Turkey Green Growth Policy Paper: Towards a Greener Economy

5.6 Information-based instruments

Information-based instruments that apply directly to the product are used as an alternative to direct control and to providing incentives for pollution reduction. For example this could be through requiring public disclosure of environmental information - or through building capacity in the regulated community - such as training in specific issues. Eco-labeling or environmental product declaration measures that aim to influence consumer behavior, issuing high-profile awards for desired performers, and promoting R&D and demonstration programs are other examples of information-based instruments. Eco-labeling has been most successful in the Nordic countries because eco-labels were popular with consumers and most large producers voluntarily followed suit.

Policy formulation should also consider the implications it has on technical change and innovation. Since innovation is viewed as key to solving many environmental challenges, it is important to understand the mechanisms by which innovation is fostered or limited. Demand-side instruments, such as public procurement, can help foster markets for new products and services, for example through demonstration effects, and counter gaps in the supply of finance at the early stages (OECD 2011). On the supply side, access to finance is one of the key constraints for business-led innovation, which is inherently risky and may only pay off in the long-term.

Constraints to innovation are not unlike those for green growth in general. They require both market and, at times, non-market responses that encourage risk-taking which may lead to significant rewards. For example, technological barriers could be due to a lack of knowledge which greater international cooperation would solve (Some examples are listed in Table 5.1).

Table 5.1 Policies to promote green innovation

Policy challenge	General assessment for Turkey	Policy options
Insufficient demand for green innovation	Government subsidies to SMEs for green innovation exist but no market-based instruments, standards or regulations	– Demand-side policies, such as public procurement, standards and regulations, in specific markets and circumstances – Market-based instruments to price externalities and enhance incentives
Lack of innovation capability	Private-sector-lead green innovation is advanced by large, exporting firms	– Broad-based policies to strengthen innovation
Technological roadblocks and lack of radical innovation	Leading innovation concentrated in the academic environment	– Investment in relevant R&D, including thematic and mission-oriented research – International cooperation
Research and investment bias to incumbent technology	Absolute level is low, but can be scaled-up and more strategic	– R&D support, tax incentives – Adoption incentives/subsidies – Technology prizes
Lack of finance	More opportunities need to be created, including PPPs	– Co-investment funds – Market development
Regulatory barriers to new firms	Not a major constraint	– Regulatory reform – Competition policy – Front-runner approaches
Lack of capabilities in SMEs to adopt green innovation	Capacity needs are high (i.e. professional education, vocational programs)	– Access to finance – Skills development – Linking SMEs to knowledge networks – Improving information supply – Reducing regulatory burdens
Non-technological innovation	Problematic in major urban areas (e.g. transport logistics)	– City and transport planning – Regulatory reform
International technology transfer	Weak implementation of Intellectual Property Rights (IPR) and patent pools	– Development of capabilities – Trade and investment policies – IPR protection and enforcement – Voluntary patent pools and collaborative mechanisms

Source: OECD (2011)

5.7 Matching policies with key constraints

Policy development should also consider the constraint in which it is trying to address. Constraints come in many forms, but they can be thought of as reflecting some type of ‘failure’- be it market-based, institutional or even political. Understanding the nature (or determinants) of the constraint are preconditions to policy selection. The policy lever should be designed such that it relaxes (or removes) this constraint, allowing the economic agent to adjust accordingly and operate more efficiently. There are also important temporal dimensions to consider. Policy-lags may affect the decision of whether to take on new investments or delay action. This is especially true with more costly EU requirements, where the imposition of new regulations may warrant a negotiated or phased approach to compliance.

Nevertheless, an important step in developing policy options is to match policy types to the constraint. Table 5.2 includes some example policy options among some typical green constraints.

Table 5.2 Policy options to green growth constraints

Green growth constraints	General assessment for Turkey	Policy options
Inadequate (soft) infrastructure	Weak institutional support for entrepreneurial activities	– Public-private partnerships – Public investment – Tariffs – Transfers
Low human and social capital and poor institutional quality	Governance issues exist, but country is a dynamic and emerging economy	– Subsidy reform/removal – Growing and stabilizing government revenue
Incomplete property rights, subsidies	Weak implementation	– Review, reform or remove
Regulatory uncertainty	Long planning tradition exists, but checks and balances need strengthening	– Set targets – Create independent governance systems
Information externalities and split incentive	Some information campaigns exist (eco-labeling), but more can be done to scale up and focus in on EU-bound products	– Labeling – Voluntary approaches – Subsidies – Technology and performance Standards
Environmental externalities	Prices do not reflect scarcity or other non-market values (e.g. pollution taxes)	– Tradable permits – Subsidies – Taxes
Low returns to R&D	Firm-specific R&D robust (e.g. large, exporters)	– R&D subsidies and tax incentives – Focus on general purpose technologies
Network effects	Exist, but need to be enlarged to take advantage of possible synergies (e.g. industrial parks or even in cities)	– Strengthen competition in network industries – Subsidies or loan guarantees for new network projects
Barriers to competition	A vibrant private sector has developed	– Reform regulation – Reduce government monopoly

Source: OECD (2011)