On 2 July 2025, Türkiye's Grand National Assembly adopted the country’s first Climate Law. The law was published in the Official Gazette on 9 July (in Turkish) and is now in force. It establishes the legal basis for a national emissions trading system (ETS) to support Türkiye’s net zero target. The legislation also introduces a framework for climate governance, institutional arrangements, and finance mechanisms.
Institutional Framework
The law establishes a Carbon Market Board (CMB) chaired by the Minister of Environment, Urbanization and Climate Change. The Board includes deputy ministers from seven ministries and the heads of key regulatory bodies. The CMB is responsible for approving national allocation plans, determining the distribution of free allowances, and setting offsetting limits within the ETS.
Day-to-day ETS management will be handled by the Directorate of Climate Change. The Directorate oversees permitting processes, monitoring and verification, and offset mechanisms. EPİAŞ, known as Energy Exchange Istanbul (EXIST) in English, will operate the secondary market for allowances, develop and manage the registry, and conduct auctions when they begin.
ETS Coverage and Permits
The ETS will cover installations that directly cause greenhouse gas (GHG) emissions. Specific sector and gas coverage, as well as emissions thresholds, will be defined in secondary regulations. Türkiye’s existing and well-developed MRV system will underpin the ETS. Coverage is expected to be similar to the EU ETS.
Entities operating covered installations must obtain GHG emission permits from the Directorate of Climate Change. These permits serve as regulatory authorization to conduct emission-causing activities under the ETS framework.
The law establishes annual compliance obligations, requiring covered installations to surrender allowances equivalent to their verified annual emissions. Entities that fail to meet surrender obligations are subject to administrative fines equal to twice the recent allowance price per missing allowance. They must also submit additional allowances equivalent to excess emissions in the following compliance year and may have their emission permit revoked. The law also specifies detailed financial penalties for various violations, including operating without permits and non-compliance with reporting requirements, with penalty amounts already defined in the legislation.
Cap-setting, Allocation and Trading
Unlike traditional ETSs which operate with predetermined absolute caps, the Turkish ETS is expected to adopt an intensity-based cap similar to newer systems in Asia. This means the overall cap will be determined ex post based on actual activity levels and benchmarks, rather than being fixed in advance.
The law provides for free allowance allocation based on historical emissions data or benchmark values, with national allocation plans to be published in the Official Gazette. It is expected that, at least in the early phases of the ETS, all allowances will be allocated for free to covered entities. The CMB will determine the distribution of free allowances and decide on quantities offered for sale in primary market auctions.
Allowances are defined as tradeable, registered instruments issued electronically, each representing the right to emit one tonne of CO2 equivalent for a specified period. The law prohibits using allowances as collateral. The system includes provisions for flexibility mechanisms and market stability instruments, similar to the EU ETS Market Stability Reserve, to be developed as needed. Financial institutions and other non-compliance entities are expected to be excluded from participating in the ETS initially.
When allowance auctions are introduced in the future and carbon costs for Turkish industry rise, the law provides for the possible introduction of a carbon border adjustment mechanism (CBAM) for imported goods. The Ministry of Trade, in coordination with other ministries, is empowered to determine its scope and implementation details if such a mechanism is deemed necessary to address carbon leakage and maintain competitiveness.
Flexibility and Offsets
The law includes flexibility mechanisms enabling regulated entities to bank allowances from previous periods or borrow from future allocations to meet compliance obligations. The law also permits the use of authorized offset credits within the ETS, allowing regulated entities to cover a portion of their allowance surrender obligations. The specific percentage is to be determined by the CMB.
A national carbon crediting and offsetting system will be established to generate credits from domestic emission reduction, removal, and carbon sink enhancement projects. Project developers must register their carbon credit projects with the national system within specified timeframes, and fraudulent or erroneous project information will invalidate credits for ETS compliance purposes. The Directorate of Climate Change will oversee the offsetting framework and determine policies for international carbon credit imports and exports.
Revenue Use
Revenues from allowance sales, administrative fines, and ETS market operations will be earmarked as special budget revenues exclusively for green transformation and climate action. Up to 10% may be allocated to just transition measures supporting vulnerable groups and sectors. The law authorizes the Directorate of Climate Change to establish a special funding facility, known in Turkish as döner sermaye, for climate investments and sectoral transformation, though the share of revenue allocation to this facility is not specified. Public institutions and private entities in ETS-covered sectors will access green transformation support mechanisms, with the CMB determining appropriate incentive mechanisms.
Implementation Roadmap
The ETS will be introduced through a pilot phase before full implementation. Administrative penalties for non-compliance will be reduced by 80% during this transitional period. Regulated entities within the ETS scope must obtain GHG emission permits within three years of the law's entry into force. All necessary secondary legislation and planning tools must be prepared by the end of 2027. During the pilot phase, reduced penalties will apply to encourage compliance whilst the system becomes operational. The pilot phase is expected to start in 2026.