Turkey Green Growth Policy Paper: Towards a Greener Economy

Annex 2: Description of the CGE Model Calibration and Base Path (2011-2030)

The model is built-around a multi-sectoral social accounting matrix (SAM) of the Turkish economy based on the Turkish Statistical Institute (TurkStat) 2002 Input Output (I/O) Data. The I/O data is re-arranged accordingly to give a structural portrayal of intermediate flows at the intersection of commodities row and activities column in the 12-sector 2010 macro-SAM. Table A2-1 provides the sectoral input-output flows of the macro SAM in correspondence with the TurkStat I/O data.

All alternative policy scenarios analyzed in this report are to be portrayed with respect to a base-path reference scenario. Having calibrated the parameter values, we construct a benchmark growth path for the Turkish economy for the period of 2011-2030, under the following assumptions:

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  Constant technology (calibrated parameters in the production functions remain fixed)
  
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  Exogenously determined foreign capital inflows
  
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  Exogenous real interest rates
  
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  Endogenous real exchange rate under the constraint of the current account balance
  
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  Constant nominal wage rate for urban labor
  
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  Fiscal policy in accordance with the announced policy rule of targeted primary surplus. Domestic interest rates (net costs of domestic debt servicing) are reduced over to 5% by 2015 onwards from their base values of 8% in 2010. The ratio of primary (non-interest) surplus is initially set at 0.04 as a ratio to the GDP over 2011-2015. As a result of reduced interest costs on public domestic debt then, it is gradually reduced to 0.0 by 2020 and is kept at that level over the rest of the base path.
  
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  No specific introduction of environmental policy action/taxation/quota
  

Furthermore, population growth rate is set at 1% for rural labor until 2020, then to be decreased to 0.7% per annum. Urban labor force is assumed to increase by 0.5% per annum. Migration elasticity parameter, , is taken as 0.02 to match historical data on migration as reported in Dudu et.al (2008).

Hicks-neutral productivity growth is assumed at an exogenous rate of 0.5% for agriculture and 0.8% for the non-ag sectors. In some of the scenarios below, we have implemented submodels to create endogeneity of TFP growth in response to health and environmental benefits.

The total available irrigated a land is assumed to expand by 0.5% per annum. Rate of depreciation for physical capital stock is set at 0.20.

Figures A2.1 and A2.2 portray the simulated path of the real gross domestic product and its growth rate under business-as-usual conditions. As observed, the annual real GDP growth rate stays around 5% – 5.5% throughout the 2011-2030 period and the real GDP reaches to a value of 3012 billion TRY (in constant 2010 prices) by 2030.

Such a growth path is projected to generate an aggregate CO2 emission level of 983.7 mtons in 2030. In Figure A2.3 we illustrate the CO2 emissions from sources of energy (fuel combustion), industrial, and agricultural processes, and the household sector. This path follows the historical growth path of CO2 eq. emissions. This path is observed to follow the downward trend of aggregate CO2 eq. emissions per $GDP. Turkish emission intensity was estimated to be on the order of 0.89 kg/$GDP in 1990 to fall to 0.75 kg/$GDP in 2008. Under the base path trajectory, the CO2 eq. intensity is projected to fall to 0.55 kg/$GDP by 2030. This intensity metric in 2030 is observed to be still above the OECD averages (0.55 kg/$GDP in 1990; and 0.42 kg/$GDP in 2008).

Likewise, we can observe that with the projected economic growth, the sectoral emission values follow the growth trend throughout. To portray the evolution, Tables xx present the sectoral CO2 and PM10 emissions from energy combustion for selected years.

As the decomposition analysis of Lise (2006) documents, as in any other relatively fast growing economy, the biggest contributor to the rise in CO2 emissions in Turkey is the expansion of the economy (scale effect). Therefore the growth projections become crucial in the analysis of CO2 emissions. The recent projections of the OECD show that Turkey has an annual growth potential of above 7% (OECD, 2004). UNDP and the World Bank (2003) provide a projection of a six-fold increase in greenhouse gas emissions by 2025 with respect to 1990 level. The study foresees an annual increase of 5.9% in final energy consumption.

The reference base-run path also provides a number of other statistics, such as water waste in industry and the household sector, and industrial waste per output in emission-critical sectors. Figures A2-3 and A2-4 present base path trajectories for CO2 and PM10, and Tables A2-2 and Table A2-3present CO2 and PM10 sector distribution.

Figure A2-1 Base-run Real GDP (billion TL, fixed 2010 prices)


Figure A2-2 Base-Run Real GDP Growth Rate



Figure A2-3 Base Run Total CO2 Emissions By Source (million tons) (Model Projections)



Figure A2-4 Base Run Total PM10 Emissions By Source (million tons)



Figure A2-5 Total CO2 and PM10 Emissions as a Ratio to $ GDP (kg / US$, fixed 2010 prices))



Table A2-2 Energy Related CO2 Emissions by Sectors under Base-Path (million tons)



Table A2-2 Energy Related PM10 Emissions by Sectors under Base-Path (million tons)