With the European Green Deal Investment Plan dated January 14, 2020, it was announced that the European Commission will establish an EU Green Bond Standard (EUGBS). The aim of the EU GBS is to establish a bond standard for sustainable investment financing on a voluntary basis. It is envisaged that the regulation in question will be beneficial for both issuers and green bond investors. There are four main conditions in the proposed framework for the EU GBS, which is planned to be open to green bond issuers from within and outside the EU. The funds collected by the bond should be allocated to projects that comply with the EU taxonomy, detailed reporting should be provided to ensure transparency in the distribution of bond revenues, compliance with the regulation and taxonomy should be reviewed by external auditors, and the said external auditors should be audited by the European Securities Markets Authority (ESMA). The aim is for the European Green Bond Standards to be compatible with the existing standards (ICMA Green Bond Principles, Climat Bonds Initiative Climat Bonds Standards). The European Commission published its proposal on June 6, 2021. The Next Generation EU Green Bond Framework of 7 September 2021 foresees the issuance of approximately €250 billion worth of green bonds on the markets by the end of 2026. On 2 November 2021, the European Parliament published amendments to the text proposed by the Commission. The Council determined its position on the proposal on 13 April 2022. Tripartite discussions started on 12 July 2022. Currently, the Council negotiators and the European Parliament have reached a provisional agreement on the creation of European green bonds.

The Paris Agreement is a declaration prepared by the countries themselves regarding their greenhouse gas emission reductions. The Paris Agreement foresees periodic review of Nationally Determined Contributions (NDCs) and gradual increase in targets.

Carbon pricing is a cost-effective tool that governments can use as part of their broad climate strategies. Carbon pricing instruments can generally be divided into two categories: direct and indirect. In direct carbon pricing, a price incentive is applied in proportion to the greenhouse gas emissions of the relevant product or activity. Examples of this include carbon tax and Emissions Trading System. On the other hand, in indirect carbon pricing, the price of the product related to carbon emissions is changed without being proportional to the emissions released. Examples include fuel and commodity taxes, fuel subsidies affecting energy consumers. Regulatory and investment incentives do not fall into this category. As of April 2022, there are 68 carbon pricing instruments (CPI) operating worldwide, and plans have been made for the implementation of three of them. The carbon pricing instruments in effect cover approximately 23% of the world's total greenhouse gas emissions.

The Emissions Trading System (ETS) is one of the emerging market instruments for carbon pricing. The ETS mechanism was developed with the aim of reducing carbon dioxide and other greenhouse gases that cause the climate crisis. The purpose of the Emissions Trading System, which is a difficult concept designed with a multi-disciplinary understanding, is to encourage companies to switch to low-emission production models. With the ETS, a cap-and-trade system can be used to determine a cap on greenhouse gas emissions and make carbon allocations (baseline-and-credit system). Cap-and-trade systems, which apply a cap or absolute limit to emissions within the scope of ETS and emission allowances, are generally distributed free of charge or sold by auction for the amount of emissions equivalent to the cap. Base and credit systems are systems where baseline emission levels are defined for individual regulated entities and credits are given to entities that reduce their emissions below this level. These credits can be sold to other entities that exceed the baseline emission levels.

In the ETS, the price of carbon is determined by the supply and demand of emission allowances or emission credits. As of April 2022, the number of places where it is implemented or planned to be implemented worldwide is 34. In 2021, for the first time, the revenue from the ETS exceeded the revenue from the carbon tax. In order for the ETS to operate properly, the rules that will provide balance between market stability, allowance price and costs must be determined correctly.

Carbon tax is one of the market instruments used for carbon pricing, such as the Emission Trading System (ETS). Carbon tax is based on taxing fossil fuels that cause carbon emissions according to their carbon and equivalent carbon content. In short, it determines a price directly for carbon by defining a price per ton of carbon dioxide. Therefore, there is no flexibility in the carbon tax, there is a fixed fee, and the system is designed based on the fee. ETS starts from the emission level. In ETS, emission limitations are imposed in order to meet environmental targets. In carbon tax, the amount to be paid is determined first and the emission amount is shaped according to the actions of the actors in the market. In ETS, the carbon fee remains uncertain while the emission amount is determined. As of April 2022, the number of carbon tax mechanisms implemented or planned to be implemented worldwide is 37. Carbon tax rates increased in 2021 and early 2022, although not as much as ETS. Historically, carbon taxes have generally generated more revenue than ETS. However, the carbon tax fell behind the ETS in 2021. This shows that ETS prices increased much faster than fixed-price instruments. In addition, the increase in the share of allocations made through auctions instead of free allocations was also effective.