A new legal baseline

On 23 July 2025, the International Court of Justice (ICJ) delivered a unanimous advisory opinion on the obligations of States in respect of climate change — the first time the United Nations' (UN) principal judicial organ has examined the international legal framework applicable to the climate system. The ICJ rejected the argument, advanced by several major emitters that the climate treaties operate as a self-contained regime displacing other rules. Instead, it read the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement alongside customary international law, the law of the sea and international human rights law, holding that States owe a due diligence obligation to prevent significant harm to the climate system.

Two findings matter commercially more than the rest. First, the ICJ held that a State's failure to take appropriate action — including through fossil fuel production and consumption, the granting of exploration licenses or the provision of fossil fuel subsidies — may amount to an internationally wrongful act attributable to that State. Secondly, breach triggers the ordinary consequences of State responsibility, including cessation and, in principle, reparation to injured States.

The opinion did not arrive in isolation. International Court of Law of the Sea (ITLOS) reached parallel conclusions on greenhouse gases as marine pollution in 2024; the European Court of Human Rights (ECHR) held in Klima Seniorinnen judgement that inadequate climate action can violate the European Convention on Human Rights; and the Inter-American Court of Human Rights (IACtHR) went further in 2025, holding that due diligence duties extend to companies and that States must require enterprises to reduce emissions and disclose value-chain emissions.

These international court judgments show that a coherent judicial consensus formed with unusual speed.

Why an opinion addressed to States reaches boardrooms

Advisory opinions do not bind companies, states or other actors of international law. However, they reach them through four transmission mechanisms, each already operating.

Regulation: The ICJ opinion was explicit that States must regulate public and private operators within their jurisdiction, with effective enforcement. Governments that under-regulate now face a characterization of that inaction as unlawful. The rational board response is to price in tightening, not loosening.

Asset viability: According to the International Energy Agency (IEA) NetZero by 2050 report, the number of countries announcing pledges to achieve net zero emissions over the coming decades continues to grow. But the pledges by governments to date – even if fully achieved – fall well short of what is required to bring global energy-related carbon dioxide emissions to net zero by 2050. In legal practice, where licensing and subsidy are themselves flagged as potentially wrongful, the legal foundation of certain revenue streams becomes less secure. As a result, as long as states pledged to achieve the net zero pledges of states, they are expected to impose stricter controls and more legal obligations on investors.

Standard of care: The Grantham Research Institute of the London School of Economics finds that at least half of decisions in corporate framework cases now cite cases brought against governments. In other words, domestic courts borrow the concepts and rules of the international courts.

Directors' duties: Once regulation and litigation are foreseeable, failure to assess them becomes a governance question — assessed under ordinary care and diligence standards in ordinary board minutes.

Litigation is maturing, not receding

The Grantham Institute’s 2026 snapshot records 249 new climate cases filed in 2025, bringing the global total past 3,600 since 1986, three-quarters of them in the last decade. More than 50 strategic cases were filed against companies in 2025 alone, spanning energy, finance, transport, real estate and consumer goods.

These statistics indicate that the perspective on climate change as a legal matter is shifting. Climate-washing claims remain the most common corporate case type, but new filings are slowing as claimants move toward "total inaction" cases targeting companies with no credible plan at all. Financial institutions are now inside the perimeter, with Milieudefensie v ING case testing whether financed emissions attract the same duty of care.

The near-misses were instructive. In Lliuya v RWE case, the Hamm court in Germany dismissed a Peruvian farmer's claim in May 2025 for want of a sufficiently concrete risk to his property — but accepted that a single emitter could in principle bear proportionate liability, and that the consequences of emissions were foreseeable to a major energy producer decades ago. In Milieudefensie v Shell, the Hague Court of Appeal quashed the 45% reduction order while confirming that Shell owes an obligation to counter dangerous climate change; the case is now before the Dutch Supreme Court, with judgment expected around January 2027. Neither claimant obtained a remedy. Both left behind reasoning the next claimant would use.

From duty of care to duty of vigilance: the TotalEnergies breakthrough

That reasoning has now produced an order. On 25 June 2026, in NAAT and others v TotalEnergies (TotalEnergies Judgment), the Paris Judicial Court ordered the company to update its vigilance plan within six months to address climate risks arising from its Scope 3 emissions — the combustion of the oil and gas it sells, roughly 90% of its carbon footprint — and to adopt and effectively implement measures that are "reasonable, concrete and consistent" to mitigate those risks. The Court declined to prescribe specific measures under the French Duty of Vigilance Law, but retained judicial oversight of implementation, and reserved the claims brought under the Ecological Damage Law — including a requested emissions reduction order and a ban on new oil and gas projects — pending review of the revised plan.

What separates this from Shell is the remedy. There the duty was affirmed and the reduction order set aside, leaving the claimants with a principle and nothing to enforce. Here the Court also declined to dictate what TotalEnergies must do — but it ordered the company to produce a plan measured against a standard the Court itself defined, and kept the file open to verify that it does. An obligation of result, supervised, is a different thing from a declaration.

Two findings set that standard, and both narrow the company's options. The first is the benchmark. The Court refused to treat vigilance as something the company could calibrate for itself, interpreting the statutory duty by reference to the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, which require alignment with internationally agreed temperature goals. The revised plan will therefore be assessed against 1.5°C, not against TotalEnergies' own targets. The second is causation. The Court found a very strong causal link between extraction and downstream combustion: hydrocarbons that are extracted are, on any realistic view, eventually burned, and the remaining carbon budget depleted accordingly. That reasoning is what anchors the Scope 3 obligation described above — it forecloses the argument that emissions from products sold are someone else's responsibility.

Read alongside the same court's earlier greenwashing decision, which found the company's new field developments irreconcilable with its own carbon-neutrality claims, the practical consequence is concrete: a plan that leaves sales volumes untouched is unlikely to satisfy a court that has already held both that 1.5°C is the yardstick and that extraction drives combustion. The next hearing is listed for 21 January 2027.

For companies with no French footprint, the most consequential passage is elsewhere. This is the first judicial interpretation of the Corporate Sustainability Due Diligence Directive, and the Court held that climate change constitutes an adverse environmental impact within the due diligence framework of Articles 7 to 16—despite the Omnibus I package deleting the former Article 22, the climate transition plan obligation. That directly rebuts the defense, already deployed in the Dutch proceedings, that removing Article 22 extinguished any duty to mitigate emissions. The Belgian court hearing Falys v TotalEnergies has adjourned specifically to take the French judgment into account.

The European counter-current

Against this, the EU moved the other way on disclosure decisively. Directive (EU) 2026/470 — Omnibus I — was published on 26 February 2026 and entered into force on 18 March 2026, cutting considerably deeper than the Commission's original proposal.

Under the amended Corporate Sustainability Reporting Directive (CSRD), obligations apply broadly to undertakings with over 1,000 employees and €450 million in net turnover; small- and medium-sized enterprises (SMEs) and financial holding undertakings fall out of scope; sector-specific standards are dropped. Non-EU groups are captured where EU turnover exceeds €450 million and at least one subsidiary or branch exceeds €200 million. Transposition is due by 19 March 2027. The Corporate Sustainability Due Diligence Directive (CSDDD) is narrowed to companies with above 5,000 employees and €1.5 billion in turnover, with compliance pushed from July 2027 to July 2029. Both instruments include review clauses that allow the scope to be extended again.

Carbon pricing, by contrast, moved in the opposite direction. The Carbon Border Adjustment Mechanism (CBAM) entered its definitive regime on 1 January 2026. The mechanism works by making importers pay, at the EU border, the carbon price that EU producers pay inside the emissions trading system. An importer of covered goods — cement, iron and steel, aluminium, fertilisers, hydrogen and electricity — must first calculate the emissions embedded in each consignment, then buy CBAM certificates covering that quantity, and finally hand those certificates back to the authorities once a year in a number matching the previous year's imports. That final step, the surrender, is where the cost actually crystallises; everything before it is measurement and purchase.

The calendar follows from that structure. Importers above a 50-tonne annual threshold — a de minimis that exempts most small importers while still capturing the overwhelming majority of embedded emissions — must submit verified annual declarations. Certificate sales open on 1 February 2027, and the first surrender falls due by 30 September 2027 in respect of 2026 imports, priced against quarterly EU auction averages. Any carbon price already paid in the country of production is deducted, so the border charge falls only on the unpriced remainder. Free allocation to CBAM sectors phases out across 2026–2034, and the importer's exposure rises in step as it does.

The obligation is legally the importer's; commercially it lands on the non-EU producer that must supply verified product-level data. A supplier that cannot produce it will find the importer applying default values — which are deliberately conservative, and therefore expensive.

The lesson is not that Europe has deregulated, but that the disclosure perimeter narrowed while the pricing and liability perimeters widened — and that, in the TotalEnergies Judgement as French court has now held, narrowing the statute did not narrow the underlying duty.

The multilateral and national layers

COP30 in Belém (November 2025) produced the Global Mutirão decision, a tripling of adaptation finance by 2035 and the Belém Mission to 1.5. Despite support from more than 80 countries, it did not produce a fossil fuel transition roadmap; the final text does not mention fossil fuels at all. Unilateral trade measures — read: CBAM — were among the most contested items and will remain so.

For Turkish business the national layer is now concrete. Turkish Climate Law no. 7552 entered into force on 9 July 2025, establishing the Turkish Emissions Trading System. The 2026–2027 pilot covers installations in CBAM-exposed sectors — cement, iron and steel, aluminium, fertiliser — emitting above 50,000 tCO₂e annually, with 100% free allocation and no financial liability during the pilot. The logic is commercial: carbon priced domestically is carbon not paid at the EU border.

What this means in practice?

• Treat the vigilance plan as a litigated document, not a compliance formality: After TotalEnergies, Scope 3 assessment and concrete mitigation measures are the minimum, and courts will supervise implementation.
• Do not read Omnibus I as relief from duty: The scope of reporting narrowed; the standard of care did not.
• Map CBAM exposure through the supply chain, not just at customs entry: Verified product-level emissions data is now a condition of market access, and the contractual burden of producing it should be allocated expressly.
• Watch the future cases: The Dutch Supreme Court in Mileudefensie v. Shell and Milieudefensie v ING case and the Belgian Falys case will each move the standard before any legislature does.

Conclusion

The compliance perimeter has narrowed and the liability perimeter has widened. International law now supplies both the vocabulary and the evidentiary architecture that domestic courts are using to convert climate responsibility into specific corporate obligation — and, since June 2026, into enforceable orders. Reading the EU's simplification package as permission to stand down would be shortsighted.

Introduction

With the entry into force of the Climate Law No. 7552 on 9 July 2025 (the “Climate Law”), the regulatory landscape of climate change in Türkiye is no longer merely a matter of corporate social responsibility or sustainability reporting. For businesses, particularly those whose operations contribute significantly to greenhouse gas emissions, climate regulation now constitutes a binding legal compliance framework.

The Climate Law anchors this transformation within an integrated regulatory framework designed to drive the reduction of greenhouse gas emissions and facilitate the transition toward the net-zero target. This framework rests on interconnected mechanisms for permitting, monitoring, reporting, and enforcement.

Within this regulatory architecture, the implementation framework of the Emissions Trading System (“ETS”), designed as a market-based instrument, has been clarified by the Regulation on the Turkish Emissions Trading System (the “ETS Regulation”), which was published and entered into force on 27 August 2026. The ETS Regulation establishes an integrated regulatory framework governing the scope of the system, greenhouse gas emission permits, the monitoring, reporting and verification of emissions, as well as allowance allocation and surrender obligations.

In addition, decisions adopted by the Carbon Market Board have determined the sectoral scope and key implementation principles of the ETS pilot phase covering the 2026 and 2027 emissions years. The ETS has therefore moved beyond a regulatory framework expected to apply in the future and now directly affects existing data monitoring and reporting, permitting and compliance processes, particularly for operators falling within the scope of the pilot phase.

Greenhouse Gas Emission Permit: A Precondition for Operation

The Climate Law establishes the greenhouse gas emission permit as a prerequisite for the operation of installations falling within the scope of the ETS. Under this framework, activities covered by the ETS that generate direct greenhouse gas emissions may not be carried out without first obtaining a greenhouse gas emission permit from the Directorate of Climate Change (the “Directorate”).

The ETS Regulation determines inclusion within the system through a categorisation model based on installations’ annual emission levels and the nature of their activities. Accordingly, Category B and Category C installations with annual emissions exceeding 50,000 tonnes of CO₂e are, as a general rule, included within the scope of the ETS. The Regulation nevertheless provides for certain exemptions in respect of specific activities and installations, and the scope of the ETS does not coincide with the scope of obligations relating to the monitoring, reporting and verification of greenhouse gas emissions.

The permit regime is also notable that the emission permit is not designed as a one-off administrative act limited to the initial application stage. Greenhouse gas emission permits are valid for a period of five years and must be renewed prior to their expiry. In addition, changes concerning the permit holder, the nature or operation of the installation, or the installation category must be notified to the Directorate within 30 days.

These requirements mean that corporate actions such as mergers and acquisitions, transfers of installations or businesses, capacity increases, modifications to production processes and organizational restructurings must also be assessed from a climate compliance perspective. In particular, where the operator changes, the new operator is deemed to assume the commitments and obligations of the previous operator under the ETS Regulation. Accordingly, emission permits and ETS obligations have become relevant considerations in corporate transactions from both a legal due diligence and contractual risk allocation perspective.

Data Obligations: Monitoring, Reporting and Verification

Under the Climate Law and the ETS Regulation, data obligations form one of the core pillars underpinning the operation of the system. The Law ties the ETS compliance obligation to verified annual greenhouse gas emissions and requires operators to surrender allowances corresponding to their verified emissions.

The Law also grants the Directorate broad authority to request data. For the purposes of implementing the Law, the Directorate may directly request any information, documents and data it deems necessary from natural and legal persons. Companies receiving such requests are obliged to provide the requested information free of charge and within the prescribed timeframes.

The ETS Regulation implements this data framework through a monitoring plan and annual reporting requirements. Operators are required to prepare a greenhouse gas emissions monitoring plan specific to their installations and submit it to the Directorate. They must also report their emissions and activity levels for the preceding calendar year by 30 April of each year. Emissions reports must undergo independent verification before submission to the Directorate, and verification processes are, as a general rule, carried out by verification bodies appointed through the Central Electronic Verification Body Assignment System (MEDAS).

The Regulation further requires operators to retain data and information records relating to the monitoring and reporting of emissions for at least ten years. Changes to information and documents previously submitted to the Presidency, or to matters that may affect the relevant activities or monitoring plan, must be notified within 30 days. This framework requires companies to address emissions data not merely as an annual reporting exercise, but through continuous internal control mechanisms covering data generation, accuracy, retention and the monitoring of relevant changes.

In relation to the free allocation mechanism, the ETS Regulation also requires the preparation of a monitoring methodology plan in addition to the monitoring plan. The monitoring methodology plan sets out the methodology for monitoring activity levels and related data forming the basis for free allocation. Operators falling within the scope of the pilot phase are required to submit their first monitoring methodology plans to the Directorate within two months following the entry into force of the Regulation. This requirement should therefore be given particular attention in the short-term compliance planning of companies covered by the pilot phase.

Pilot Phase and Allowance Obligations

The scope of the pilot phase envisaged prior to the full implementation of the ETS has been further clarified through decisions adopted by the Carbon Market Board. The pilot phase covers the 2026 and 2027 emissions years and applies to Category B and Category C installations operating in the electricity generation, cement, iron and steel, aluminum and fertilizer sectors.

There is an important distinction between years 2026 and 2027 in the implementation of the pilot phase. While operators covered by the pilot phase are subject to reporting obligations for the 2026 system year, the pricing mechanism is expected to become operational in the 2027 system year. Accordingly, 2026 is not merely a preparatory period during which companies are expected to monitor regulatory developments; it marks the point at which the infrastructure for generating and verifying the emissions and activity data underpinning the system must begin to operate in practice.

The core financial compliance mechanism within the ETS is the surrender of allowances. For each emissions year, operators are required to surrender through the Registry System allowances corresponding to their verified greenhouse gas emissions. Free allocations, however, are not calculated simply by covering an installation’s historical emissions, but are determined on the basis of activity levels and applicable benchmarks. Although the free allocation rate for the pilot phase has been set at 100%, this does not mean that all actual emissions of an operator will necessarily be covered by free allowances.

This framework moves allowance management beyond the sphere of environmental compliance and connects it directly with companies’ financial planning and risk management processes. In particular, ahead of the introduction of the pricing mechanism in 2027, companies should begin incorporating their emissions profiles and potential allowance requirements into their financial planning processes.

Sanctions for Failing to Comply

The Climate Law establishes a layered enforcement structure for non-compliance with ETS obligations. Administrative sanctions may be imposed for failures such as the late submission of verified greenhouse gas emissions reports, the operation of installations without an emission permit and failure to meet allowance surrender obligations.

Where the allowance surrender obligation is not fulfilled within the prescribed period, an administrative fine indexed to the market price is imposed for each allowance not surrendered, and the shortfall is added to the following year’s surrender obligation. Payment of the administrative fine does not extinguish the operator’s obligation to surrender the outstanding allowances.

Where the verified emissions report is not submitted within the prescribed timeframe, transactions in the operator’s Registry System account, other than those related to the surrender obligation, may be temporarily suspended. Although this restriction is lifted upon submission of the report, the relevant administrative sanctions may nonetheless apply.

The Law also provides for more severe consequences in cases of repeated non-compliance. Where a specified proportion of allowance surrender obligations remains unfulfilled for three consecutive years, the greenhouse gas emission permit may be revoked. In addition, the relevant operator may be barred from obtaining a new greenhouse gas emission permit for a specified period.

During the pilot phase, administrative fines imposed for breaches of obligations under the Law are applied at a rate reduced by 80%. Nevertheless, the pilot phase should not be regarded as a transitional period during which compliance obligations do not apply. In particular, reporting, data management and permitting processes should already be integrated into companies’ corporate compliance programs during this period.

Conclusion

The regulatory framework introduced by the Climate Law and significantly clarified through the ETS Regulation establishes a new and multi-layered compliance landscape for companies. Taken together, the emission permit requirement, data monitoring, reporting and verification processes underlying free allocation and the sanctions built around allowance surrender ensure that climate legislation directly affects corporate operations, financing and governance.

With the commencement of the pilot phase covering 2026 and 2027, this compliance landscape is no longer merely a matter of forward-looking preparation, particularly for operators falling within its scope. Companies should determine the position of their installations and activities under the ETS; monitor the processes relating to emission permits, monitoring plans and monitoring methodology plans; establish internal controls for the generation and retention of emissions data; and begin assessing the potential financial implications of the pricing mechanism scheduled to become operational in 2027.

As secondary legislation and administrative practice continue to evolve, certain technical aspects of the system are expected to become clearer. Nevertheless, the existing regulatory framework already demonstrates that ETS compliance has become an ongoing compliance area requiring coordinated management across companies’ legal, sustainability, operational and finance functions. Early compliance readiness is poised to become a critical differentiator in the coming period, particularly for managing regulatory risk, maintaining competitive positioning and securing access to financing.

Introduction

Following the European Union’s (“EU”) launch of the Green Deal in 2019, the transition into a green economy has been framed not only as an environmental imperative but also as a new growth strategy. The Green Deal seeks to combine the reduction of emissions with the preservation of economic competitiveness. To translate these objectives into practice, the EU has relied on and expanded market-based instruments such as the Emissions Trading System (“ETS”) and the Carbon Border Adjustment Mechanism (“CBAM”), established by Regulation (EU) 2023/956 (the “CBAM Regulation”), which together aim to price carbon, encourage the reduction of emissions and address the risk of carbon leakage. With the initial phase of the CBAM transitional period ending on December 31, 2025, the definitive regime took effect on January 1, 2026. Ahead of that changeover, the EU adopted Regulation (EU) 2025/2083, in force since October 20, 2025, which introduced significant simplifications to the CBAM framework, and completed the operational architecture through a package of implementing and delegated acts released on December 17, 2025. The European Commission has since supplemented that framework with ten guidance documents published on August 14, 2026.

National Carbon Pricing Framework

Türkiye’s response to this transformation has taken shape along two principal pillars. The first is the enactment of Climate Law No. 7552 (“Climate Law”), published in the Official Gazette of July 9, 2025, which establishes the overall legal framework for national climate policy and sets out Türkiye’s commitments, institutional structure and policy instruments in line with international developments. The second pillar is now the binding law: the Turkish Emissions Trading System Regulation (“TR ETS Regulation”) that was published in the Official Gazette No. 33353 of August 27, 2026 and entered into force on the same date, replacing the 2014 Regulation on the Monitoring of Greenhouse Gas Emissions. Taken together, these two instruments illustrate a step-by-step regulatory approach, where a general legislative framework is followed by secondary rules that put carbon pricing into practice through a market-based system. The Climate Law provides the main regulatory structure for Türkiye’s 2053 net zero emissions target. For the private sector, particularly in greenhouse gas–intensive sectors, carbon footprint measurement and emissions management is now a compliance obligation rather than a voluntary exercise.

Coverage turns on Annex-1 of the TR ETS Regulation, which lists the activities within scope, and on the size of the installation. Installations are sorted into three categories by annual emissions calculated on installed capacity: Category A at or below 50,000 tonnes of CO₂e, Category B between that level and 500,000 tonnes, and Category C above 500,000 tonnes. Trading obligations attach to Categories B and C. Category A installations remain outside the market but must still monitor, report and verify their emissions, so falling below the threshold does not take a company altogether out of the regulatory framework. Installations belonging to schools, universities, hospitals and defense industry undertakings are likewise held outside the TR ETS for the activities they carry out, while their monitoring and reporting obligations continue.

The Regulation also fixes a number of dates. Installations covered by the pilot phase have two months from entry into force to file their first monitoring methodology plans electronically, which brings that deadline to October 27, 2026, although the Directorate of Climate Change may extend it to six months. Emissions and activity levels for the preceding year must be reported by April 30 each year, a period the Directorate may extend by up to one month, and the report has to be verified beforehand by an accredited body assigned through the central electronic verifier assignment system (MEDAS). Supporting records are kept for at least ten years. Emission permits run for five years and must be renewed at least six months before expiry. Under the Climate Law, companies within the TR ETS count as permit holders for three years from July 9, 2025, and that period may be extended by up to two years.

Two questions of design are still open. The Regulation does not fix the dates of the pilot phase. Its scope, duration and procedures are left to the Carbon Market Board, which will first take the views of the relevant institutions and non-governmental organizations. The first application period is to run in two sub-periods, again without dates in the text.

Beyond regulatory compliance, the emergence of parallel carbon pricing systems in the EU and Türkiye is likely to influence contractual risk allocation, pricing mechanisms, and supply-chain governance. As carbon costs become increasingly quantifiable, climate exposure is expected to factor more prominently into commercial negotiations, long-term procurement strategies, and cross-border investment decisions. A working domestic carbon price also bears on CBAM exposure, since a carbon price actually paid in the country of origin can be deducted from the CBAM obligation where the evidentiary requirements of the CBAM Regulation are met. The TR ETS Regulation expressly contemplates agreements providing for mutual recognition of allowances with other emissions trading systems, and electronic linking between them.

Simplifications and the Compliance Calendar the 2026 Definitive Phase

The simplifications introduced by Regulation (EU) 2025/2083 have also clarified the timeline that Turkish exporters and their EU importers will need to follow:

• The “De Minimis” Exemption: A derogation exempts importers from CBAM obligations where the cumulative net mass of imported goods in a calendar year does not exceed 50 tonnes. This applies to iron, steel, aluminum, fertilizers, and cement, though it specifically excludes electricity and hydrogen.
• Extended Reporting and Surrender Deadlines: Authorized CBAM declarants have until September 30 of the year following importation to submit their annual declaration and surrender certificates. This provides additional time to collect data and ensure verified emissions reporting. For goods imported in 2026, both obligations fall due on September 30, 2027.
• Deferred Certificate Purchases: Certificate sales open on the EU’s common central platform on February 1, 2027, so no certificates can be purchased during 2026, and those covering 2026 imports are acquired retrospectively in 2027. Pricing for that first year follows a dedicated method, with certificates for 2026 calculated by reference to quarterly averages of EU ETS allowance prices, before a weekly reference takes over from February 1, 2027 under Commission Implementing Regulation (EU) 2025/2548. The quarterly holding requirement applies from 2027 onwards, from which point declarants must hold, at the end of each quarter, certificates covering at least 50% of the embedded emissions accrued since the start of the calendar year.
• Flexibility for 2026 Applications: To avoid trade disruptions, importers who submitted were permitted to continue importing provisionally, even above the 50-tonne threshold, until a decision on their application took effect. That window has now closed, and authorization is a precondition for importing CBAM goods above the threshold.
• Alignment of System Boundaries: To simplify application for third-country operators, the embedded emissions for certain finishing processes in aluminum and steel (not covered by the EU ETS) are excluded from calculation boundaries. Furthermore, where input materials (precursors) have already been subject to the EU ETS or a fully linked system, their emissions are not accounted for again in the final complex good.
• Scope Refinements: Non-calcined kaolinic clays have been officially excluded from the list of cement goods subject to CBAM.
• Penalty Mitigation: Competent authorities may reduce penalties in cases of minor or unintentional errors, such as where the 50-tonne threshold is exceeded by no more than 10% or where errors result from incorrect information provided by third-party operators or verifiers. The penalty for failing to surrender the required certificates remains EUR 100 per tonne of CO₂e.

Next Steps For Türkiye

The integration of these EU-level simplifications with Türkiye’s domestic ETS architecture, TR ETS Regulation, now in force, is vital for maintaining trade integration. The success of Türkiye’s transition will depend on the scope and duration of the pilot phase, introducing gradually stricter limits, ensuring predictable reductions in free allowances, and utilizing system revenues to support green transition efforts. For Turkish exporters, the 2026 preparations now involve not only compliance with national laws but also whether the carbon price paid in Türkiye can be deducted against the CBAM liability.

Introduction

Ensuring energy supply security, combating climate change, and achieving sustainable development objectives have become among the principal drivers accelerating the transformation of the energy markets in recent years. In this transition process, increasing the share of renewable energy resources in electricity generation has evolved not merely into a technical or economic preference, but into a legal and institutional necessity. In this context, renewable power purchase agreements (“RPPAs”) have gained increasing significance as market-based instruments for both electricity producers and consumers.

Legal Character and Practical Advantages

In general terms, RPPAs are long-term agreements governing the purchase of electricity generated from renewable energy sources under pre-determined commercial conditions. Given the high upfront investment costs characteristic of renewable energy projects, the need for predictable long-term revenue streams has transformed such agreements into essential financing instruments.

From this perspective, RPPAs do not merely regulate an electricity sale–purchase relationship; rather, they establish a contractual structure that secures the long-term bankability and sustainability of renewable energy investments.

One of the primary benefits offered by RPPAs is price stability. The volatile nature of electricity market prices creates significant financial risks, particularly for industrial and commercial consumers with high electricity demand. Long-term supply agreements substantially mitigate such uncertainty for both parties.

Another critical function of RPPAs is facilitating project finance. For producers, contracts providing stable and foreseeable cash flows significantly enhance project credibility before banks and financial institutions. Accordingly, RPPAs frequently form the cornerstone of financing structures in renewable energy projects.

In addition, RPPAs play a pivotal role in reducing carbon footprints, documenting green electricity consumption, and fulfilling corporate sustainability and ESG commitments. For exporters of goods covered by the EU Carbon Border Adjustment Mechanism, they may also carry a direct and quantifiable financial value, as discussed in Section 5 below.

Global Trends and the Situation in Türkiye

International energy market trends demonstrate that fixed feed-in tariff models—widely used during periods of high renewable energy costs—have gradually been replaced by market-based corporate RPPA structures as technology has matured and generation costs have declined.

In Türkiye, however, renewable energy capacity expansion has predominantly been shaped through state-supported mechanisms such as the Renewable Energy Support Mechanism (“YEKDEM”) and the Renewable Energy Resource Areas (“YEKA”) model. As a result, corporate RPPAs have not yet achieved widespread adoption in Türkiye.

a. Corporate RPPAs

Corporate RPPAs are long-term electricity supply agreements executed between renewable energy producers and private-sector consumers with substantial electricity demand.

Under this model, the state does not act as a contractual party; instead, it assumes a regulatory and supervisory role. The parties retain broad contractual freedom in determining pricing structures, contract duration, delivery models, and risk allocation.

Nevertheless, the practical enforceability of such agreements is directly influenced by electricity market legislation, including rules on licensing, grid connection, balancing, settlement, and market operation.

The renewable power purchase agreement executed in 2019 between Zorlu Enerji and Garanti BBVA constitutes a notable precedent for corporate RPPA implementation in Türkiye. Under the agreement, Zorlu Enerji undertook to supply the bank with 90 million kWh of electricity in 2020, sourced entirely from its geothermal, wind and hydroelectric plants and sufficient to cover the consumption of Garanti BBVA's headquarters buildings and its 813-branch network. The bank estimated that the arrangement would avoid approximately 45,000 tonnes of CO₂-equivalent emissions. Beyond its environmental dimension, the transaction is significant in demonstrating that a large corporate offtaker could contract directly with a renewable generator within the existing Turkish market framework, well before a dedicated legal and certification infrastructure for such agreements had been established. It thus offered an early template for companies seeking to align their energy procurement with sustainability commitments.

b. Renewable Energy Resource Areas (YEKA)

The YEKA model is an investment planning mechanism established under Law No. 5346 on the Utilization of Renewable Energy Resources for the Purpose of Electricity Generation (“Law No. 5346”).

Under this framework, specific zones are designated as renewable energy resource development areas, and investment rights are allocated through competitive tender procedures.

The primary objectives of the YEKA model include reducing infrastructure costs and promoting domestic production and technology transfer. Site selection, tender conditions, and allocation of usage rights are administered by the Ministry of Energy and Natural Resources.

Due to the administration’s authority over tender terms, project timelines, and implementation processes, the YEKA model provides a more limited scope of contractual autonomy compared to corporate RPPAs.

c. Renewable Energy Support Mechanism (YEKDEM)

YEKDEM is a public support scheme established under Law No. 5346 with the objective of shielding renewable energy investments from market price volatility.

Under YEKDEM, electricity generated from renewable sources benefits from fixed-price or feed-in premium support for a predetermined period.

The operational principles of YEKDEM are regulated in detail under the Regulation on the Certification and Support of Renewable Energy Resources (“YEKDEM Regulation”). The regulation defines eligibility criteria, settlement-based generation calculations, and cost-sharing mechanisms among market participants.

Under this system, investors are largely insulated from price risk, which is instead socialized across electricity consumers: the difference between the guaranteed tariff and the market price is allocated to licensed suppliers in proportion to their supplied volumes and ultimately passed through to end users. This distinguishes YEKDEM fundamentally from market-based corporate RPPAs, in which price risk is allocated contractually between generator and off-taker.

Although recent regulatory developments—such as limitations on support periods and special rules for capacity increases and storage-integrated power plants—signal a gradual shift toward market-based structures, experts generally consider these measures insufficient for ensuring widespread adoption of corporate RPPAs.

The YEKDEM model may also prove relevant beyond renewables. In recent statements, the Minister of Energy and Natural Resources indicated that legislation and incentives, including certain exemptions, are being prepared for small modular reactor (“SMR”) investments, drawing a parallel with the purchase-guarantee-based support applied to renewable energy, with the first SMR targeted for the first half of the 2030s. YEKDEM itself is confined to renewable sources under Law No. 5346 and, as it stands, does not extend to nuclear generation. Its core architecture, however, namely a guaranteed tariff for a fixed period with the cost differential allocated to suppliers and passed through to consumers, offers a ready template for SMRs, whose high upfront costs and long lead times raise bankability concerns similar to those faced by early renewable projects. In light of the principle of legality emphasised by the Constitutional Court in its YEKA decision discussed in Section 5 below, any such regime is likely to require a statutory basis rather than secondary legislation alone. Its design, and in particular whether support is structured as a fixed tariff or as a two-way contract for difference, will also determine how much room remains for corporate PPAs between SMR operators and energy-intensive off-takers.

Recent Regulatory Developments

In recent years, Türkiye has introduced significant legislative amendments in the renewable energy sector. While these changes do not directly regulate RPPAs, they materially influence their practical applicability.

In particular, amendments to the YEKA Regulation replacing the “lowest price” criterion with the “most advantageous offer” approach have created a more flexible and market-oriented investment environment. This development may facilitate projects supported by long-term RPPA structures.

Furthermore, amendments to the YEKDEM Regulation have clarified the YEKDEM status of capacity increases and storage-integrated generation facilities. These changes have reshaped risk assessments for market participants.

Notably, the legal separation of electricity storage activities from generation has made it necessary to define the legal nature of the energy source with greater precision in RPPA structures.

Pursuant to the Regulation on Transparency and Market Abuse in Energy and Environmental Markets, published in the Official Gazette dated 14 February 2026 and numbered 33168, obligations to disclose inside information, prohibitions on insider dealing and market manipulation, and a central Transparency Platform operated by Energy Exchange Istanbul (Enerji Piyasaları İşletme A.Ş/EPİAŞ) are introduced for the electricity and natural gas forward, day-ahead, intraday and balancing markets, the ETS market and the organised renewable energy resource guarantee (YEK-G) market, including bilateral transactions relating to these markets. Breaches may attract administrative fines of up to TRY 25,098,000. Originally scheduled to enter into force on 1 June 2026, the Regulation was deferred by an amendment published on 23 May 2026 and will now enter into force on 1 January 2027.

Pursuant to the Draft Regulation Amending the YEKDEM Regulation, published by the Energy Market Regulatory Authority on 4 June 2026 (“Authority”), additional criteria and obligations are planned to be introduced for relevant stakeholders in the near future, including amendments to the payment conditions applicable to power plants that will newly join YEKDEM despite not previously falling within its scope, and the removal, from the final YEK list for the relevant year, of applicants who provide misleading information to the Authority.

Effects of Climate and Energy Transition Policies on YEKDEM and the Energy Sector

Climate Law No. 7552, adopted by the Grand National Assembly of Türkiye on 2 July 2025 and entered into force upon its publication in the Official Gazette dated 9 July 2025 and numbered 32951, establishes the institutional and legal framework for greenhouse gas emission reduction, climate change adaptation, and the planning, permitting, supervisory and carbon pricing instruments to be used in this process, in line with the green growth vision and the 2053 net-zero emissions target.

In line with this framework, Türkiye submitted its Second Nationally Determined Contribution (“NDC 3.0”), announced at the Climate Summit held in New York on 24 September 2025, to the Secretariat of the United Nations Framework Convention on Climate Change during COP30, held in Belém in November 2025. Under the declaration, Türkiye commits to reducing its greenhouse gas emissions by 466 million tons of CO2 equivalent compared to the reference scenario by 2035, thereby limiting total emissions to 643 million tons of CO2 equivalent. As the sector accounting for the largest share of Türkiye’s total greenhouse gas emissions, the energy sector lies at the heart of this reduction target, making the expansion of renewable energy capacity and the strengthening of market-based supply models a strategic necessity.

The Türkiye National Energy Plan, prepared by the Ministry of Energy and Natural Resources on the basis of the 2053 net-zero target, envisages that installed electricity capacity will reach 189.7 gigawatts by 2035, with the share of renewable energy sources in installed capacity rising to approximately 64.7%. Ministry officials have stated that Türkiye, as host of COP31, is working on a new National Energy Plan extending to 2040 that will raise these targets further, with a new electrification-focused strategy expected to be announced in the near future. Financing capacity expansion of this magnitude through public resources alone is limited, which makes it necessary for market-based supply and financing instruments such as corporate RPPAs to assume a more decisive role going forward.

The most concrete development directly affecting the energy sector beyond YEKDEM is the implementation of the Emissions Trading System (“ETS”). The Türkiye Emissions Trading System Regulation, prepared on the basis of Climate Law No. 7552 and published in the Official Gazette dated 27 August 2026 and numbered 33353, sets out the procedures and principles for monitoring, reporting and verifying greenhouse gas emissions and for trading allowances. Pursuant to Decision No. KPK/2026/1 of the Carbon Market Board dated 3 September 2026, the pilot implementation period covers 2026 and 2027 and applies to Category B and C facilities in five sectors (electricity generation, cement, iron and steel, aluminium and fertilisers); 2026 will be subject only to reporting obligations, while the carbon pricing mechanism will take effect in 2027. Free allocation during the pilot is set at 100%, but calculated on a benchmark basis rather than on actual emissions. For electricity generation facilities, the benchmark value underlying free allocation will be determined on a plant-by-plant basis, based on each plant’s weighted average emission intensity over the preceding five years. The gradual internalization of carbon costs by fossil-fueled generation facilities may, in the medium to long term, enhance the relative competitiveness of renewable generation and reinforce market-based demand for corporate RPPAs. It should be noted, however, that the TR ETS covers direct emissions only: electricity procured under an RPPA does not reduce an industrial off-taker’s own TR ETS obligations. Its value for off-takers lies rather in hedging the carbon cost that fossil-fuelled generators are expected to pass through into wholesale prices from 2027.

The EU Carbon Border Adjustment Mechanism (“CBAM”), whose definitive period began on 1 January 2026, adds a further and more direct incentive for certain exporters. For cement and fertilisers, the emissions embedded in the electricity consumed in production (indirect emissions) fall within the CBAM obligation. By default, these are calculated using the grid emission factor of the country of origin; however, under the CBAM rules, including Commission Implementing Regulation (EU) 2025/2547, an actual emission factor may be used where the installation receives electricity through a direct technical link to the generating source or under a power purchase agreement. A qualifying renewable PPA can therefore reduce the number of CBAM certificates the EU importer must surrender and, in turn, the carbon cost priced into Turkish exports. At present, however, only physical PPAs are recognised for this purpose; purely financial (virtual) PPAs, and YEK-G certificates on their own, do not displace the grid factor. The European Commission’s December 2025 proposal to amend the CBAM Regulation also revisits the rules on electricity, and its outcome should be monitored.

A significant development has also taken place regarding the legal framework of the YEKA model. In its decision dated 26 November 2025 (E.2024/133, K.2025/233), published in the Official Gazette dated 10 March 2026, the Constitutional Court annulled certain provisions of Law No. 7501 relating to YEKA tender procedures and to the fee payable upon the transition of unlicensed generation facilities that have completed their ten-year operating period to licensed status, on the ground that these matters must be regulated directly by statute pursuant to the principle of legality. To prevent a legal vacuum, the Court postponed the entry into force of the annulment by nine months, granting the legislature until 10 December 2026 to act. This decision clarifies the constitutional limits of administrative discretion within the YEKA model discussed in section (b) above and may, depending on the outcome of the legislative process, reshape the balance of contractual freedom between the YEKA and corporate RPPA models going forward.

The Renewable Energy Source Guarantee System (“YEK-G”) is a key instrument for the function of corporate RPPAs in reducing carbon footprints and documenting green energy use. Through the Organized YEK-G Market operated by EPİAŞ, the source of renewable-based generation is tracked using blockchain technology and certified to consumers by means of YEK-G certificates. The Regulation on Transparency and Market Abuse in Energy and Environmental Markets referred to in section 4 above, which will enter into force on 1 January 2027, will directly apply to this organized YEK-G market, meaning that renewable energy certificates transferred in connection with corporate RPPAs will become subject to transparency and market integrity obligations.

Taken together, these developments suggest that the reduction and capacity targets set out under the Climate Law, NDC 3.0 and the National Energy Plan, combined with the carbon costs that the ETS will impose on fossil-fuelled generation and the CBAM exposure of Turkish exporters, are expected to gradually encourage a shift away from the guaranteed fixed-price/premium logic underlying YEKDEM toward the corporate RPPA model, in which market price signals and carbon costs are directly reflected. The pace and scope of this transition will depend on the concrete outcomes of the ETS pricing mechanism entering into force in 2027, the manner in which YEKA’s legal framework is reformed following the Constitutional Court’s decision, and how YEKDEM costs continue to be revised by the Authority in response to fluctuations in market prices.

Key Issues to Consider in RPPAs

Clear and transparent pricing mechanisms are essential to maintaining contractual balance in the face of market price volatility. Similarly, production commitments must precisely define the extent to which resource risk is allocated to the producer.

Adaptation clauses addressing legislative amendments, termination of support mechanisms, or structural changes in the electricity market are critical in long-term agreements. Such clauses should be drafted expressly to capture the introduction of carbon pricing under the TR ETS from 2027 and future amendments to the CBAM rules.

For off-takers exporting CBAM goods, the agreement should also secure the evidence needed to apply an actual emission factor: metering data, the generator’s emissions data, cooperation with accredited verifiers and confirmation that the same renewable attributes have not been sold or claimed elsewhere. Without these, the CBAM benefit discussed in Section 5 may not be available in practice.

In addition, risks arising from grid connection, balancing responsibilities, settlement procedures, and system usage charges should be expressly allocated between the parties.

In light of the new secondary legislation set to enter into force, RPPA transactions will additionally need to be assessed from the perspective of market transparency, information management, and the prohibition on market-abusive conduct. Information on a large RPPA, such as the capacity contracted or the expected commissioning date of the underlying plant, may itself qualify as inside information, and the parties should agree in advance how and when any such information is to be disclosed.

At the same time, the reduction and capacity targets introduced by the Climate Law, NDC 3.0, the National Energy Plan and the ETS are considered to have the potential to deepen the corporate RPPA market and increase transaction volumes going forward. Both the need of ETS-liable industrial facilities to manage their carbon costs and the financing needs arising from the large-scale capacity expansion envisaged under the National Energy Plan may encourage the entry of new off-takers and new producers into the market, which in turn may lead to greater standardization of contract terms and increased price competition over time. Accordingly, it would be beneficial for long-term agreements to include benchmarking and review mechanisms enabling the parties to adapt to evolving market standards, together with flexible assignment provisions facilitating the transfer of rights and obligations under the agreement, so that the parties are able to benefit from these market developments.

Conclusion

RPPAs have become central market-based instruments in the global energy transition. Through such agreements, renewable energy investments gain enhanced bankability, while consumers benefit from long-term cost predictability.

In Türkiye, corporate RPPAs are not governed by a dedicated regulatory regime; rather, they rest on the principle of freedom of contract and operate within the general framework of the Electricity Market Law and its secondary legislation. This is consistent with international practice: in mature PPA markets such as the United States, the United Kingdom and the Nordic countries, corporate PPAs have developed largely on the basis of general contract law, and the EU approach, reflected in Article 15(8) of the Renewable Energy Directive and the 2024 electricity market design reform, is enabling rather than prescriptive, focusing on the removal of barriers rather than the regulation of contract terms. The constraint in Türkiye is therefore not the absence of a comprehensive framework, but the continued predominance of public support mechanisms and the lack of certain targeted enabling measures, such as greater legal certainty for virtual PPAs (a gap that also limits their recognition under CBAM), closer integration with the YEK-G guarantee of origin system, and instruments to mitigate offtaker credit risk. As Türkiye continues its transition toward market-oriented energy policies, corporate RPPAs are expected to assume an increasingly significant role in renewable energy investments and corporate sustainability strategies.

In this context, the climate and energy transition policies shaped by the Climate Law, the updated Nationally Determined Contribution, the Emissions Trading System and the EU’s CBAM are among the principal dynamics expected to accelerate the shift from YEKDEM’s publicly guaranteed structure toward market-based supply models, laying the groundwork for corporate RPPAs to assume a growing share of Türkiye’s energy market in the period ahead.