Türkiye Emissions Trading System
Introduction
Environmental, social and governance (ESG) principles have begun to emerge as a fundamental framework and a matter of regulatory compliance shaping both the operations and investment decisions of companies. Among the most prominent instruments on the environmental pillar of this framework are emissions trading systems (“ETS”), which ensure the pricing of greenhouse gas emissions through market mechanisms. Indeed, according to International Carbon Action Partnership data emissions trading systems have been enacted in 41 countries at the time of writing this newsletter.[1] Türkiye, too, has embraced this global trend. Climate Law No. 7552, published in the Official Gazette dated 09.07.2025 and numbered 32951, set out the fundamental legal framework in line with Türkiye’s net-zero emissions target and anchored the establishment of the ETS in legislation. For the system to become operational, the completion of secondary legislation was awaited. In this context, Türkiye Emissions Trading System Regulation (“ETS Regulation”), which had previously been made available for public consultation in draft form, was published in the Official Gazette dated 27.08.2026 and numbered 33353 and entered into force. This article begins with a brief overview of how emissions trading systems work before turning to the Türkiye Emissions Trading System (“TR ETS”) established under the ETS Regulation.
General Design of Emissions Trading Systems
Emissions trading systems can be based on two fundamental design rationales. In the first and traditional approach, the “cap and trade” model, the competent authority sets a predetermined cap on the total amount of emissions for a given period. Within this cap, emission allowances are distributed to entities through free allocation or auction, and entities may freely buy and sell these allowances among themselves. Entities whose verified emissions fall below their allowances can generate revenue by selling their surplus allowances on the market, while those whose emissions exceed their allowances must purchase additional allowances. In this way, a market-based price is assigned to carbon emissions, and the total volume of emissions is limited by the ceiling set by the system.[2]
The second approach is the “intensity-based” model, which has become increasingly prevalent in developing economies in recent years. In this model, no absolute emissions cap is set. Instead, a benchmark is established for how much greenhouse gas each entity may emit per unit of production. Entities that remain below the benchmark may sell their unused allowances, while those that exceed it must acquire additional allowances. Since total emissions can increase as production volume grows, this model aims to reduce carbon intensity while allowing room for economic growth.
Regardless of the design model adopted, emissions trading systems offer entities various flexibility mechanisms to fulfil their compliance obligations.
The System Envisaged by the ETS Regulation
The ETS Regulation defines the TR ETS as a market-based mechanism that operates on the principle of setting a cap on greenhouse gas emissions in line with the net-zero target and incentivises the reduction of greenhouse gas emissions through the buying and selling of allowances. In determining the ETS cap, an emissions intensity-based approach has been adopted. In other words, the emission intensities of installations per unit of production will be used as a reference in calculating the cap.[3] Accordingly, the TR ETS has a design that adopts an intensity-based cap rather than an absolute cap. It should be noted that this choice is consistent with the global trend. According to the ICAP Status Report 2026, approximately half of the currently operating emissions trading systems are intensity-based.[4]
Scope of the Turkish ETS
Looking at the scope of the system, it can be seen that the ETS Regulation covers Category B installations (with annual emissions between 50,000 and 500,000 tonnes of CO₂ equivalent) and Category C installations (with annual emissions exceeding 500,000 tonnes of CO₂ equivalent) among those carrying out the activities listed in the annex to the ETS Regulation. Category A installations, whose annual emissions are equal to or below 50,000 tonnes of CO₂ equivalent, have been excluded from the ETS scope. In addition, installations belonging to schools, universities, hospitals and defence industry entities covered by the Regulation have also been excluded from the ETS scope, limited to the activities they perform; however, their obligations regarding the monitoring, reporting and verification of greenhouse gas emissions continue.[5]
Greenhouse Gas Emission Permit
Entities within the scope of the ETS must obtain a greenhouse gas emission permit from the Climate Change Directorate in order to carry out activities that cause greenhouse gas emissions. Applications are made electronically and are assessed by the Directorate within a maximum of sixty days. The greenhouse gas emission permit is valid for five years from the date of issuance. Entities must submit a renewal application at least six months before the expiry date. Any changes in the operations, nature or ownership of the facility during the permit period must be notified to the Directorate within thirty days. A permit may be cancelled where false or misleading information or documents have been deliberately submitted, where the installation has permanently ceased operations or cannot technically resume them, or where the entity has failed to fulfil its allowance surrender obligation.[6] Taken together, these provisions make the greenhouse gas emission permit not just a precondition for commencing operations but an ongoing compliance mechanism.
Cap and Allowance Distribution
The ETS cap is set for each system year under the National Allocation Plan. Allowances issued within this cap enter the market through the Transaction Registry System by two routes: free allocation and auction on the primary market. Free allocation follows a sub-facility benchmarking methodology. Each facility is broken down into sub-facilities by reference to a product benchmark, measurable heat benchmark, fuel benchmark or process-specific benchmark, and the number of allowances it receives equals the applicable benchmark value multiplied by its activity level. The Carbon Market Board sets the free allocation rate for each implementation period on an activity-by-activity basis.[7]
Market Structure and Flexibility Mechanisms
The primary market, where allowances are sold by auction, operates according to the auction schedule determined by the Directorate. This schedule will be announced to the public within 15 business days of the publication of the National Allocation Plan. In the secondary markets, market participants will be able to buy and sell allowances through continuous trading. The organisation and operation of both markets have been assigned to the Energy Markets Operating Corporation (EPİAŞ).
The ETS Regulation also provides for a market stability mechanism to ensure price stability. The market stability reserve established under this mechanism is activated based on the volume of allowances in circulation and price assessments, offering the possibility of intervention in the primary market. In addition, flexibility mechanisms such as banking (the use of unused allowances in subsequent years) and borrowing (the use of future years’ allowances for the current year) have been granted to entities. A complementary allowance price mechanism and an additional reserve that can be used under certain conditions have also been established to facilitate entities' fulfilment of their allowance surrender obligations.[8]
Allowance Surrender Obligation
The Regulation imposes a strict allowance surrender regime. For each system year, entities must surrender allowances equal to their verified greenhouse gas emissions through the Transaction Registry System by the last business day of November. This obligation survives even if the entity ceases operations, enters liquidation or becomes subject to a concordat decision. Entities that fail to surrender the required allowances face the sanctions prescribed under the Climate Law.[9]
Institutional Structure
The ETS Regulation distributes governance across several bodies. The Climate Change Directorate coordinates the system as a whole and issues greenhouse gas emission permits. The Carbon Market Board takes the strategic decisions: approving the National Allocation Plan, allocating free allowances, setting the volume of allowances to be auctioned on the primary market and determining offset ratios. The Advisory Board, chaired by the president of the Union of Chambers and Commodity Exchanges of Türkiye, serves in a consultative capacity. Day-to-day market operations and the recording of allowance transactions are handled through the Transaction Registry System, which is operated by EPIİAŞ.
Sanctions Regime and Transition Period
To underpin the system’s effectiveness, the ETS Regulation introduces a comprehensive monitoring, reporting and verification (MRV) regime. All entities that carry out activities listed in Annex 1, whether or not they fall within the ETS, must monitor their greenhouse gas emissions, report the previous year’s figures to the Directorate by 30 April each year and have those reports verified by accredited independent bodies.[10]
The Regulation also establishes a tiered administrative fine regime under Article 14 of the Climate Law. Entities that fail to submit their verified emission reports on time face fines of between TRY 627,450 and TRY 6,274,500, depending on the installation category; for ETS-covered installations the amounts are doubled. Operating without a valid greenhouse gas emission permit carries fines of between TRY 1,254,900 and TRY 12,549,000.[11]
The ETS Regulation provides for the system to start with a pilot phase whose scope, duration and detailed rules are to be set by the Carbon Market Board.[12] Those details were confirmed by Carbon Market Board Decision No. KPK/2026/1 (“KPK Decision”), published on 03.09.2026. Under the KPK Decision the pilot phase covers emissions for 2026 and 2027 and applies to Category B and Category C facilities in the electricity generation, cement, iron and steel, aluminium and fertiliser sectors. In the 2026 system year, covered entities will be subject only to reporting obligations. A methodology for the complementary allowance price will be developed during this period, with the pricing mechanism itself launching in the 2027 system year.
Finally, entities entering the ETS have three years from the Climate Law’s entry into force to obtain a greenhouse gas emission permit. In the interim, they are deemed to hold valid permits on a one-off basis.[13]
Conclusion
The ETS Regulation marks a significant step in giving concrete, secondary legislation form to the emissions trading system envisaged by the Climate Law, while the KPK Decision has brought clarity to the scope and timeline of the pilot phase. That said, several pieces of secondary legislation remain outstanding and will be decisive for how the TR ETS operates in practice, making it essential to monitor developments closely. Entities expected to fall within the ETS should begin their compliance groundwork now, particularly around greenhouse gas emission permit applications and allowance surrender deadlines.
- https://icapcarbonaction.com/en/ets (Date of Access: 11.09.2026).
- OECD, Effective Carbon Rates 2025: Recent Trends in Taxes on Energy Use and Carbon Pricing, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, p. 53, https://doi.org/10.1787/a5a5d71f-en (Date of Access: 11.09.2026).
- ETS Regulation art. 11.
- ICAP Status Report 2026, p. 11, https://icapcarbonaction.com/system/files/document/260610_ICAP_SR26_Web.pdf (Date of Access: 11.09.2026).
- ETS Regulation art. 5.
- ETS Regulation art 7, 8, 9 and 10.
- ETS Regulation art 13.
- ETS Regulation art 17, 18, 19 and 20.
- ETS Regulation art. 16.
- ETS Regulation art. 28.
- ETS Regulation art 35.
- ETS Regulation Provisional Article 1.
- ETS Regulation Provisional Article 2.
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