The 2026–2027 emissions trading pilot introduces domestic monitoring and carbon pricing for major industrial sectors, but free allocation raises questions about eligibility for deductions under the EU mechanism.
ISTANBUL, 29 OCTOBER 2026 — Türkiye is developing a domestic emissions trading framework at a time when the European Union’s Carbon Border Adjustment Mechanism (CBAM) is beginning to impose financial obligations on imports of carbon-intensive products. The Turkish pilot covers emissions generated during 2026 and 2027 by qualifying installations in electricity generation, cement, iron and steel, aluminium and fertilisers.
Under the announced framework, 2026 is primarily a monitoring and reporting year, while the pricing mechanism is expected to begin during the 2027 system year. The initiative introduces a domestic regulatory structure that could influence industrial investment decisions and the way Turkish exporters engage with European customers.
The development has particular significance for bilateral trade because Turkish manufacturers supply substantial quantities of industrial materials and manufactured products to EU markets. A functioning domestic carbon market could encourage production efficiency, strengthen emissions monitoring and potentially allow EU importers to claim deductions for qualifying carbon costs genuinely paid in Türkiye.
However, the existence of an emissions trading system does not automatically establish that exporters have incurred a carbon payment recognised under EU CBAM rules.
Free allocation complicates recognition of foreign carbon payments
The Turkish pilot provides for 100% free allocation under the relevant benchmark methodology, according to regulatory announcements. This arrangement does not necessarily establish that every covered installation will have no payment obligation under all circumstances, but it is important when assessing the relationship between the domestic system and the EU’s carbon border mechanism.
Under CBAM, deductions for carbon prices paid in third countries are linked to qualifying amounts actually paid, subject to the applicable regulatory conditions. The nominal market value of allowances, theoretical carbon costs or allowances received free of charge should not automatically be treated as evidence of a payment eligible for deduction.
This distinction makes headline carbon-price comparisons between Türkiye and the EU potentially misleading. Even if the Turkish system introduces a domestic allowance price, exporters will need to demonstrate the amount of carbon cost actually incurred before EU importers can establish whether a corresponding deduction is available.
For Turkish industrial companies, the immediate priority is therefore to distinguish between participation in the domestic ETS, the allocation of allowances and any financial payments arising from the system.
Industrial monitoring must serve domestic and EU requirements
Manufacturers face two parallel compliance tasks. Within Türkiye, covered installations must establish monitoring methodologies and submit activity reports under the pilot ETS. For exports to the European Union, manufacturers must provide product-specific embedded-emissions information that satisfies CBAM calculation and verification requirements.
Although the two systems use overlapping industrial information, their reporting boundaries, product attribution rules and reporting schedules may differ. A facility-level emissions report prepared for the Turkish system cannot automatically replace the documentation required for an EU CBAM declaration.
Companies should identify these differences when designing their monitoring and reporting infrastructure. Maintaining separate regulatory outputs where necessary can prevent inconsistent figures and reduce the risk of using domestic allowance documentation as a substitute for product-level emissions evidence.
The quality of industrial data will also influence investment planning. Steel and cement installations capable of identifying emissions-intensive production stages, maintaining complete activity records and applying reliable monitoring methodologies will have a stronger basis for evaluating operational improvements.
These capabilities can support discussions with European customers even before the Turkish pilot generates substantial carbon payments. Nevertheless, improvements in emissions measurement and reductions in actual production emissions remain separate from the question of whether a carbon price has been paid.
Electricity costs connect the ETS with industrial competitiveness
The inclusion of electricity generation in the Turkish pilot creates an additional link between domestic carbon pricing and the competitiveness of energy-intensive industries.
Changes in the generation mix and the cost of electricity can influence production expenses for steel, aluminium, cement and fertiliser manufacturers. A domestic carbon-pricing system may therefore affect industrial operating costs beyond the direct obligations of individual installations.
The treatment of electricity under EU CBAM, however, follows sector-specific requirements. Turkish manufacturers cannot assume that purchasing renewable electricity automatically reduces every emissions indicator relevant to their exported products.
The applicable production methodology, the type of emissions being calculated and the supporting evidence determine whether a particular electricity-related claim can be recognised. Domestic ETS reporting and EU CBAM calculations must consequently remain distinct even when they draw on overlapping energy data.
Export competitiveness depends on the strength of the domestic price signal
Türkiye’s developing carbon market introduces a policy choice concerning the relationship between domestic industrial transition costs and the carbon-related expenses faced by exporters at the EU border.
A gradually increasing domestic allowance price could influence investment in lower-emissions production and allow a greater share of carbon-related revenues to be collected within Türkiye. Alternatively, continued reliance on EU border costs without an effective domestic carbon price would leave exporters more directly exposed to the European mechanism.
The allocation of public revenues, the availability of industrial transition support and the incentives for private investment are therefore relevant to the longer-term design of the Turkish system.
The balance between free allocation and carbon-price exposure will be particularly important. Extensive free allocation could weaken the financial incentive to reduce emissions, while rapid increases in industrial carbon costs could place pressure on exporters competing with producers from jurisdictions operating under different regulatory conditions.
Differences in sector coverage and reporting periods also present implementation risks. Manufacturers may need to calculate emissions under Turkish installation-level monitoring regulations and separately under EU product-specific CBAM methodologies. Maintaining appropriate calculation boundaries and assurance procedures will be essential to avoiding discrepancies between domestic reporting and export documentation.
Banks and investors assess the longer-term transition costs
Financial institutions evaluating Turkish industrial companies will need to consider the potential interaction between domestic allowance costs and EU CBAM exposure.
Industrial lending assessments may incorporate scenarios covering future carbon-price obligations, investments in energy efficiency, changes in production technology and possible shifts in demand from European customers.
Companies anticipating financial benefits from future CBAM deductions will need to establish the legal basis for those claims and provide evidence of actual carbon payments once the relevant obligations apply. Participation in the Turkish pilot or receipt of free allowances alone does not establish eligibility for a deduction.
The investment implications also extend to older industrial installations that may require significant upgrades to improve emissions monitoring and production efficiency. Stronger regulatory requirements can increase short-term expenditure while providing manufacturers with more reliable information for assessing their longer-term carbon exposure.
Türkiye’s approach may also provide a reference point for other European trading partners considering domestic carbon-pricing systems. Its implementation will depend not only on the introduction of the ETS framework but also on the development of reliable emissions reporting, effective allowance pricing and demonstrable payments that can be assessed under the EU’s third-country carbon-price deduction rules.
