ISTANBUL, 29 October 2026 — Türkiye is preparing a domestic emissions trading framework as the European Union’s Carbon Border Adjustment Mechanism (CBAM) begins to apply financial obligations to 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 design, 2026 is set as a monitoring and reporting year, while the pricing mechanism is expected to start in the 2027 system year. The framework establishes a domestic regulatory structure that could affect industrial investment choices and how Turkish exporters interact with European customers.
The initiative has trade relevance because Turkish manufacturers supply industrial materials and manufactured products to EU markets. A domestic carbon market could support production efficiency and emissions monitoring, and may enable EU importers to claim deductions for carbon costs that are genuinely paid in Türkiye.
Free allocation under the pilot raises CBAM deduction questions
The pilot includes 100% free allocation under the benchmark methodology referenced in regulatory announcements. While this does not automatically mean covered installations will have no payment obligation in all circumstances, it is a key factor when assessing how the domestic system aligns with the EU border mechanism.
Under CBAM, deductions for carbon prices paid in third countries are tied to qualifying amounts actually paid, subject to applicable regulatory conditions. The nominal market value of allowances, theoretical carbon costs, or allowances received free of charge should not be treated as proof of a payment eligible for deduction.
This distinction can make comparisons of carbon prices between Türkiye and the EU potentially misleading. Even if Türkiye introduces a domestic allowance price, exporters are expected to show the amount of carbon cost actually incurred before EU importers can determine whether a corresponding deduction applies.
For companies covered by the pilot, the immediate task is to separate participation in the domestic ETS from allowance allocation and any financial payments arising from the system. The existence of an emissions trading scheme alone does not establish that exporters have incurred a carbon payment recognised under EU CBAM rules.
Monitoring and reporting requirements run in parallel for ETS and CBAM
Manufacturers face two compliance tracks linked to different reporting needs. In Türkiye, covered installations must create 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 meets CBAM calculation and verification requirements. Although both systems rely on 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 substitute for documentation required for an EU CBAM declaration. Companies are expected to identify these differences when setting up monitoring and reporting infrastructure so that figures do not diverge across regimes.
The quality of industrial data also affects planning. Steel and cement installations able to identify emissions-intensive production stages, maintain complete activity records and apply reliable monitoring methodologies have a stronger basis for evaluating operational improvements.
Electricity generation links domestic pricing to industrial operating costs
The inclusion of electricity generation in the Turkish pilot adds a connection between domestic carbon pricing and competitiveness for energy-intensive industries. Changes in the generation mix and electricity costs can influence production expenses for steel, aluminium, cement and fertiliser manufacturers.
EU CBAM electricity treatment follows sector-specific requirements. Turkish manufacturers cannot assume that purchasing renewable electricity automatically reduces every emissions indicator relevant to exported products.
The recognition of any electricity-related claim depends on the applicable production methodology, the type of emissions being calculated and supporting evidence. As a result, domestic ETS reporting and EU CBAM calculations must remain distinct even when they draw on overlapping energy data.
Free allocation versus price exposure affects exporter competitiveness planning
Türkiye’s emerging carbon market introduces a policy choice on how domestic transition costs relate to carbon-related expenses faced by exporters at the EU border. A gradually increasing domestic allowance price could influence investment in lower-emissions production and potentially increase the share of carbon-related revenues collected within Türkiye.
Alternatively, reliance on EU border costs without an effective domestic carbon price would leave exporters more directly exposed to CBAM-related expenses. The allocation of public revenues, availability of industrial transition support and incentives for private investment are therefore relevant to longer-term system design.
The balance between free allocation and carbon-price exposure is described as particularly important. Extensive free allocation could reduce financial incentives to cut emissions, while rapid increases in industrial carbon costs could pressure exporters competing with producers subject to different regulatory conditions.
Banks evaluate interactions between future allowance costs and CBAM exposure
Financial institutions assessing Turkish industrial companies are expected to consider how domestic allowance costs may interact with EU CBAM exposure. Lending assessments may include scenarios covering future carbon-price obligations, investments in energy efficiency, changes in production technology and potential shifts in demand from European customers.
Companies expecting financial benefits from future CBAM deductions need a legal basis for those claims and evidence of actual carbon payments once relevant obligations apply. Participation in the Turkish pilot or receipt of free allowances alone does not establish eligibility for a deduction under CBAM rules.
The investment implications also extend to older industrial installations that may require upgrades to improve emissions monitoring and production efficiency. Stronger regulatory requirements can increase short-term expenditure while providing more reliable information about longer-term carbon exposure.
Türkiye’s approach may serve as a reference point for other European trading partners considering domestic carbon-pricing systems. Implementation depends not only on introducing an ETS framework but also on developing reliable emissions reporting, effective allowance pricing and demonstrable payments assessable under EU third-country carbon-price deduction rules.