Turkey's Carbon Market Is Becoming Real
Turkey's Emissions Trading System (TR-ETS), which has been in the planning stages for years, now has a concrete timeline. Legally framed by Climate Change Law No. 7552 and technically supported by the World Bank's PMR/PMI program, the system is preparing to impose direct carbon costs on Turkish industry for the first time through a pilot period (World Bank, 2024).
A pilot period differs from a fully operational ETS. Its purpose is to offer a learning opportunity for both businesses and the regulator: testing MRV (Monitoring, Reporting, and Verification) infrastructure, calibrating the allocation mechanism, and familiarizing market participants with the system. However, low or zero financial obligations during the pilot do not mean preparation is unimportant. On the contrary — the MRV capacity built during the pilot is the very infrastructure that will become mandatory in the definitive phase.
International experience confirms this. The biggest lesson from the EU ETS's 2005-2007 pilot phase, China's regional ETS pilots, and South Korea's K-ETS is that facilities that did not prepare during the pilot faced serious compliance costs and operational disruptions in the definitive phase (ICAP, 2024).
In this article, we detail five concrete steps for facilities in energy-intensive sectors to prepare for the pilot period.
Step 1: Build MRV Capacity — The Foundation of Everything
The core of TR-ETS is MRV. Allocation distribution, compliance monitoring, and the entire market mechanism depend on reliable emissions data. Without MRV infrastructure, a facility cannot participate in the ETS.
The TR-ETS MRV system is designed with reference to the EU's Monitoring and Reporting Regulation (MRR — 2018/2066). This means Turkish facilities will follow similar processes to those in the EU ETS:
Preparing a Monitoring Plan
Every facility must prepare a formal monitoring plan defining its emission sources and monitoring methods. The plan covers:
- Emission source inventory: Boilers, furnaces, combustion installations, process units, fugitive emission points
- Measurement methodology: Whether calculation-based or continuous emission monitoring system (CEMS) will be used for each source
- Data flow diagram: Calculation steps from raw data (fuel invoices, meter readings) to final emission figures
- Quality assurance procedures: Data validation, calibration, backup procedures
In EU ETS experience, monitoring plan preparation has been observed to take 3-6 months depending on the facility. For complex installations (refineries, integrated steelworks), this can extend to 6-12 months.
Designing the Reporting Process
The annual emissions report is the core document prepared based on the monitoring plan and submitted to the regulator. The reporting process involves:
- Identifying the responsible team (environmental engineering, energy management, finance)
- Creating a data collection calendar
- Defining internal verification and quality control steps
- Aligning the report format with regulatory requirements
Establishing Verifier Relationships
In the definitive phase, emissions reports must be verified by accredited verifiers. Building familiarity with the verification process even during the pilot provides a strategic advantage. Establishing early contact with TURKAK-accredited verification bodies is important — capacity is limited and demand is growing.
Step 2: Complete Facility-Level Emissions Inventories
An ETS operates at the facility level, not the company level. A separate emissions inventory is needed for each facility. An inventory compliant with ISO 14064-1:2018 covers these components:
Fuel combustion emissions (Scope 1 — Direct):
- Consumption volumes of natural gas, coal, fuel oil, LPG, and other fuels
- Selection of appropriate emission factors for each fuel
- Oxidation rates and other conversion parameters
Process emissions:
- CO2 from clinker calcification in cement production
- Emissions from iron ore reduction in steelmaking
- Carbonate raw material decomposition in glass production
- Natural gas reforming in ammonia production
Fugitive emissions:
- HFC leaks from refrigeration systems
- Methane leaks from pipelines
- SF6 leaks from transformers
The source of emission factors is critically important. The IPCC 2006 National GHG Inventories Guidelines (Tier 1 and Tier 2 methods), Defra/DESNZ conversion factors, and national factors from TUBITAK/TurkStat are among accepted sources (IPCC, 2006).
A practical starting point: compile the last three years of fuel consumption invoices and process data. This dataset is sufficient to build 80-90 percent of the emissions inventory.
Step 3: Conduct Benchmarking — Understand Your Position
Once your emissions inventory is complete, the next question is "so is this number good or bad?" Benchmarking compares your facility's emission intensity against sectoral references, helping you understand your position.
Why Benchmarking Is Critical
In ETSs, allowance allocation is typically based on benchmark values. In the EU ETS, the amount of free allocation is determined by multiplying the sectoral benchmark value by the facility's production volume. Facilities below the benchmark generate an allowance surplus, while those above must purchase additional allowances from the market.
Although TR-ETS's allocation mechanism has not been finalized, the EU ETS model is being referenced. Therefore, comparing your facility against EU ETS benchmark values enables you to estimate the potential financial impact in advance.
How to Do It
| Sector | EU ETS Benchmark (tCO2/t product) | Typical Turkish Facility | Status |
|---|---|---|---|
| Cement clinker | 0.766 | 0.80-0.90 | Above benchmark |
| Hot metal (BOF) | 1.328 | 1.40-1.60 | Above benchmark |
| EAF carbon steel | 0.283 | 0.30-0.50 | Close to benchmark |
| Float glass | 0.453 | 0.50-0.60 | Above benchmark |
| Ammonia | 1.619 | 1.70-2.00 | Above benchmark |
This comparison reveals which facilities face allowance deficit risk and how urgent energy efficiency investments are (European Commission, 2021).
Step 4: Implement Internal Carbon Pricing — Price the Future Today
In TR-ETS's definitive phase, every tonne of CO2 emissions will have a price. Incorporating this cost into investment decisions now is the most effective way to prepare for future carbon costs.
An internal carbon price (ICP) is the reference price per tonne of CO2 that a company sets in its own decision-making processes. According to CDP's 2023 data, more than 2,000 companies globally use or plan to implement an internal carbon price within two years (CDP, 2023).
Implementation Recommendations
Integrate into investment evaluations: Add a cost scenario of EUR 25-75 per tonne of CO2 in the feasibility analysis of every new investment project. Energy efficiency projects typically become much more attractive in this analysis.
Reflect in operational budgets: Pilot a departmental carbon budget concept. Calculate a "shadow carbon cost" by multiplying each production unit's emission volume by the carbon price. This approach raises emissions awareness at the operational level.
Conduct scenario analysis: Calculate your facility's total carbon cost under low (EUR 25), medium (EUR 50), and high (EUR 75) carbon price scenarios. This analysis makes the potential budget impact of ETS costs concrete.
ICP implementation goes beyond raising internal carbon awareness — it sends a strong signal to investors and stakeholders that climate risks are integrated into financial planning processes.
Step 5: Monitor Regulatory Developments Closely
TR-ETS is still in the secondary legislation process. Work on the draft regulation continues and details are still being finalized. Sources to monitor:
- Ministry of Environment, Urbanization, and Climate Change: Draft secondary legislation and stakeholder consultations
- ICAP (International Carbon Action Partnership): ETS Status Report and Turkey profile — comparison with global ETS developments
- World Bank PMI: Technical assistance program updates and capacity building opportunities
- Industry associations: Discussions on platforms such as TCUD (steel), TCMA (cement), and TUSIAD energy working groups
Rather than being a passive follower of regulatory developments, active participation in stakeholder consultation processes is a strategic approach. Communicating your company's operational realities to the regulator positively impacts both policy design and your compliance process.
The CBAM Connection: Why TR-ETS Is a Strategic Advantage
Evaluating TR-ETS's importance solely from an environmental regulation perspective is incomplete. Its direct link with CBAM (Carbon Border Adjustment Mechanism) transforms TR-ETS into a strategic tool for Turkish exporters.
Under Article 9 of the CBAM Regulation, the carbon price paid in the country of origin can be deducted from CBAM certificate costs (Regulation 2023/956, Article 9). This means: every Euro of carbon tax paid under Turkey's ETS will be deducted from the CBAM certificate cost payable on exports to the EU.
With a practical example: if Turkey's ETS price is EUR 40/tCO2 and the EU ETS price is EUR 72/tCO2, the CBAM cost per tonne becomes 72 - 40 = EUR 32. Without TR-ETS, the same exporter would pay EUR 72. This mechanism reveals the direct relationship between national carbon pricing and export competitiveness.
Pilot Period Success Metrics
You can evaluate your company's pilot period success using these metrics:
| Metric | Target | Why It Matters |
|---|---|---|
| Monitoring plan readiness | Completed before pilot starts | Mandatory in definitive phase |
| Emissions report quality | Low error rate from verifier | Reliability and compliance |
| Benchmark position | Below sector average | Allowance surplus potential |
| Internal carbon price | Integrated into investment decisions | Financial preparedness |
| Regulatory engagement | Active stakeholder process | Policy influence |
Action Item: The pilot period is a rehearsal; the definitive phase is the performance. An orchestra that does not take rehearsal seriously will take the stage unprepared. Start by building your MRV infrastructure — this infrastructure maximizes the educational value of the pilot and builds the capacity that will be mandatory in the definitive phase.
See how enterprise teams prepare for Turkey's emissions trading system.