ESG: Climate Law is on the way

Climate Law is on the way

Following the introduction of the Carbon Border Adjustment Mechanism as part of the EU legislation, the importers from the countries which are not integrated into the EU’s emission trade system or have not adopted their own carbon pricing mechanisms or are not party to a related treaty between the EU and their country of domicile shall be under the obligation to pay carbon taxes according to the emission values of the facilities manufacturing the imported goods. Considering these developments in the EU in terms of the net zero emission target of the Green Deal, Türkiye is also preparing to adopt its own carbon pricing mechanism and to enact legislation to fight against climate change through the second Draft Climate Law, which brings considerable changes as compared to the first one and which was recently submitted to public’s view.

According to the Draft Climate Law, the following implementation instruments will be used to fight against climate change in line with the principles of climate justice, precaution, participation, integration, sustainability, transparency, fair transition and progress:

  • Development of resources for climate financing and incentivization of green/sustainable capital market instruments by governmental authorities (i.e. establishment of an emission trading system market and voluntary carbon market by Borsa Istanbul);
  • Preparation of reporting standards, directing of financial resources to fight against climate change, establishment of incentive mechanisms and coordination of taxonomy studies by the Climate Change Department;
  • Establishment of a research institute within TUBITAK;
  • Organising trainings to increase public awareness;
  • Revision of curriculums to include climate change factor to Turkish education;

In addition to the above, as a carbon pricing mechanism, an emission trading system will be established limiting or encouraging the limitation of greenhouse gas (“GHG”) emissions and GHG-causing activities through the trading of GHG emission allowances in parallel to the EU.

Businesses, the operations of which result in carbon emission, will become obliged to obtain a GHG emission permit to continue their operations within 3 years as of the enactment of the Draft Climate Law.

The Draft Climate Law also regulates the establishment of a Carbon Pricing Board, which will be authorised to determine the carbon pricing instruments (i.e. emission trading system) and breakdown of free allowances which will be granted within the scope of an emission trading system.

Finally, a settlement system will be introduced by meeting the allowance obligations with carbon loans.

The Draft Climate Law envisages a grace period during which the administrative fines imposed due to incompliance with the law will be reduced by 50%. The length of this period and the content will be finally determined based on the views of governmental authorities and civil society organizations.

The Draft Climate Law, which mainly focuses on emission trading, is a major step for Türkiye, especially in relation to its meeting the standards of the Green Deal Action Plan and its trading with the EU.   Since the details and operation of the system will be regulated by secondary legislation, a clearer view can be formed in terms of the actual functionality of the newly introduced legal framework regarding the elimination of carbon tax risk under the CBAM mechanism, reaching net zero emission targets and especially its ability to fight against climate change, once the secondary legislation is enacted.

A.Deniz Altınay
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