Turkey Green Growth Policy Paper: Towards a Greener Economy

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2.2 Opportunities for greening provided by Turkey’s growth path

The Government of Turkey has set itself ambitious development goals. Turkey intends to be one of the world’s 10 largest economies by 2023, the 100th anniversary of the founding of the Turkish Republic. The Government’s 2023 vision^¹¹ aims for gross domestic product to reach US$2 trillion, the foreign trade volume to exceed US$1 trillion; per capita income to reach US$25,000; and, unemployment to decline to 5 percent. Turkey also aims to complete full membership negotiations with the EU, further develop Istanbul as a leading international financial hub, and become the leading manufacturing and service provider both in the region and beyond. To achieve Turkey’s development goals and realize sustainable shared growth, the Government is pursuing a wide range of economic policies and structural reforms, set out in its Ninth Development Plan for 2007-2013),^¹² 2012-2014 Medium-Term Program, and annual programs. Top priorities include: (a) sound macroeconomic and related structural fiscal policies to maintain stability and reduce short and medium term vulnerabilities; (b) favorable investment climate, labor market, and skills reforms to increase competitiveness and create jobs, especially for women and youth; (c) fundamental education reforms and continuing health and social welfare reform to increase productivity and help share the gains from growth through equal opportunities; and (d) continuing energy and water sector reforms and investments to further increase energy efficiency, the use of renewable energy, and energy security and help reduce greenhouse gas emissions and mitigate and adapt to climate change.
As part of its EU accession process, Turkey is negotiating the Environment Chapter (compliance with the EU Environmental Acquis), which offers significant opportunities for greening its economy. The impact of the EU acquis on policy making is currently strong in national and local environmental policy in two areas. First, Turkey has already made a considerable effort in harmonizing its environmental laws with those of the EU. This is expected to generate greater environmental gains especially in the industrial sector by improved management of waste and effluents and overall emission reduction of large combustion plants. Second, the new e-environment permitting system, combining all of the licenses and permits required by industrial installations into a single e-environment permit, is an important step towards implementing the EU’s Integrated Pollution Prevention and Control (IPPC) Directive, a major building block of the capacity for environmental risk management.
Environmental compliance is neither costless nor easy to achieve. The environmental investments that Turkey would have to make to implement the EU Environmental Acquis over the next two decades are significant. Investments will be required to be in compliance with some 200 laws and regulations covering water and air pollution, waste and chemicals management, biotechnology, radiation protection and nature conservation. The EU Integrated Environmental Approximation Strategy (2007-2023) estimated the total cost to be about Euro 59 billion – of which nearly 58 percent will be in the water sector.^¹³ Although it is difficult to ascertain exactly how much has been spent in alignment investments, actual progress is regularly reported to the EC (see Table 5.1 on progress in water, waste and industrial pollution). Turkey’s current capital investment spending on the environment is estimated to be below 0.5 percent of GDP and has not been affected by credit constraints. This share will increase gradually and may reach 2 percent of GDP during a few peak investment years.
Turkey’s economy has not yet achieved stability in its energy utilization and gaseous emissions either as a ratio of its GDP or on a per capita level, and is cited among the 25 countries that display the fastest rate of growth in industrial use of energy sources. TURKSTAT data indicate, for instance, that on a per capita basis, consumption of electricity in Turkey has increased six-folds from 1980 to 2005. Per capita consumption of electricity was observed to increase from 300Kwh per person in 2005 to 400 Kwh per person in 2010. According to TURKSTAT, aggregate CO2 emissions stand at 369 million tons as of 2009, and are estimated to reach 615 million tons by 2020, and to 1,200 million tons by 2030.
How green is Turkey compared to developed and emerging economies?
As an emerging market economy, Turkey is continuing to build institutions that help meet sustainable development goals, including in the areas of social policy and employment, environmental protection, and meeting international obligations and commitments; in addition, as part of its efforts to keep its economy competitive, Turkey is also strengthening its national innovation system. These efforts are undoubtedly contributing to greening the Turkish economy, but more focused policies, particularly those linking environmental protection, employment, and innovation, could yield higher dividends as the analyses in the report suggests.
Turkey has already moved forward on some elements of green growth. Out of the four elements underlying green growth (mitigation, adaptation, environmental protection, innovation and green jobs), Turkey ratified the Kyoto Protocol in 2009, and declared at the Copenhagen COP 15 that within the framework of its special circumstances, it shall contribute to the effort of tackling climate change. In addition, the Government approved a National Climate Change Strategy in May 2010 and published a National Climate Change Action Plan in July 2011. Moreover, as part of negotiating the Environment Chapter for the EU accession process, Turkey has made considerable effort in aligning its environmental laws with those of the EU and has begun implementation is several areas, including waste and water management, and EIA.
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Turkey has recognized the need to enhance innovation and technology diffusion in the economy to sustain competitiveness and growth (Figure 2.3). The 9^th NDP targeted an increase in total research and development (R&D) expenditures from less than 0.7 to 2% of GDP, and aimed to raise the share of privately realized R&D from less than 30% to 60% of the total, both by 2013. These goals were updated and revised, with R&D expenditures now targeted to reach 3% of GDP by 2023, two-thirds of which are expected to be carried out by the private business sector.
While Turkey has had a National Innovation System (NIS) in place for some time, its effectiveness could be improved by strengthening the links between science, universities and commercial applications of research, the more effective protection of intellectual property rights to encourage FDI and domestic innovation, and by a more robust monitoring and evaluation system to assess, and if needed, adjust, national innovation support mechanisms. The general investment climate and the flexibility of key input and output markets will also determine the ease with which new technologies are adopted leading to increased productivity, growth and competitiveness. Moreover, within the NIS context, Turkey is yet to put forward a policy on green innovation.
While job creation is a major focus of the Turkish government, the impact of greening policies on employment depends on the characteristics of the economy’s labor markets. The pace of the transition towards a greener economy can be facilitated by the flexibility of labor markets, and ease of entry and exit into industry. Employment effects of green policies, such as internalizing the social cost of pollution to meet EU environmental standards, depend on the implementation time frame. In the short-term, employment losses would result from the increase in the cost of doing business and the decline in output in pollution, water, and energy-intensive sectors. Over the longer term, firms would need to adopt new green technologies to remain competitive, and gains in other industries would emerge. On the other hand, using the revenues from these same greening policies to support innovation and improve the efficiency of labor markets could have a positive impact on employment. The general equilibrium analysis presented in Chapter 6 below provides a brief, stylized assessment of these issues.
Turkey continues to have a high unemployment rate and the strictest Employment Protection Legislation in OECD and ECA region (Figures 2.4 and 2.5). Labor market flexibility allows workers to move to other (greener) sectors more readily. Countries with more flexible labor markets experience faster structural change as labor flows easily across firms and sectors. Despite having become more flexible over time, labor markets in Turkey still have important rigid elements, particularly in temporary employment regulations, which contribute to maintaining resources in inefficient informal and semi-formal activities.

Figure 2.4 Unemployment, total (% of total labor force), 2009	Figure 2.5 Employment protection legislation, overall, OECD, 2008

Note: Higher numbers denote stricter EPL regimes. All sub-indexes are normalized in the 0–6 range (OECD Standard) Source: OECD. The estimate for Ukraine is from Institute for the Study of Labor (IZA).

A review of comparator indicators shows Turkey’s position and highlights its greening potential. These indicators (summarized below from available data) are grounded in the OECD integrated framework for monitoring green growth progress^¹⁴. Indicators are grouped into four information themes: Environmental productivity and resource productivity, natural asset base and life quality. Selection of Turkey’s comparator countries took several factors into account: (i) countries belonging to the same World Bank regional grouping: Europe and Central Asia (ECA); (ii) several countries of the same, middle-income level per capita; (iii) countries perceived as pioneers in green growth agenda (Korea, Germany, Sweden, Denmark etc.); and (iv) country aggregates for three country groupings ECA, OECD, and EU.

(a) Wealth accounting and adjusted net savings rate

According to the World Bank, total Turkey’s wealth in 2008 was estimated at 11,717 USD billion, which equates to about 160 thousand USD per capita^¹⁵. This is about 3 to 4 times less than in advanced OECD countries, but above most of the emerging economies. The lion’s share of Turkey’s wealth constitutes intangible capital, while produced and natural capitals are relatively small. Crop and pasture land dominates, comprising about 85% of Turkey’s natural capital. The structure of wealth differs significantly across countries. For example, it is completely different in an energy rich country like Russia, where natural capital is dominated by energy.
The adjusted net savings ratio estimates suggest that Turkey’s potential for sustainable economic development is declining. The adjusted net savings ratio, which is a proxy for total wealth developments over time, has declined by half from around 15% of Gross National Income on average in the first decade of the 21^st century (as compared with the last decade of the 20^th century). In 2009, the ANS was below 5%, which was largely driven by economic developments and the high share of foreign savings (high current account deficits) in recent years. The factors driving the ANS down through environmental degradation were relatively minor (1-2% of GNI), which requires a more careful investigation of underlying developments (Box 2.1).

Figure 2.6 Total wealth Turkey in 2008	Figure 2.7 Total wealth and income per capita in 2008

Figure 2.8 Adjusted net savings, 1990-2009, % of GNI	Figure 2.9 Adjusted net savings, 1990-2009, % of GNI
Box 2.1 Methodological notes on total wealth estimates and adjusted net savings Total wealth is composed of: intangible (human and social) capital, produced capital (machinery, equipment, structures, and urban land), natural capital, consisting of energy resources (oil, natural gas, hard coal and lignite), mineral resources (bauxite, copper, gold, iron, lead, nickel, phosphate, silver, tin, zinc), timber and non-timber forest resources, crop and pasture land, and protected areas, and net foreign assets. Adjusted net savings (ANS) are calculated as a proxy for total wealth. ANS is a sum of net national savings (NNS) and education expenditure (EE), minus: energy (ED), mineral (MD), and net forest depletion (NFD), CO₂ (CO₂D) and particulate emissions damage (PMD). ANS = NNS + EE – ED – MD – NFD – CO₂D – PMD. Source: For detailed methodology, see: World Bank, 2011.
Source: World Bank staff calculations based on World Bank Development Data Platform.

(b) Renewable resource base

Air quality. Turkey ranks relatively high in levels of particulate matter (PM10) compared to the countries shown in Figure 2.10, although several of the sample countries have much higher levels of this indicator. Egypt, for example, ranks almost three times higher than Turkey and India is almost twice as high. Argentina, China, India, Thailand and Nigeria are also higher. Air quality is an important factor in childhood mortality and lung disease. Overall in the world, the indicator reflects urban pollution. It is significantly driven by household usage of “dirty” cooking fuels like firewood, coal, dung, agricultural residues and charcoal, at the upper end of the ranking. High PM concentration may lead to respiratory infections, asthma, increased risk of cardiovascular diseases, and cancer. Moreover, Sulfur dioxide is the major source of acid rains, which have adverse effects on fish stocks, forests, and soils, and consequently diminish agricultural productivity.

Figure 2.10. Particulate matter (PM10), 2008		Figure 2.11. Sulfur dioxide emissions per capita, 2005

Source: World Development Indicators.	Based on Smith et all, 2011 Source: 2012 EPI database.

Water. Turkey is in the middle of the range, according to the indicator of annual freshwater withdrawals as a percentage of total internal resources. The level of this indicator – 20 percent – shows that Turkey is in a comfortable zone: far from water scarcity and having no indication of inefficient (too low) water usage. The level of this indicator is significantly affected by the size of the country’s water resources; therefore the data is indicative for countries at either end of the scale of total resources: scarcity or abundance.

Figure 2.12 Water productivity, total (constant 2000 US$ GDP per cubic meter of total freshwater withdrawal), 2000	Figure 2.13 Renewable internal freshwater resources per capita (1000 cubic meters per capita)

Source: Food and Agriculture Organization, AQUASTAT data. World Bank.

Forests and lands. Forests provide a range of extractable commodities, from timber to wood fuel to various non-timber products, and a range of ecosystem services, from regulation of soil, water, and climate to sequestration of carbon and provision of habitats, supporting important economic activities. Preservation of these ecological services is crucial – for example, agricultural production is strongly affected by the management of these sources of natural capital.

Figure 2.14 Forest area (% of land area), 2010	Figure 2.15 Forest loss, 2010, %

Source: World Bank Development Data Platform.

Figure 2.16 Marine protected areas (% of territorial waters), 2009	Figure 2.17 Terrestrial protected areas (% of total land area), 2009

Source: World Bank Development Platform

(c) Biodiversity

Biodiversity refers to the degree of variation of life forms, including all animals, plants, habitats, and genes. Genetic diversity, as it relates to agriculture, provides the basis for new breeding programs, improved crops, enhanced agricultural production, and food security. When species become extinct or habitats are threatened, biodiversity is reduced. Ecosystem fragmentation can contribute to species loss, especially for large predators, leading to a cycle of habitat degradation. The current rate of species extinction, stemming mainly from habitat loss and degradation, is 100 to 1,000 times higher than before humans walked the planet. The loss of many environmental assets is irreversible.

Turkey is at the low end of the indicator on marine protected areas, as compared to Germany and Italy, which have a similar amount of shore line. The indicator level suggests that government policies to protect marine biodiversity in Turkey are introduced at a much lower scale than in these countries. At the same time, countries such as Nigeria, Argentina, Canada, China, Philippines, Malaysia, India and Indonesia (from bottom up) have lower values of this indicator than Turkey.

Figure 2.18 Turkey has low emission intensities

On terrestrial protected areas, Turkey has the lowest percentage of land area protected by the government. According to this indicator, it falls in the same group as Korea, Ukraine, Denmark, India Argentina and Egypt. This shows that government policies to protect terrestrial biodiversity are introduced in Turkey in a limited way. Fulfillment of the EU Birds and Habitats Directives requires unique areas to be protected and form part of the Natura 2000 network of areas of significant conservation status.^¹⁶

Figure 2.19 Closer look at Turkey

(d) Energy and emissions from fossil fuel combustion

Turkey’s total CO2 emissions (Mt) are low compared to the world overall and to individual countries ranked at the top by this indicator. The CO2 emissions Turkey produces constitute only 2.2% of the OECD total and 0.9% of the world total. They are 27 times lower than in China and 20 times lower than in the US. However, emissions increased by 41 percent from 1991 to 2001 and by another 41 percent from 2001 to 2009. By comparison, the change in emission level averaged an 11 percent increase in 1991-2001 and a 6 percent increase in 2001-2009 in the OECD countries.

Turkey has one of the highest levels of emission intensity (measured in this case by the ratio of CO2 to energy supply) in the world. Turkey ranks in the top 25th on the list of 145 countries with available data. In our sample of 26 comparator countries, Turkey is at the lower end of the list, preceded only by major developed countries. This indicator increased in Turkey from 1990 to 2008 and only declined from 2008 to 2009. High emission intensity could be explained by the fact that primary energy sources are skewed toward high emission factors like fuels (coal and oil), or high emission technologies, or insufficient use of emission control measures, or some combination of all of these.

At the same time, Turkey has one of the lowest levels of emission intensity measured by emissions per $1 of GDP PPP and one of the lowest levels of emissions per capita across the comparators. The former indicator stayed flat during the observed period from 1990 to 2009 while the latter one was increasing, closely following the pattern of change in emissions per unit of energy used (Figures 2.18 & 2.19 and Table 2.1). These observations reflect the low energy intensity (energy per $1 GDP) of the Turkish economy, as well as a high share of the residential sector in total emissions. On the whole, Turkey’s mitigation potential is substantial, but its major challenge would appear to be curtailment of rapid emissions growth as the economy continues to expand.

Table 2.1 Energy and Emission Indicators

	Energy/ Capita	(PPP) GDP/ energy use	(nom.) GDP /energy use	CO2/ Capita	CO2/ (PPP) GDP	CO2/ (nom.) GDP	CO2 Growth % 1990-2009
Turkey	1,333	8.9	3.6	4.0	0.3	0.7	102
Upper Middle-income Countries	2,177	5.2	n/d	5.3	0.5	n/d	n/d
Euro area / OECD Europe	3,763	8.2	5.6	8.4	0.3	0.4	-5
Eastern Europe and Central Asia	3,030	3.6	0.7	7.2	0.7	3.3	-38
World	1,835	5.5	3.3	4.6	0.5	0.7	38
Brazil	1,295	7.4	3.6	1.9	0.2	0.4	74
China	1,598	3.6	1.4	5.0	0.9	2.2	207
India	545	5.1	1.3	1.4	0.5	1.8	172
Mexico	1,698	7.9	4.1	4.5	0.3	0.6	51
Russia	4,838	3.1	0.6	10.8	0.8	3.9	-30
United States	7,503	5.8	5.3	19.3	0.4	0.5	7

Sources: “World Development Indicators”, 2011 edition, the World Bank; GDP in 2005 PPP US dollar; except nominal GDP/energy use, CO2/nominal GDP and CO2 growth percent 1990-2009 (sectoral approach) from “CO2 Emissions From Fuel Combustion”, 2011 edition, the International Energy Agency; GDP in 2000 US dollar. World Bank figures /Euro area, IEA figures/OECD Europe.

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