The Climate Law has been adopted by the Grand National Assembly of Türkiye

The Climate Law numbered 7552 (the “Law”) has been adopted by the Grand National Assembly of Türkiye. It will come into force on the date of publication in the Official Gazette. The purpose of the Law is to combat climate change in line with Türkiye’s net zero emissions target by 2053 and green growth vision. The Law regulates certain activities and tools that aim to enhance international competitiveness of Türkiye and protect its economy, cities, agriculture, and food against adverse effects of climate change.

The key elements and mechanisms envisaged under the Law are as follows:

1. Activities to combat climate change

The Law divides activities to combat climate change into two as greenhouse gas emissions reduction activities and climate change adaptation activities.

Greenhouse gas emissions reduction activities

The Law provides that the greenhouse gas emissions will be reduced in line with the National Contribution Declaration of Türkiye (the “NCD”), net zero emission target and the strategies and action plans published by the Climate Change Presidency (“Precidency”).

Accordingly, institutions active in the sectors outlined in the NCD are required to implement greenhouse gas emission reduction measures, in line with the net zero emissions target and circular economy approach. The measures outlined in the Law include improving energy, water, and raw material efficiency; preventing pollution at its source; expanding the use of renewable energy; reducing carbon footprints; promoting clean or low-carbon fuels and raw materials; advancing electrification; developing and utilizing clean technologies; and establishing, implementing, and monitoring a zero-waste system.

Climate change adaptation activities

As per the Law, public institutions are to regulate their own climate change adaptation measures to minimise damages arising from climate change, in consultation with the Ministry of Environment, Urbanisation and Climate Change and relevant institutions, within the scope of their duties and responsibilities.

These measures include managing water resources, protecting ecosystems and biodiversity, preventing land degradation, sustaining carbon sink areas to mitigate deforestation and erosion, promoting sustainability of the agricultural sector through food security and strengthening resilience to climate-related disasters.

In line with the activities determined, relevant institutions are expected to adapt, prepare and implement (i) planning tools and (ii) impact, vulnerability and risk analyses related to climate change at national, regional and local scales.

2. Financing tools

The Law includes several financing tools such as (i) creation of an insurance system covering losses and damages arising due to climate change, (ii) development of green and sustainable capital markets instruments and (iii) establishment of incentive mechanisms regarding greenhouse gas emissions reduction and climate change adaptation activities.

3. ETS System and Carbon Pricing

The Law foresees that the Climate Change Presidency (the “Presidency“) will establish an emission trading system (“ETS”). ETS is defined as a national and international market-based mechanism operating based on the principle of setting an upper limit on greenhouse gas emissions which encourages the limitation of greenhouse gas emissions by trading allowances in the Law.

ETS is to be administered by Energy Exchange Istanbul, which is the market administrator. Pursuant to the Law, the market administrator is responsible for organizing the emissions trading system and overseeing the issuance, holding, transfer, cancellation, and retirement of allowances through the transaction registry system.

Enterprises that are within the scope of the ETS will be required to obtain greenhouse gas emission permits within three years from the date of entry into force of the Law and the Presidency will be authorized to extend such period for an additional two years upon a decision from the Carbon Market Board.

Pursuant to the Law, allowances are to be traded on the ETS market. Allowances are transferable, issued in dematerialized form within an electronic system, and provides the greenhouse gas emission right equivalent to one ton of carbon dioxide for a certain period of time. Furthermore, allowance obligations under the ETS might be covered by offsetting them with an equivalent amount of carbon credits. The Presidency will establish a national carbon crediting and offset system that generates carbon credits and regulate the principles of the system.

4. Administrative Fines

The Law provides different administrative fines for the  breach of duties such as operation of the enterprise without a greenhouse gas emission permit or non-delivery of the required amount of allowances within the respective deadlines.

Pursuant to the Law, a pilot phase will be conducted before the full implementation of the ETS, in which the administrative fines will be reduced by 80%. The scope, duration, and rules of the pilot phase will be set by the Carbon Market Board, in consultation with the stakeholders.

5. Conclusion

The enactment of the Law as a framework piece of legislation regulating the actions to achieve net-zero carbon emissions by 2053 will constitute the beginning of a new area for compliance requirements of companies. Financing transactions will be reshaped by the introduction of emissions trading system and carbon market, as well as green and sustainable capital markets instruments in Türkiye. Significantly, the Law aligns Türkiye with international climate commitments under the Paris Agreement and enhances its integration with global carbon markets in compliance with EU’s Carbon Border Adjustment Mechanism.