This Policy Paper is a main product of the World Bank Technical Assistance “Turkey Green Growth Policy Note.” It was prepared by Aziz Bouzaher, with inputs from Maurizio Guadagni, Sebnem Sahin, Craig Meisner, Martin Raiser, and Lezsek Pawel Kasek of the World Bank. Significant input was also provided by Erinc Yeldan, Gunes Kolsuz and Ogun Cicek who served as national consultants for the project. The report was finalized by a World Bank team led by Jian Xie and comprising Sebnem Sahin, Craig Meisner, Maurizio Guadagni, and Esra Arikan and incorporating comments received from the Ministry of Development of Turkey (MoD) and the World Bank team. Demetra Aposporos provided editorial assistance.
The World Bank Technical Assistance Program was managed by Aziz Bouzaher and Jian Xie in 2012 and 2013, respectively, with guidance from Martin Raiser and Kulsum Ahmed at the World Bank. The Program also benefited from the outstanding peer reviews provided by Michael Toman and Kirk Hamilton from the World Bank and Sherman Robinson from IFPRI and from the support and contributions of World Bank staffers Ina-Marlene Ruthenberg, Marina Wes, Mara Warwick, Stephen Karam, Mediha Agar, Carlos Pinerua, Esra Arikan, and Erika Jorgensen. Ulker Karamullaoglu and Linh Van Nguyen provided administrative assistance to the TA program.
The World Bank team is grateful to Sema Bayazit of MoD and her colleagues Arzu Önsal, İzzet Arı, Rıza Fikret Yıkmaz, Selen Arlı Yılmaz, Selin Dilekli, and other MoD staff for their outstanding support and collaboration as well as their excellent comments on the early draft of the Policy Paper. The team also acknowledges the outstanding coordination and contributions provided by the following colleagues: Alper Acar of the UNDP Ankara, Atila Uras; Binhan Ganioglu for the section on fisheries; Brian Bedard, Ragip Bayraktar, and Mesut Aktamar for the section on pastures; Cagdas Avsar and Onur Bayrakdar of the Bosphorous University for data collection and processing; Gursel Kusek, Cuneyt Okan, and Nedret Okan for the section on land consolidation; IJsbrand de Jong of the World Bank, and Yasar Dastan and Giovanni Muñoz of FAO for the section on irrigation; Jose Tavares for the section on biodiversity, Kevin Parris of OECD for the agro-ecological indicators; and Martial Bernoux of the Institut de Recherche pour le Développement, Muzaffer Avci of the Agronomy Department of the Central Research Institute for Field Crops in Ankara; and Erden Aykas of Ege University in Izmir for the section on soils and Conservation Agriculture/no-till.
Context and Background
The UN June 2012 “Rio+20” Conference has sparked renewed interest in the compatibility of economic growth and environmental sustainability. The concept of “Green Growth” embodies an optimistic view that environmental stability and economic growth need not be tradeoffs and that the greening of economic growth itself provides new economic opportunities. In preparation for the Rio+20 Conference, Turkey engaged in an extensive national consultative process with a particular focus on: (a) showcasing its efforts to achieve rapid economic growth while integrating environmental sustainability requirements into key sector policies and programs, and (b) identifying potential additional policy and institutional measures to further green its economy without eroding its growth potential in the short-term.
Turkey’s economic development to date is characterized by a relatively low, but rapidly increasing environmental footprint. The country has lower emissions and energy use per capita than many other emerging or industrialized economies. The alignment of environmental and energy policies with the Acquis of the European Union have encouraged increasing levels of resource efficiency and improved environmental management. Turkey is at a juncture where appropriate policies could allow the country to leapfrog to higher levels of efficiency and thus decouple growth from increasing environmental pressures at much lower levels of resource utilization. At the same time, authorities recognize the environmental challenges associated with rapid urbanization, growing industrialization and pressure on water resources from competing agricultural and urban demands, exacerbated by Turkey’s vulnerability to climate change.
This Green Growth Policy Paper (GGPP) reviews the scope for green growth in Turkey. The Paper was prepared by the World Bank, at the request of the Ministry of Development (MoD), as a contribution to the analytical activities and stakeholder consultations aimed at informing Turkey’s vision for greening its economy, by identifying opportunities to better integrate environmental sustainability considerations and related social and economic issues into the mainstream economic growth and competitiveness agenda. It should be noted at the outset that Turkey’s development vision puts human development at center stage. This GGPP does not attempt to evaluate the distributional implications of policies to green Turkey’s development path – such analysis will however be critical to building political support for inclusive, green growth.
Green Growth and Turkey’s Development Vision
Green growth is a relatively new concept stemming from a reevaluation of the economic opportunities for wealth and job creation that may result from adopting more environmentally sustainable technologies. According to the World Bank (2012b), “at the heart of green growth is the underlying assumption that we are not using environmental assets efficiently. Therein lies the potential for green growth—growth that is efficient, clean and resilient. Green-growth policies aim to foster sustainable development by reconciling the need for environmental sustainability with that for economic growth and social improvement.” While the traditional sustainable development debate revolved around improving the long-term condition of environmental resources and protecting and enhancing ecosystem services, proponents of green growth emphasize both the need to protect natural capital for economic and poverty reduction purposes, and the view that well-designed environmental policies can achieve environmental sustainability at low cost, while helping to stimulate growth.
The concept of green growth continues to be researched and debated but is generally accepted to contain four main elements: (i) environmental protection, (ii) mitigation action against climate change, (iii) adaption to the effects of climate change, and (iv) institutional and technical innovation and the creation of green jobs. In terms of the catalogue of policies to support these four overarching objectives, it is possible to distinguish between regulatory actions, including environmental taxes and pricing policies, measures to boost skills and generally increase the adaptability of the economy, specific measures to boost innovation and development planning tools to ensure that public assets and services are adapted to the potential impacts of climate change and to avoid costly lock-in to antiquated technologies. This GGPN does not cover the whole spectrum of policies. At the request of the Government of Turkey, it concentrates primarily on regulatory and pricing measures in line with EU requirements and generally evaluates the importance of complementary policies to promote green jobs and innovation.
The Turkish government’s 2023 vision sets forth ambitious development goals, including making Turkey one of the world’s ten largest economies and completing full membership negotiations with the EU by 2023. Turkey has established broad-based policy priorities to achieve this vision, and cover macroeconomic stability and fiscal management, labor market reforms and investment in workforce skills as well as measures to improve the investment climate, fundamental education reforms and continuing health and social welfare reforms. In terms of sustainable development, government policies emphasize investments in renewables and energy efficiency--out of energy security considerations and to contribute to climate change mitigation--and tighten environmental standards and water sector reforms to reduce the environmental footprint of further rapid economic growth. The stated objective of compliance with the EU Environmental Acquis offers significant opportunities for greening the Turkish economy through improved management of waste and effluents in the industrial sector, emission reductions in large combustion plants, and by seeking to significantly increase wastewater and solid waste management coverage throughout the country.
This GGPP contributes in particular to an evaluation of the opportunities and costs of EU compliance in core environmental areas. The working definition of green growth in Turkey underlying the analysis in this report is: The implementation of environmental policies in strategic sectors, aimed at achieving Turkish and EU standards (as reflected in the main EU Environmental Directives), with special emphasis given to resource efficiency, clean production, consumption, and reduced emissions intensity, combined with policies that foster employment and innovation in environment-related sectors. A key premise is that these policies will accompany ongoing growth-enhancing economic policies aimed at increasing the level of investment and its efficiency, achieving stronger employment generation and higher labor productivity, managing capital inflows, and other measures to enhance competitiveness and mitigate risks. Clearly, policy action along a broad front will be required.to achieve Turkey’s ambitious development objectives.
How Green is Turkey’s Economy Today?
Turkey’s economy is characterized by a relatively low, albeit rapidly increasing, environmental footprint. Compared to industrialized countries or other emerging market economies, Turkey stands out as having relatively low carbon emissions per unit of GDP. At the same time, emissions increased much faster than in other OECD countries in recent decades. Aggregate CO2 emissions stood at 369 million tons in 2009 and are estimated by the Bank study to triple by 2030. As such, Turkey has not yet decoupled its economic growth from rising energy use, a process that has been underway in advanced OECD countries for the past decade or so. Generally, however, Turkey’s rapid economic growth has not come at the expense of a rapid depletion of its natural capital stock. While sector-specific challenges deserve to be highlighted, on the whole Turkey compares favorably with other industrialized and emerging market economies (see Box ES). This suggests that if policies could be enacted that promote greater resource efficiency and pollution abatement without jeopardizing economic growth, Turkey could progress towards a high income without a dramatic increase its environmental footprint. This is the opportunity--and the promise--of green growth for Turkey.
Turkey has already made progress on some elements of green growth. Out of the five elements underlying green growth (environmental protection; mitigation; adaptation; innovation; and green jobs), Turkey ratified the Kyoto Protocol in 2009. In addition, in May 2010 the Government approved a National Climate Change Strategy, and in July 2011 published a National Climate Change Action. Moreover, as part of negotiating the Environment Chapter for the EU accession process, Turkey has made considerable effort in harmonizing its environmental laws with those of the EU and has begun implementing them in several areas, including waste and water management, and environmental impact assessments (EIA).
To achieve the full benefit of existing and future environmental policies, complementary measures will be needed to alleviate structural rigidities in the labor market and to improve the overall climate for investment and innovation. The increased costs associated with meeting tighter environmental regulations and standards and/or paying higher prices for energy and water use may cause negative short-term effects on employment and income. These negative effects will be exacerbated if economic adjustment is hampered by rigid labor markets and barriers to enterprise entry and exit. Turkey does not compare well with the leaders in green growth, such as Germany or the Scandinavian countries, where labor markets are considerably more flexible and where the business environment is considerably more investor friendly. In the context of an overall flexible economy, clear government signals through regulatory and pricing action, combined with fiscal and other measures to encourage investment and innovation in environmentally sustainable technologies, may help offset negative impacts on income and employment. This GGPN presents some stylized general equilibrium simulations that highlight the importance of these complementary measures.
Basic Results and Recommendations
There is considerable potential for greater resource efficiency and pollution abatement in Turkey’s seven strategic sectors. These sectors include: the automotive industry, iron and steel manufacturing, construction, machine building, white goods, electronics and agriculture. A review of existing sector studies as well as focus group discussions with representatives of these seven sectors suggest varying levels of the adoption of global best practice technologies and standards with respect to environmental sustainability. The automotive sector, for instance, is largely on par with European producers in terms of environmental management, and would appear to be relatively less vulnerable to regulatory policies to ensure full EU compliance. The automotive sector is shown to have significant growth potential in a green growth scenario. The same is true for white goods and electronics, which, like the automotive sector, have benefited from significant FDI inflows. Turkey’s iron and steel industry has undergone major modernization and is now significantly cleaner than that industry in other emerging markets. Further greening opportunities exist in substituting imported scrap for domestically recycled metal waste. The cement industry, despite significant improvements in recent years, remains at some distance from EU pollution and emission standards, and the costs of compliance could be prohibitive without large-scale investments. Potential for energy efficiency gains lie in the building sector and, in terms of water usage, in the agricultural sector, where a combination of regulatory requirements and pricing policies may induce technological advancements.
A detailed analysis of the marginal costs of further emission or pollution abatement would require a detailed sectoral analysis. Existing marginal cost abatement curves suggest negative costs for abatement of many energy efficiency investments (Deichmann et al., 2012). For such investments, positive environmental outcomes accrue as a co-benefit to investments justified on financial grounds alone. Other types of investments are certainly justified on environmental grounds, but wouldn’t pay for themselves without either tougher regulatory requirements or pricing measures installed by the government. This is true for many pollution reduction investments, which have large public health and environmental co-benefits that do not accrue directly to the investor. It may also be true of investments to improve the efficiency of water use, which may require higher water tariffs to internalize future rents related to scarcity. The integration of marginal cost abatement curves into a general equilibrium analysis can illustrate how an economy adjusts to specific environmental or emissions targets and how much of this adjustment happens internally through technological upgrading by private enterprises (Jorgenson, 2010).
To take a pilot step in the green growth direction and get an understanding of the macroeconomic effects of a mix of environmental policies, a General Equilibrium model was constructed. The model computes income, employment and the fiscal effects of taxes on air pollution (including PM10 and CO2), wastewater, and solid waste with the objective of achieving EU performance standards, and promoting sustainable agriculture through Conservation Agriculture such as reduced or no-tillage, improved pasture management, and efficient water use. The model includes basic assumptions about the relationship between production and environmental outcomes, which by and large do not account for internal cost abatement. The model thus sets up a worst-case scenario of the impact of tighter environmental policies on macroeconomic outcomes and social welfare and then introduces a series of variations to understand how this impact can be mitigated and eventually offset completely. The model is stylized and there is considerable scope for refinements in the context of implementing specific green policies into Turkey’s 10th National Development Plan and beyond.
The General Equilibrium Analysis produced the following basic results:
Given the current structure of Turkey’s economy and in particular its-relatively high levels of labor market rigidity, introducing environmental taxes with the objective of reaching EU performance standards would be costly. In particular, output and employment in pollution and emission intensive sectors would fall considerably and the resources freed as a result would not be absorbed quickly in new activities. Instead, the economy would adjust through declines in rural wages and the re-absorption of labor as low productivity, informal rural employment.
Relaxing the assumption of labor market rigidities dramatically reduces the welfare costs of environmental policies. Output falls are cut in half because wages in the formal sector are permitted to adjust, allowing enterprises to offset the costs of environmental taxes through lower labor costs. An alternative way of thinking about this is to assume that the government returns all tax revenues from environmental taxes to the formal sector through reduced payroll taxation.
The welfare benefits of reduced emissions and pollution vary significantly when different environmental policies are introduced sequentially. Because of the significant positive health effects of reduced PM10 emissions and the resulting impact on labor productivity, taxes to reduce PM10 emissions have much lower welfare costs than taxes to reduce other types of pollution, even emissions which contain CO2. Very significant welfare gains can also be obtained by combining higher water tariffs with the introduction of best practice technologies in water management (these can more than offset the negative effect of water pricing on agricultural output). This result is obviously a function of the greater precision with which the negative welfare effects of PM10 pollution and the positive effects of improved water management can be modeled. Economists arguing for green investments as an insurance policy point out the potentially disastrous and non-linear impacts of failing to contain climate change (Deichmann et al., 2012). Because these benefits are hard to model and quantify, arguably the responsibility for climate action as an insurance policy should fall disproportionately on the largest CO2 emitters in the industrialized world.
The negative welfare effects of environmental taxes can be more than offset by policies that transfer environmental tax revenues to support green jobs and increased innovation. The model results in this case are highly stylized as they assume a leading role for the public sector in recycling environmental tax revenues. One scenario considered used pollution tax revenues to promote green jobs, such as in the recycling of solid waste or in improving energy efficiency in public buildings. In the second scenario, taxes from CO2 emissions are recycled through public R&D spending, boosting Turkey’s overall R&D spending and the productivity of its economy. A combined scenario of green jobs and additional innovation spending will boost GDP and employment by 2.4 percent and 3.5 percent, respectively, above the base case without any new environmental measures.
While the model results are highly stylized, they nonetheless point to several important policy recommendations for Turkey, if it wishes to achieve green growth:
First, green growth policy is to a large extent consistent with traditional growth policy. The flexibility of a country’s labor (and other market factors), the extent to which prices reflect underlying economic scarcities, the quality of a country’s investment climate, the availability of a skilled labor force and the quality of a country’s national innovation system are all ingredients of good growth policy highlighted as critical elements of good green growth policy by the analysis in this GGPP. Turkey has had an excellent track record of high growth over the past decade, but to move forward and remain in the bracket of high income economies, Turkey will need to close the performance gap to the world’s leaders in the investment climate, the availability of an educated workforce and the quality of its national innovation framework (see for instance OECD, 2012, Economic Survey for Turkey).
Second, a country that has adopted a policy framework conducive to private investment and innovation will find it much easier to encourage investment and innovation in green sectors. The analysis in this GGPP suggests that policies that simply increase environmental taxes are unlikely to improve welfare or lead to job creation in new green sectors, unless they are accompanied by policies that encourage the introduction of new technologies, the exit of inefficient and entry of new, more efficient firms, make labor markets flexible so that workers move to less polluting industries, and promote links between science and business to boost innovation. In particular, the analysis highlights the importance of flexible labor markets in Turkey that allow the economy to adjust to higher environmental taxes. By the same token, targeted social transfers to poor and vulnerable households would help mitigate any distributional impact of environmental taxes.
Third, the most important actor in greening an economy is the private sector, but consistent public signals and well-targeted support can help to catalyze change. 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.
Finally, an important issue (which is beyond the scope of the present analysis) is the role of structural change as a potential engine of green growth. This note and the model used to motivate its conclusions have focused on cost abatement and innovation in existing sectors. However, as the structure of the economy changes, new sectors may come into being in information and communication technologies (ICT) and other services sectors that may not exist or today play only a minor role in the Turkish economy. Over the long term, it is likely that structural change will contribute significantly to mitigating the environmental impacts of economic growth. Even without such effects, this note has shown that with appropriate policies the growth – and environment trade-offs – can be substantially mitigated.
Box ES: How green is Turkey compared to developed and emerging economies (selected indicators)
According to the World Bank, in 2008 Turkey’s total wealth was estimated at 11,717 USD billion, which is about US$ 160,000 per capita, or about 3-4 times less than in advanced OECD countries, but above most of the emerging economies. The lion’s share of Turkey’s wealth is accounted for by intangible capital, while produced and natural capitals have relatively small shares. Crop and pasture land dominate Turkey’s natural capital comprising about 85%. The structure of wealth differs significantly across countries.
Turkey’s adjusted net savings ratio has been declining, mirroring the downward trend in the standard national savings ratio. The adjusted net savings ratio, a proxy for the total wealth developments over time, has declined by half since the 1990s, reaching 7-8% in the 2000s. However, natural dis-saving from particular matter pollution and CO2 emissions has been reduced as a share of national income, while savings resulting from investments in human capital have increased. Turkey’s rapid economic growth over the past decade has not come at the expense of a large depletion of the natural capital stock, although several sector specific risks deserve to be highlighted.
Water. Turkey is in the middle of the range according to an indicator of annual freshwater withdrawals as a percentage of total internal resources, but ranks lower in terms of water productivity. In addition, health risks related to water pollution, and limited access to clean water and sanitation, must be factored into the impact of water on a comprehensive measure of national wealth.
Forests and lands. While Turkey ranks low on deforestation and forest degradation, it has a relatively lower forest cover (about 15% of land area). With about half of the land area devoted to agriculture, Turkish crop yields are often lower than those of many comparable OECD countries such as Greece, Italy, and Spain. Moreover, about 70% of the arable land is at risk of erosion, and agricultural productivity is thus directly affected by the management of Turkey’s natural capital.
Biodiversity. Turkey’s investment in marine protected areas is at the lower end of the scale, significantly below countries like Germany and Italy, which have a comparable length of shore line. There is clearly scope for Turkey to increase its investment in the protection of marine biodiversity.
Air quality. Turkey has relatively low levels of particulate matter (PM) pollution. The indicator is an important factor in childhood mortality and lung disease. 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, soils, and therefore diminish agricultural productivity.
Total wealth is composed of: (i) intangible (human and social) capital; (ii) produced capital (machinery, equipment, structures, and urban land); (iii) 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, pasture land, and protected areas; and (iv) and net foreign assets.
Gross Domestic Product is an imperfect measure in reflecting living standards as they depend not only on the production level, but are also closely related to the accumulation of wealth, which can be depreciated or depleted over time. Accumulated wealth can be decomposed into produced, natural and intangible capital.
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).
Source: See main report