Today, everyone has a carbon footprint due to factors such as the items they use, the food they consume, and the transportation methods they prefer. The carbon footprint is the sum of the greenhouse gas emissions emitted into the atmosphere in terms of carbon dioxide (CO2) equivalents due to the choices that individuals make in their daily life. These emissions are one of the biggest causes of global warming. Therefore, a carbon tax and emissions trading system has been developed to limit and, if necessary, price carbon emissions. The emission trading system plays an effective role in achieving the target of reducing the current temperature increase in the atmosphere by 20 degrees Celsius limit compared to the pre-industrial period, which has been stipulated under the Paris Climate Agreement.

  • An upper limit is determined for the greenhouse gas emissions of the facilities within the Emissions Trading System (the “ETS“) system. In this manner, the amount of greenhouse gases to be emitted into the atmosphere at a certain time is determined and certainty is ensured, thus countries can determine their climate policies based on such amounts. The cap set for the ETS is reduced over time in line with the emission reduction target of the relevant country.
  • Facilities within the ETS can reach the amount of emissions that they can emit in three basic manners. The first of these; is the right to pollute free of charge (free allowance), granted by the relevant authority to the enterprise that will emit carbon emissions, the second one; is the carbon rights holder enterprises or relevant authorities offer their carbon rights for sale by auction, and the third one; is enterprises acquire these permissions from the actors (carbon right holders) within the ETS system in return for a certain price. While granting free polluting rights, a certain total amount of carbon emissions is determined by the relevant authority for each sector in the ETS. Then, the carbon emissions determined for the sector are distributed to the enterprises in proportion to the emission amounts of the enterprises in the past years. Such allowances can also be distributed through an auction to be determined by the relevant authority. Purchasing and selling allowances through auctions or among commercial actors within the ETS also determines the market price of carbon allowances. Since the ETS reveals a certain cost according to the number of carbon emissions, it acts as an incentive mechanism for enterprises to reduce their carbon emissions.
  • According to the current data that we have obtained, there are 39 national and 23 regional ETSs worldwide. The most important examples of regional ETSs are China and Japan, while countries such as South Korea and New Zealand have nationally significant ETSs. The world’s largest carbon market is the European Emissions Trading System, which has conducting its operation since 2005 and covers sectors that emit more than 2 billion tons of carbon dioxide every year (the “EU ETS”).The EU ETS currently operates in 31 countries (the 27 EU Member States and also Iceland, Liechtenstein, Norway, and the United Kingdom) and includes the energy sector, combustion plants, oil refineries and iron and steel activities, as well as carbon emissions resulting from the production of cement, glass, lime, brick, ceramics, cellulose and paper.
  • After almost 10 years, as of 01.01.2020, Switzerland became the first country to associate its national greenhouse gas emissions trading system (the “SETS“) with the EU ETS. Thus, emission allowances from the two systems are now mutually recognized.
  • Pursuant to Article 6 of the Paris Agreement, the importance of international carbon markets has been recognized and the legal basis for the use of carbon trading systems to achieve emission reduction targets has been laid down. Accordingly, like SETS is associated with the EU ETS, benefits can be achieved such as cost reduction by associating compliant ETSs with each other and making CO2 prices compliant on the basis of different countries. Article 25 of Directive numbered 2003/87/EC, in which the European Parliament adopted the Emissions Trading System for the first time, also prepared the legal basis for the association of the EU ETS with other ETS systems compatible with it.
  • Emissions trading systems, which stipulate the reduction of carbon emissions in an effective and cost-effective manner, also constitute an important part of international legislation on climate change, such as the Paris Climate Agreement. According to experts, adding the Switzerland-based SETS to the EU ETS, which is the largest of the ETSs, introduces the idea that ETSs will now be associated with each other to create more effective and integrated international carbon markets.