated annual emissions exceeding 50,000 tons and up to 500,000 tons of CO₂ equivalent (CO₂(e)), based on installed capacity; whereas Category C refers to facilities—again excluding CO₂ from biomass but including transferred CO₂—whose prudently estimated annual emissions exceed 500,000 tons of CO₂(e), also based on installed capacity. Facilities providing public services, such as schools, universities, hospitals, and defense industry institutions, are excluded from the scope, but only to the extent of their respective activities. Facilities falling under the scope of the ETS are required to obtain an emission permit from the Climate Change Presidency in order to conduct activities that cause greenhouse gas emissions. Although the application is submitted per facility, in cases where multiple facilities are operated at the same address, a single permit will be issued. The application fee will be determined annually by the Climate Change Presidency, taking into account the type of activity and the the volume of emissions. The application process will be conducted electronically. The Presidency may request additional information and documentation during the application process, and may grant a period of up to three months to address any deficiencies. Applications are to be reviewed within a maximum of 60 days, and, if approved, the emission permits will be valid for five years from the date of issuance. At the end of this period, businesses must apply for renewal at least six months in advance. Significant changes under the emission permit—such as a change in activity type, capacity, or permit holder—are subject to notification obligations and will be updated in accordance with procedures set by the Presidency. In cases such as providing deliberately misleading information or documentation, cancellation of the facility's license, termination of operations, or failure to meet the delivery obligation, the emission permit may be revoked. Furthermore, facilities exiting the ETS scope must continue to fulfill their obligations until the end of the system year in which the change occurs, although they may request cancellation of their operating permits.
D. Allocation Regime
Articles 11 to 16 of the Draft regulate the allocation regime concerning greenhouse gas emissions within the scope of the TR-ETS and the procedures and principles governing the operation of this regime. The fundamental determining factor in the system operation is the national greenhouse gas emissions cap set for each system year. This cap is determined by the Presidency of Climate Change and represents the total amount of greenhouse gases that facilities covered by the system may emit within a calendar year. The cap determination will be principally based on an emission intensity-based allocation approach. This approach, also known as the benchmarking allocation method, calculates the amount of emission allowances allocated to a facility by considering the type of activity of that facility and the average greenhouse gas emissions per unit of production related to that activity.
In line with the determined cap, emission allowances (emission rights) are allocated to facilities, issued through the Transaction Registry System, and offered to the market either via auction in the primary market or free of charge. The process and implementation methods for the offering of allowances to the market will be regulated by a regulation to be issued by the Energy Market Regulatory Authority ("EMRA").
In the distribution of free allocations, Article 13 of the Draft stipulates a benchmarking method based on sub-facilities Within this scope, types of sub-facilities based on product comparison, measurable heat comparison, fuel comparison, or production process will be identified by the facilities, and the relevant emissions will be attributed to these sub-facilities. The benchmark value for each sub-facility, the sectoral activity factor, and the free allocation rate will be determined by the Carbon Market Board upon the recommendation of the Presidency. The benchmark values are to be announced by the Presidency no later than the last business day of November each year, and the monitoring methodologies for sub-facility data are to be submitted to the Presidency together with the Monitoring Methodology Plan.
Facilities are obliged to apply for free allocations within fifteen (15) business days following the publication of the National Allocation Plan. Applications will be examined by the Presidency within fifteen (15) business days, and if deemed necessary, enterprises will be given an opportunity to make corrections within five (5) business days. Free allocations for applications found appropriate will be transferred to the accounts of facilities via the Transaction Registry System in accordance with EMRA regulations. Late applications will be subject to a surcharge.
Emission rights allocated free of charge or via auction shall remain valid from the date of issuance until the end of the relevant compliance period. Expired allowances will be cancelled via the Transaction Registry System. Facilities willing to voluntarily contribute to climate change mitigation may waive their allowances or request cancellation of free allowances.
Each facility is required to fulfill its surrender obligation for the year subject to the system by surrendering an amount of allowances equal to the verified greenhouse gas emissions stated in the verified emission report by the last business day of November via the Transaction Registry System. The surrender obligation entails the facility's obligation to "return" allowances equivalent to the emissions it has released during the year. Facilities failing to meet their surrender obligations will be subject to sanctions provided in the Law, and any shortfall in surrendered allowances will be added to the subsequent year's surrender obligation for compensation. Facilities that cease operations, enter liquidation, or receive concordat decisions are not exempt from the surrender obligation.
n the event that facilities fail to meet their surrender obligations, the use of additional reserve is permitted under certain conditions and solely subject to the approval of the Carbon Market Board. In any case, the use of additional reserves shall not exceed 10% of the ETS cap determined in the National Allocation Plan. Pricing of the additional reserve will be set at 50% above the higher of the weighted average prices formed in the primary and secondary markets during the last three months of the relevant year.
E. Market Structure
The allocation of allowances to the market shall be carried out through both the Primary Market and Secondary Markets. In the Primary Market, allowances shall be offered for sale in accordance with the auction schedule published by the Presidency, whereas the Secondary Market shall facilitate continuous bilateral trading of allowances among participants.
In the Primary Market, should any auction announced within fifteen (15) business days following the publication of the National Allocation Plan be cancelled, the quantity of allowances in that auction is planned to be redistributed to the remaining auctions within the system year. If the last auction of the year is cancelled, it shall be repeated under the same conditions no later than fifteen (15) business days thereafter. This repetition may occur up to two times; if cancellation occurs again, allowances will be transferred to the auctions of the following year.
Secondary Markets constitute a free market environment where allowances may be bought and sold between enterprises. In the Secondary Market, companies may transfer allowances they hold to each other through continuous trading.
To prevent excessive price fluctuations in the carbon market, a Market Stability Mechanism is envisaged. Within this scope, if necessary, a Market Stability Reserve will be activated to reduce or increase the quantity of allowances in the market. This aims to inject new allowances into the system in case of excessive price increases, or to restrict allowance supply to balance the market in case of price decreases.
Two key flexibility tools providing flexibility to enterprises in the system have been defined as follows:
- Banking: The ability for companies to carry unused allowances over for use in subsequent years.
- Borrowing: The possibility to use allowances allocated for future years in the current year.
The Complementary Carbon Price allows enterprises that surrender their allowances on time to voluntarily make an additional payment for these surrendered allowances, thus contributing further in proportion to the value of these allowances. Accordingly, enterprises may pay an additional carbon fee on a unit price basis for the allowances they surrender. For example, an enterprise surrendering 10,000 allowances may make an additional payment corresponding to these allowances, assuming environmental responsibility. This payment shall be made to a special public account, and the revenue generated is planned to be directed to the public budget to be used in sectors where the enterprises operate.
Furthermore, to prevent sudden increases or decreases in carbon prices in the ETS market, minimum and maximum price limits will be determined by the Carbon Market Board. Thus, the trade of allowances will be conducted within the specified price ranges. Also, transaction fees from ETS market trades and procedures for conducting these transactions will be determined by EMRA in coordination with other relevant public authorities.
Finally, facilities exiting the ETS scope but holding remaining allowances are allowed to remain in the market only for the purpose of selling these allowances. However, if such facilities have outstanding surrender obligations from previous periods and allowance deficits exist, they will also be permitted to purchase only as many allowances as necessary to cover these deficits. Technical transaction limits in the EMRA market will be determined by a separate regulation to be issued by EMRA.
F. Monitoring, Reporting, and Verification of Emissions
Effective operation of the ETS requires continuous and reliable monitoring of emissions, regular reporting, and independent verification. Articles 27 to 29 of the Draft regulate the procedures and principles related to this process.
All enterprises conducting activities listed in Annex-1 of the Draft Regulation are obligated, regardless of their operational capacity, to monitor greenhouse gas emissions, report annually, and have these data verified. Principal activities covered in Annex-1 includes, without being limited to, the following:
- Energy production and combustion activities (heat capacity above 20MW),
- Cement, lime, gypsum, and ceramic production,
- Chemical processes (e.g., ammonia, nitric acid, etc.),
- Heavy industry activities such as refinery and petrochemical facilities,
- Glass and glass wool production.
Additionally, facilities operating below the threshold values detailed in Annex-1 may voluntarily choose to participate only in the monitoring, reporting, and verification process.
All obligated enterprises must prepare a Monitoring Plan detailing how and from which sources greenhouse gas emissions are measured and submit it to the Presidency at least six (6) months prior to the commencement of monitoring. The Plans must be prepared in accordance with the principles set out in Annex-6 of the Draft and guidelines to be published by the Presidency. Enterprises whose plans are found inadequate will be granted a period of sixty (60) days to remedy deficiencies.
Enterprises are also obliged to report greenhouse gas emission data and activity levels for the previous calendar year (January 1 – December 31) to the Presidency by April 30 each year. This period may be extended by up to one (1) month by the Presidency if deemed necessary. Reports shall be prepared in line with the principles set forth in Annex-6 and the approved Monitoring Plan, as with monitoring obligations.
Enterprises engaged in activities listed in Annex-1 are required to verify their greenhouse gas emission reports prior to submission to the Presidency. Verification shall be conducted by independent verification bodies appointed through the Central Electronic Verifier Institution Assignment System ("MEDAS"). Enterprises subject to Public Procurement Law No. 4734 are excluded from MEDAS but may apply to be included; such requests will be evaluated by the Ministry. Verification bodies and their personnel are prohibited from having any interest relationships with the enterprises they verify. The structure, independence, oversight, and accreditation of these bodies will be regulated by the Turkish Accreditation Agency ("TÜRKAK") pursuant to ISO/IEC standards.
G. Temporary and Final Provisions
The ETS will commence with a pilot period covering the years 2026-2027. During the pilot period, no use of carbon credits or offsetting mechanisms will be implemented.
Enterprises conducting activities during the pilot period will receive 100% free allocation according to the benchmarking method. The amount of free allocation per sub-facility shall be equal to the benchmark value announced by the Presidency multiplied by the sectoral activity factor and the activity levels specific to each sub-facility. The first compliance period will apply between 2028 and 2035, divided into two sub-periods (First period: 2028-2030; Second period: 2031-2035).
From the effective date of the Law, it is mandatory for enterprises covered by the ETS to obtain emission permits within three years. During this period, enterprises are assumed to hold emission permits once to continue their activities under the ETS. This three-year period may be extended by up to two years by the Presidency upon the decision of the Carbon Market Board.
H. Conclusion
The Draft Regulation on the Turkish Emissions Trading System represents a significant step towards the establishment of a carbon mechanism aimed at monitoring and managing greenhouse gas emissions. The key highlights of the Draft are as follows:
- The Draft primarily covers high carbon intensity category B and C installations, while schools, hospitals, and defence industry facilities are excluded from the scope, limited to the activities they carry out;
- Installations included in the ETS are required to obtain an emissions permit, which shall remain valid for a period of five years;
- Emission allocations are distributed based on emission intensity, in line with an annual cap, and provisions are included for both auctioning and free allocation of these allowances;
- Free allocations are granted based on a benchmarking methodology, with benchmark values and sectoral correction factors determined at the sub-installation level;;
- Installations are obligated to surrender allowances equal to their verified emissions at the end of each year; penalties shall apply for any shortfall, and the use of additional reserves is foreseen;
- The market is composed of primary and secondary markets; a market stability mechanism, price floor and ceiling applications, and overarching trading rules are stipulated to prevent price volatility;
- Flexibility mechanisms such as banking and borrowing support the alignment of installations with the market;
- The pilot phase (2026–2027) will commence with facilitative measures such as 100% free allocation and reduced penalties, while full implementation will be gradually expanded as of 2028.
Notwithstanding the above, the limited scope of the system and the cap-based approach indicate that further policy updates and expansions may be required in the future. The Draft provides a fundamental framework for a sustainable carbon market infrastructure in alignment with Türkiye's climate objectives.
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