A market for carbon
In the Official Gazette of 21 October 2026, EPDK published the Regulation on the Operation of the Türkiye Emissions Trading System Market. It sets how allowances in the emissions trading system created by the Climate Law (TR ETS) will be distributed and traded: EPİAŞ will run the market, allowances will sit in EPİAŞ’s Transaction Registry, and a central clearing institution will handle settlement and collateral.
The regulation took effect on publication, but that does not mean carbon will be priced tomorrow. Until the market opens for real trades, EPİAŞ will run a simulation with no delivery or payment; in the pilot phase all allowances are allocated free of charge. This article looks at the market rules, the timetable, and when and how the system will reach the electricity market.
Three texts, five institutions
TR ETS rests on three layers of legislation. Climate Law no. 7552, in force since July 2025, created the system: the Climate Change Presidency (İDB) sets up the ETS, EPİAŞ runs the market, and primary market revenue goes to the central budget. The Türkiye Emissions Trading System Regulation of 27 August 2026 covers scope, permits, allocation and the compliance cycle. EPDK’s regulation of 21 October sets the market’s operating rules. Details of the pilot phase are in a Carbon Market Board (KPK) decision and İDB procedures.
Who is covered
The TR ETS Regulation sorts installations into three categories by annual emissions estimated from capacity: up to 50,000 tCO₂e is A, up to 500,000 tCO₂e is B, above that is C. ETS obligations apply only to categories B and C; category A only monitors, reports and verifies. Power plants come in as combustion installations with a total rated thermal input of 20 MW or more.
The pilot phase covers 2026 and 2027 emissions and is limited to five sectors: power generation, cement, iron and steel, aluminium and fertilisers. 2026 is a reporting-only year with no surrender obligation. The price mechanism starts with the 2027 system year, and allowances for 2027 emissions must be surrendered by 30 November 2028. There is no banking or borrowing in the pilot. The first trading period runs from 2028 to 2035.
Administrative fines are reduced by 80% during the pilot phase. Source: Climate Law art. 14 and provisional art. 1; TR ETS Regulation; pilot phase procedures.
The Transaction Registry
Allowances will be held in installation-level accounts in the Transaction Registry (İKS) that EPİAŞ will set up. An allowance is a right to emit 1 tonne of CO₂e for a set period; it is issued in book-entry form, can be transferred and ends when it is surrendered against verified emissions. Allowances not surrendered by the end of their validity are cancelled.
Covered operators must open an İKS account. That requires a participant agreement with the central clearing institution and a registry agreement with EPİAŞ, which reviews applications within 10 working days. Registry operations run on full working days from 10:00 to 17:00. An operator that fails to submit its verified emissions report on time cannot use its account for anything other than surrender until the report is in.
The regulation adds two more limits. Allowances cannot be pledged as collateral, and free allowances cannot be seized until they leave the account they were first credited to. An installation that leaves the ETS can only sell the allowances left in its account after meeting its surrender obligation; if it has a shortfall for the next year, it can only buy as much as it needs.
Primary market: auctions
In the primary market, where allowances are auctioned, EPİAŞ is the single seller. İDB sets the auction calendar; EPİAŞ publishes it within 15 working days of the national allocation plan and announces each auction at least 10 working days in advance. An auction lasts at least two hours on a session day.
Bids are sealed and buy-only. The minimum bid is one lot, or 100 allowances, and the price tick is TL 0.50/tCO₂e. Bids are ranked from the highest price; the price of the last bid at which the volume offered is fully or partly matched becomes the Allowance Reference Price (TRF), and all winners pay that single price.
If total demand falls short of the volume offered, the auction is cancelled outright rather than partly filled. The cancelled volume is spread evenly over the year’s remaining auctions; if the last auction fails, it is repeated within 15 working days at most twice, and otherwise the volume rolls to the next year. Sale proceeds go to the central budget on the first working day after collection.
In the pilot all allowances are free, so there is no regular auction volume in the primary market.
Additional reserve and top-up price
The additional reserve is a safety valve opened by KPK decision for installations that cannot meet their surrender obligation. It is capped at 10% of the cap. Only participants that meet the conditions in the TR ETS Regulation and are notified by İDB can bid; allowances bought cannot be resold and go straight to the installation’s surrender account.
The minimum bid price for the additional reserve is a deterrent: 50% above the higher of the weighted average prices in the primary and spot markets over the last three months, as of the last working day of November. EPDK sets the maximum price after consulting İDB. A bid cannot exceed the volume the installation must surrender but does not hold.
The Supplementary Allowance Price Mechanism is a different tool. It runs at the request of operators in auctions İDB designates; each bidder pays its own bid price and no TRF is set. A provisional rule applies to 2026: an operator may pay the supplementary price for allowances equal to its verified emissions, but these allowances do not count towards compliance. In other words, the 2026 payment is a voluntary carbon payment.
The minimum and maximum price corridor KPK may set does not apply to additional reserve or supplementary price auctions. If needed, EPDK may cap the volume per bid in the primary market and the total allowances held in an account, after consulting İDB.
Secondary market: spot and bilateral
The spot allowance market uses continuous trading: sessions run on at least four working days a month from 10:00 to 15:00. Orders match by price and time priority, the resting order sets the price and participants do not see their counterparty. Sell orders are limited to allowances in the account, so there is no short selling, and self-matching is prevented. When a session closes, unmatched orders are cancelled and EPİAŞ publishes the session’s weighted average price.
There is no futures market yet; if one is set up, EPDK will design it together with the environment and energy ministries and the Capital Markets Board. Bilateral contracts are allowed unless the EPDK Board decides otherwise: both parties notify them between 10:00 and 17:00 and the transfer takes place at 17:05 the same day. The notification carries no price, so bilateral prices will not be visible.
Collateral, clearing and fees
EPİAŞ is the central counterparty in the primary and secondary markets: seller to every buyer and buyer to every seller. Cash settlement and collateral are handled by a central clearing house set up under Law no. 6362; the regulation does not name it, and EPİAŞ will designate and announce it. Collateral is calculated on the session’s buy orders and matches plus the operating fee and VAT; buy orders above available collateral are not accepted.
Accepted collateral includes cash in lira and in dollars or euros, irrevocable electronic letters of guarantee from banks in Türkiye, government bonds, lease certificates and Eurobonds. Haircuts apply to everything except lira cash and lira letters of guarantee.
EPDK sets the fees each year. For 2026 it set EPİAŞ’s ETS revenue cap at TL 50 million, the spot trading fee at TL 4.00/tCO₂e and the annual participation fee at TL 100,000, all excluding VAT. Half of the operating fees also goes to the budget.
Effect on power prices
Power plants are the largest sector in the pilot, but we do not expect a carbon cost to feed into the PTF in 2027. Under the pilot rules, the electricity benchmark is set plant by plant: the weighted average of the plant’s own emission intensity over 2023–2027, multiplied by its verified output for the year. A plant whose intensity is above that average runs a shortfall and one below it a surplus; a sectoral correction factor makes total shortfalls equal total surpluses. With 100% free allocation, the sector as a whole has no net allowance shortfall; allowances only change hands between plants.
In this design the carbon cost of an extra MWh is close to zero unless the plant’s intensity departs from its own benchmark. The pilot therefore does not change where coal and gas sit in the merit order; for power plants the real burden is monitoring, reporting and verification. As a rule, the EU ETS has not given free allocation to power generation since 2013; Türkiye has taken a different path in the pilot.
The picture changes if the free allocation rate is cut after 2028. With no free allocation, every €10/t of carbon adds about €9–11/MWh to a coal plant’s marginal cost and about €3.7/MWh to a combined-cycle gas plant. The gap grows with the carbon price and could reorder the evening merit order.
Wind, solar and hydro plants have no direct emissions, so they have neither ETS obligations nor free allocation. A YEK-G certificate is not an ETS compliance unit, and İDB’s draft offset regulation also bars YEK-G from use as an offset. Merchant renewables will gain from the ETS only once free allocation falls and carbon cost reaches the PTF.
The CBAM link
The EU’s Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase on 1 January 2026. Importers of iron and steel, aluminium, cement, fertilisers, hydrogen and electricity must surrender certificates for 2026 imports by 30 September 2027; certificate sales start on 1 February 2027. The certificate price ranged between €75 and €82/t in the first three quarters of 2026.
The mechanism allows a deduction for the carbon price effectively paid in the country of origin, net of free allocation. With 100% free allocation in the pilot, the deduction available from ordinary ETS compliance is close to zero. The 2026 supplementary price provision looks designed to close that gap, but whether the EU will treat the payment as “effectively paid” depends on a Commission implementing act that has not yet been adopted.
Electricity exports get no free allocation adjustment; power sold to the EU is subject to CBAM on its full embedded emissions from day one.
Open questions
Our reading: spot trading in real allowances is unlikely to start before the second half of 2028. Reports on 2027 emissions are due on 30 April 2028, the national allocation plan follows within 60 days, and free allocation applications and their review come after that. The draft provided for advance allocation at the start of the pilot; the final text does not. Trades in 2027 will most likely be limited to supplementary price and additional reserve auctions.
For investors
TR ETS now has its market infrastructure, but not yet a price. In the pilot, the real work for power plants and heavy industry is submitting monitoring plans by 27 January 2027, getting 2026 emissions verified and opening registry and clearing accounts. Carbon will become a real cost item in the first trading period after 2028, when the free allocation rate falls.
For power investors the question is not today’s carbon price but how fast free allocation will shrink. Without free allocation, every €10/t of carbon makes coal about €5–7/MWh more expensive relative to gas. Long-term PPAs and capacity planning depend on how this gap widens towards the 2030s. Renewables and storage are the assets that will gain most from evening prices once carbon reaches the PTF.
At Frekans we are mapping, plant by plant, whether the plants we manage and the customers in our portfolio fall under TR ETS, and tracking the monitoring and reporting calendar alongside the market timetable for those that do. For projects at the investment stage we add a carbon price to the PTF model with scenarios in which free allocation falls after 2028.
