TR-ETS vs. EU ETS: Design Choices and Lessons for Turkish Companies

TR-ETS vs. EU ETS: Design Choices and Lessons for Turkish Companies

Türkiye established the legal basis for its national emissions trading system (TR-ETS) in 2025 through Climate Law No. 7552. Parliament adopted the law on 2 July 2025, and it entered into force when published in Official Gazette No. 32951 on 9 July 2025. One year later, the system remains in the secondary-legislation and infrastructure preparation stage for its pilot. Comparing it with the mature, operational EU Emissions Trading System (EU ETS) therefore requires a clear distinction between rules in force and draft design choices.

Legal Status and Scope Are at Different Stages of Maturity

The EU ETS has operated as a cap-and-trade system since 2005 under Directive 2003/87/EC. It covers approximately 10,000 installations in power and energy-intensive industry, specified aviation activities, and maritime transport since 2024 (European Commission, Scope of the EU ETS, 2026). Scope, thresholds, monitoring methods, and the annual allowance-surrender cycle are detailed in EU legislation in force.

In Türkiye, the Climate Law empowers the Climate Change Presidency to establish the ETS, allocate allowances, and require greenhouse gas emission permits from operators. Provisional Article 1 requires a pilot before full implementation and leaves its scope and duration to the Carbon Market Board. The law also gives covered operators a transition period until 9 July 2028 to obtain an emissions permit; the Board may extend this by up to two years (Climate Law No. 7552, 2025).

At the publication date, the Climate Change Presidency still listed the text on its website as the Draft Regulation on the Turkish Emissions Trading System. Official presentations describe a 2026-2027 pilot, Carbon Border Adjustment Mechanism (CBAM) sectors, and emissions-intensity-based allocation (Climate Change Presidency, Draft TR-ETS Regulation Presentation, 2025). These are strong planning signals, but should not be presented as final obligations until the regulation is adopted and the Board issues the relevant decisions.

The Cap: Absolute in the EU, Output-Sensitive in Türkiye's Pilot Design

The total quantity of EU ETS allowances declines over time. The 2023 revision set the linear reduction factor at 4.3% for 2024-2027 and 4.4% from 2028, supporting a 62% reduction by 2030 from 2005 levels for covered emissions (Directive (EU) 2023/959, 2023). The Market Stability Reserve separately adjusts supply in response to the allowance surplus in circulation.

Türkiye's draft pilot points to an allocation architecture that responds to production and emissions intensity. This does not mean that there is “no cap”; the total allowance quantity, benchmarks, and realised output all have a role. The pilot is intended to test data and market behaviour while limiting abrupt cost shocks. For companies, the open questions are how allocation changes when production changes, which benchmark applies, and how stringency evolves after the pilot. These become definitive only through final rules.

Allocation: Free Allowances Do Not Eliminate Cost

Auctioning is the default allocation method in the EU ETS. Power generators generally purchase allowances, while industrial installations exposed to carbon leakage may receive free allocation against product benchmarks. A benchmark reflects the performance of the most efficient installations in a product group; an installation with higher emissions must purchase allowances to cover its shortfall (European Commission, Free Allocation, 2026).

Under EU legislation currently in force, free allocation for CBAM products is phased down from 2026 and ends in 2034 (Directive (EU) 2023/959, 2023). On 17 July 2026, the Commission proposed an EU ETS revision that could alter this framework, but a proposal does not become law upon publication. Cost models should use adopted legislation as the base case and track the proposal as a separate scenario.

The intensity- and benchmark-based free allocation described in the TR-ETS draft aims to create a similar efficiency signal during the pilot. Free allocation still does not mean “no carbon cost.” If an installation emits above its benchmark, it has a shortfall; its position also changes with production, verified emissions, and the benchmark. Finance teams should treat expected free allocation as a parameter-dependent risk mitigant, not a fixed income item.

MRV Is the Most Concrete Bridge Between the Systems

Monitoring, reporting, and verification (MRV) provides the numerical basis for allowance surrender in both systems. In the EU ETS, Monitoring and Reporting Regulation (EU) 2018/2066 and Accreditation and Verification Regulation (EU) 2018/2067 set requirements for monitoring plans, measurement tiers, data flows, control activities, and accredited verification.

Türkiye is not starting from zero. The 2014 Regulation on Monitoring Greenhouse Gas Emissions and its verification infrastructure already produce annual emissions data from covered installations. The Climate Law added the legal framework that will connect this infrastructure to allowance surrender and emission permits. An existing MRV file should not, however, be assumed to be automatically TR-ETS-ready. Source streams, measuring instruments, laboratory analyses, biomass claims, missing-data treatment, and change logs should be reassessed against the draft scope and new benchmark calculations.

Separate CBAM Deductions from Formal Market Linking

Two mechanisms are often conflated in discussions of TR-ETS. The first is the deduction for a carbon price effectively paid in a third country under Article 9 of CBAM Regulation (EU) 2023/956. An authorised EU CBAM declarant may claim a reduction in certificates to be surrendered if it can prove that a carbon price was actually paid in the country of origin for the embedded emissions and was not reduced by a rebate or other compensation. This does not mean every TR-ETS payment will automatically be credited one-for-one; evidence, currency conversion, free allocation, and compensation remain subject to implementing rules.

The second mechanism is formal linking between emissions markets. Linking entails mutual recognition of allowances and a separate international arrangement covering the compatibility of scope, cap, MRV, registries, market oversight, and enforcement. EU ETS linking is not a prerequisite for a CBAM deduction, and linking does not follow merely from an assumption that prices will converge.

A Decision Framework for Turkish Companies

1. Maintain a legal-status register. Track the Climate Law, existing MRV rules, draft ETS regulation, and Board decisions separately as “in force,” “draft,” or “policy signal.”
2. Perform an installation-level MRV gap assessment. Map each source stream to its data owner, measurement method, uncertainty, control, and verification evidence.
3. Build allocation scenarios. Use sensitivity ranges rather than one forecast for output, emissions intensity, benchmarks, free-allocation rate, and allowance price.
4. Design the CBAM evidence chain. Establish a data model that can document carbon price effectively paid, free allocation, rebates, and allocation to products.
5. Retest the model when the draft changes. Do not hard-code the pilot dates or sector coverage as final; update controls and budgets when the regulation is adopted.

Key Takeaway: TR-ETS is not yet a smaller copy of the EU ETS. The Climate Law sets a definitive legal direction while pilot scope and allocation details remain in draft form. The lowest-regret preparation is not a precise price forecast, but verifiable installation data and a scenario-controlled cost model.

References

1. Official Gazette of the Republic of Türkiye, “Climate Law No. 7552,” 9 July 2025, No. 32951.
2. Climate Change Presidency of the Republic of Türkiye, “Draft Regulation on the Turkish Emissions Trading System” and draft presentation, 2025.
3. European Parliament and Council, “Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading,” as amended by Directive (EU) 2023/959.
4. European Commission, “Scope of the EU ETS” and “Free Allocation,” 2026.
5. European Commission, “Monitoring and Reporting Regulation (EU) 2018/2066” and “Accreditation and Verification Regulation (EU) 2018/2067.”
6. European Parliament and Council, “Regulation (EU) 2023/956 establishing a Carbon Border Adjustment Mechanism,” Article 9.