Türkiye ETS Has Officially Got the Green Light: What Comes Next?

Jul 4, 2025 | Other

In a long-anticipated move, Türkiye has officially approved its national Emissions Trading System (ETS). With the ratification of the Climate Change Law by the Turkish Parliament on July 3, 2025, the country has taken a decisive step toward building a robust carbon pricing mechanism in line with its 2053 net-zero emissions target and the broader international climate agenda.

This development positions Türkiye as a serious player in global climate policy and sets the groundwork for a functional, market-based decarbonization strategy. As the sixth-largest greenhouse gas emitter in Europe and a major industrial economy, Türkiye’s decision carries strategic weight both regionally and globally.

But while the political green light has been given, the implementation journey is just beginning—and the success of the system will depend on the technical design and governance choices made in the coming months.

Türkiye’s Carbon Market: Context & Evolution

Türkiye’s road to carbon pricing has been long in the making. Over the past decade, the country has taken meaningful steps to prepare for ETS implementation:

    • Participation in the Partnership for Market Readiness (PMR) and Partnership for Market Implementation (PMI), supported by the World Bank;

    • Development of an advanced Monitoring, Reporting and Verification (MRV) system covering over 700 installations in the energy, industrial, and waste sectors;

    • Creation of pilot cap-and-trade simulation programs;

    • Launch of voluntary carbon crediting schemes aligned with international standards.

The recently adopted Climate Change Law finally establishes a legally binding mandate for a national ETS and assigns responsibility for its governance to the Climate Change Directorate under the Ministry of Environment, Urbanization and Climate Change.

Five Key Design Questions That Will Shape the Turkish ETS

While the Climate Law provides the foundation, the real substance will come with the ETS By-Law, expected by the end of 2025. This secondary legislation will define the operational rules of the Turkish ETS. Here are five major issues to watch closely:

1. Scope and Cap Ambition

The first critical question is: which sectors will be included under the ETS, and how strict will the emission caps be?

    • The initial phase is likely to cover large industrial installations, particularly in the power, cement, steel, refinery, chemicals, and paper sectors.

    • Facilities emitting more than 25,000 tCO₂e/year are expected to be prioritized.

    • A Linear Reduction Factor (LRF) will be introduced to ensure year-by-year tightening of the emission cap.

The ambition of the cap will determine the environmental effectiveness of the system. A weak cap risks undermining the credibility of the entire market. On the other hand, an ambitious LRF aligned with Türkiye’s updated Nationally Determined Contribution (NDC)—which targets a 41% reduction in GHG emissions from business-as-usual levels by 2030—could ensure the ETS contributes meaningfully to national decarbonization goals.

2. Allocation of Turkish Emission Allowances (TEAs)

Another key decision concerns the allocation method for Turkish Emission Allowances (TEAs). Will allowances be given out for free, auctioned, or distributed through a hybrid approach?

In the pilot phase (2025–2026), free allocation is expected to dominate, likely based on historical emissions and production benchmarks. However, over time, the system is likely to shift toward auctioning, especially as Türkiye aligns more closely with the EU ETS framework.

The Carbon Market Board, a newly established body under the law, will play a decisive role in determining allocation methods and setting benchmarks. The design must find a balance between:

    • Maintaining cost competitiveness for Turkish industry, especially in energy-intensive trade-exposed (EITE) sectors;

    • Ensuring a strong carbon price signal to drive decarbonization;

    • Avoiding windfall profits or market manipulation.

With the EU’s Carbon Border Adjustment Mechanism (CBAM) taking effect, Turkish exporters must be prepared for a future where carbon costs matter at the border.

3. Role of Carbon Offsets

Will Turkish companies be allowed to use carbon offsets for compliance?

This is a sensitive issue. On one hand, offsets can offer cost flexibility and support domestic climate projects, especially in agriculture, forestry, and renewable energy. On the other hand, the use of offsets must be tightly controlled to ensure environmental integrity and prevent double counting.

There is potential for Türkiye to recognize high-quality international credits under Article 6 of the Paris Agreement, or to allow only domestic offsets under its National Carbon Credit Scheme launched in 2023.

If offsets are permitted, the ETS By-Law must define:

    • Which project types are eligible;

    • What quality standards apply;

    • What percentage of obligations can be met with offsets;

    • Whether offsets can be banked or traded.

4. Use of Auction Revenues

Revenue generated through the auctioning of TEAs must be used strategically and transparently.

Examples of revenue use could include:

    • Investments in renewable energy, energy efficiency, and green industrial transformation;

    • Support for low-income households or vulnerable regions affected by carbon pricing;

    • Innovation funds for climate technologies and just transition programs;

    • Co-financing of EU-aligned decarbonization infrastructure.

Without a clear governance framework and transparent reporting, auction revenues risk being absorbed into general government budgets, diluting their climate impact and weakening public support.

5. Market Stability and Price Control Measures

Like all carbon markets, Türkiye’s ETS will need tools to mitigate volatility and ensure investor confidence. These could include:

    • Price floors and ceilings to prevent extreme swings;

    • A Market Stability Reserve (MSR) to address oversupply;

    • Banking and borrowing mechanisms to give companies flexibility over time;

    • Emergency intervention powers for the ETS authority during price shocks.

Such measures are vital to ensure the ETS remains predictable, credible, and economically viable over the long term.

Strategic Implications for Türkiye and the Region

The implementation of a national ETS positions Türkiye as a regional leader in climate policy. It also opens the door for:

    • Future linking with the EU ETS or other regional systems;

    • Greater alignment with EU trade and energy policy, reducing CBAM exposure;

    • Enhanced green investment flows and access to international climate finance.

Moreover, Türkiye’s experience can serve as a blueprint for other emerging economies designing their own ETS frameworks.