Turkey Green Growth Policy Paper: Towards a Greener Economy

7. Conclusions and Recommendations

Overall, the results from this pilot analysis point to two broad messages and a set of initial general recommendations.

The impacts would be felt by consumers and producers who will have to alter input mix decisions in response to changes in relative prices and the structure of demand. Switching to new more efficient and environmentally compliant technologies by the private sector will require up-front capital and an adjustment period during which efficiency may fall and jobs may be lost; this impact however will be felt differently by different sectors. The automotive, electronics and white goods, and to a certain extent, the iron & steel industry, would adjust faster because as exporters to the EU and other international markets, and to remain competitive, they have already adopted cleaner technologies. All three also have in place R&D programs focused on enhancing productivity and resource use efficiency (e.g., smart appliances to further reduce energy use; hybrid and electric vehicles, use of energy sources, and waste recycling).

However, it is important to note that other approaches to using tax revenue to stimulate innovation and green jobs are possible. In particular, when environmental taxes are used to reduce taxes on labor and income, the impact on GDP is likely to be neutral or positive (World Bank 2012c). As was noted earlier in the report, this was done for example in Germany where green taxes were used to stimulate employment through reducing the non wage cost of labor throughout the economy.

Moreover, there is still debate among researchers and practitioners regarding what constitute green jobs. The focus of this paper was mainly on employment created in environmental service sectors (waste management, energy efficiency, etc.), both public and private, and not on the broader employment consequences of introducing public policies to correct externalities. For example, the evidence suggests that green growth is likely to be more labor intensive than growth sustained by traditional fossil fuels. This is particularly true for renewable energy supply and energy efficiency improvements which appear to be more labor intensive, because the construction sector requires relatively unskilled labor.  However, the implications of the current lower labor productivity of these activities for public finances, energy prices, and the profitability of private-sector activity, are issues that need to be carefully examined in an economy-wide context. Because of their importance for Turkey, these issues would need to be further investigated in work that follows-up the present study.

Some initial general recommendations: Turkey would benefit from a mix of policy instruments better targeted at its green innovation potential. This includes not only policies to spur access to technologies and capital, but a more focused set of both supply-side ‘technology-push’ policies (including matching grants for collaborative early-stage technology development) and demand-side ‘market-pull’ policies (including prices and regulations) – that should induce green innovations across many industries. Empirical evidence shows that well-designed environmental regulations, incentives, and standards stimulate significant innovation by firms. Firm surveys in Europe show that existing or future environmental regulation is the top driver for firms to introduce environmental innovation. Similarly, international sustainability standards can help local firms upgrade their environmental practices, a form of catch-up innovation.

Overall, Turkey has done a lot in terms of environmental sustainability and climate change mitigation (key components of GG/GE), but significant potential remains untapped. The analysis in this report reveals that:

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  Internalizing the social cost of externalities through taxes and adhering to key EU Directives without additional measures would negatively impact overall growth, unless structural factors are addressed in order to explicitly promote innovation and green jobs;
  
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  The manufacturing sector, with the six strategic industries up front, is leading the way in terms of technological adoption and R&D. With a over third of manufacturing production, a third of employment, and twice the R&D rate (61%), the six strategic sectors are already on a “green trajectory,” and have the potential to be a source of additional green jobs; further, a combination of labor market reform, technological transfer, and internal innovation can spur significantly more skilled labor demand;
  
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  Solid waste management can be an important source of green jobs at the local level (in support of Reduce-Reuse-Recycle goals) and lower the cost of collection and treatment; but, as this sector is characterized by a significant amount of informality, reforms of both sector institutions and of the current temporary employment regulations would help reduce informal activities and improve resource efficiency;
  
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  Reducing air pollution is an important green policy because of the welfare impacts of improved health outcomes and worker productivity;
  
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  Reducing GHG is an important part of any green policy package in Turkey. While on economic grounds alone, energy efficiency has significant potential economic benefits (e.g., in all the six strategic sectors as well as in agriculture; in the housing sector in particular, the incremental cost of applying adequate insulation and heating techniques would be dwarfed by the 30-45% saving potential and the employment benefits), it would also provide significant mitigation co-benefits, and the new government energy efficiency strategy is an important first step in this direction;
  
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  Waste Water Management is key to achieving water quality standards and should have a significant long-term greening impact through welfare improvement (access to clear water sources and reduced water-borne diseases), water allocation and use efficiency increase in the economic value of the resource, and adaptation to climate change; and
  
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  As agriculture in Turkey continues its structural change, greening policies can produce significant “climate-smart triple wins”: mitigation through carbon sequestration, improved resilience to climate change, and higher competitiveness and employment.