Turkish ETS and CBAM – New Dynamics for the International CO₂ Market

Turkey is taking decisive steps towards carbon pricing. A national emissions trading system is set to enter its pilot phase in early 2025. At the same time, there are efforts to complement this system with a Turkish Carbon Border Adjustment Mechanism. These developments will have consequences not only for Turkish businesses but also for European importers and exporters.

Launch of the Turkish ETS

Turkey is planning to introduce its own emissions trading system, closely modeled after the European Emissions Trading Scheme. The pilot phase will begin in 2025, while the first full implementation phase is scheduled to run from 2027 to 2034. The main objectives are to reduce emissions in high-impact sectors such as refineries, metals production, chemicals, and cement, to encourage the transition to clean technologies, and to establish a reliable carbon pricing mechanism.

How the Turkish ETS Will Work

Allowances will be allocated through auctions and traded via Turkey’s energy exchange. This setup has the potential to generate significant government revenue, much like the European system. Beyond its environmental impact, the ETS is also seen as a strategic response to the looming financial burden imposed by the EU CBAM.

CBAM as a challenge for Turkey – and for Europe

The introduction of the EU CBAM presents a direct challenge to Turkish industries. Nearly 50% of Turkey’s exports go to the EU, including many products from emissions-intensive sectors. Starting in 2026, these exports will be subject to a carbon levy unless they can demonstrate that an equivalent carbon price has already been paid in Turkey. This has two major implications. First, without a functioning ETS, Turkish companies could face significant competitive disadvantages. Second, European companies importing Turkish goods will see higher costs. Sectors particularly affected include machinery manufacturing, construction, and the automotive industry, which rely heavily on Turkish intermediate products. The introduction of a Turkish ETS could help mitigate these costs, as carbon fees paid in Turkey would be credited against the CBAM levy. However, this depends on the actual price levels within the Turkish ETS, which are yet to be determined. If Turkish carbon prices are too low, EU importers would still have to pay the difference to match EU ETS prices.

Introduction of a Turkish CBAM?

In addition to the ETS, the Turkish government is planning its own CBAM model. Legislation is expected to be introduced in parliament, aiming to impose a carbon levy on imports, similar to the EU’s approach. A Turkish CBAM would offer multiple benefits. It would protect domestic industries by ensuring that Turkish companies investing in low-emission technologies are not disadvantaged by cheaper, emissions-intensive imports. It would also promote fair competition by preventing countries with weaker climate regulations from gaining an unfair cost advantage through lower carbon pricing. Additionally, revenue from the Turkish CBAM could be directed towards investments in renewable energy and clean technologies, accelerating the country’s sustainable economic transition. However, implementation remains challenging. Establishing a national CBAM is complex and may face resistance from trade partners. Furthermore, ensuring compatibility between a Turkish CBAM and the EU CBAM will be critical to avoid double taxation for businesses.

Dynamic Developments for Businesses

For European companies, these developments primarily mean one thing: increasing regulatory requirements. Businesses that source intermediate products from Turkey must prepare to account for both the EU CBAM and potential Turkish carbon costs in their supply chains. At the same time, a well-functioning Turkish ETS could facilitate trade with the EU in the long run. If Turkey establishes a comprehensive emissions trading system with carbon prices comparable to the EU ETS, the CBAM costs for Turkish imports could be eliminated entirely. Companies should proactively familiarize themselves with the new regulations and assess their supply chains for potential cost increases. These developments highlight the ongoing transformation of the global carbon market, with increasing regulatory oversight.

Support in Managing CBAM and ETS

If you need support in handling CBAM, the Turkish ETS, or carbon pricing in international trade, feel free to contact us directly (helge@kolum.earth). We’re happy to assist you! Best regards, Helge Wieggrefe