In addition, the introduction of the European Union’s Fit for 55 legislative package, which includes a proposal for a carbon tariff on imports known as the Carbon Border Adjustment Mechanism, has been crucial too as it has created significant concern among the Turkish business community regarding sectors most exposed to the tariffs such as the iron, steel and aluminium industries.
Meanwhile, political changes have included the shifting tide towards accelerated climate action around the world with the United States rejoining the Paris Agreement in 2021. Although the US’s return to the climate table, and President Joe Biden’s agenda to lead global climate action, have been drivers in their own right, Ankara’s attempts to restore its relationship with Washington has also played a significant role.
Turkish public opinion, too, has appeared to have played a role. According to a survey conducted by the German Marshall Fund in 2021, public sensitivity to the climate has been increasing, especially among young people. Indeed, before the Paris Agreement was ratified in 2021, more than 70 per cent of Turkish young people surveyed supported ratification.
On the road to decarbonization
This new Turkish policy direction has been universally welcomed by domestic civil society, as well as by other countries, as a positive contribution to global climate action. Yet, it only represents the beginning of a long transformation required to create a carbon neutral economy. Indeed, on the road to this new equilibrium, there are many challenges. Chief among them is the need to rapidly reduce Turkey’s growing greenhouse gas emissions driven by population growth and economic development.
Turkey’s carbon emissions have been growing exponentially – increasing 24-fold over the last 60 years to 2018 – while its emissions per capita have increased eight-fold during the same period – currently exceeding the global average. In fact, despite its economic carbon intensity consistently falling, it is doing so at a much lower rate than other developed economies.
Turkey needs to expand its energy transition towards renewable energy. Despite hydroelectric, solar, wind and geothermal energy sources accounting for 54 per cent of the country’s electricity generation capacity in 2021, its energy transformation beyond electricity remains behind.
In 2018, almost three quarters of Turkey’s total energy consumption came from fossil fuels, a ratio that continues to rise due to rising energy demand in the transportation and industrial sectors. In fact, transportation depends on oil for 97 per cent of its energy while industrial activities source 67 per cent of its energy directly from fossil fuels. Turkey also financially supports petroleum and coal production and consumption to the amount of $6.8 billion annually using tax breaks and state-owned enterprise investment.
In addition, Turkey continues its efforts to source natural gas domestically and from overseas. During COP26 in Glasgow last year, Turkey did not join voluntary commitments to shift away from using coal for electricity generation, to phase out oil and gas or to cut methane emissions.
Turkey’s focus on economic growth, its current economic and political situation, the acute polarization – and centralization – of its domestic politics as well as institutional weaknesses could all slow down decarbonization in the country.
The Russia-Ukraine war
The Russia-Ukraine war, and Turkey’s response to it, has further complicated Turkey’s economic and political climate. Seeming neutrality pursued by President Recep Tayyip Erdoğan, carefully balancing the country’s support for Ukraine and the Western alliance without antagonizing Russia, has not shielded it from the conflict’s fallout. Indeed, rising fossil fuel prices will lead to a higher energy import bill for a country that imports 99 per cent of its gas from Russia, Azerbaijan and Iran and 93 per cent of its oil from Iraq and Russia – and it is already struggling with a rising energy import bill estimated at $55 billion as well as an energy consumption subsidy bill of $12 billion.
It is likely that Turkish dependence on Russian gas imports will have to be reduced while, at the same time, accelerating a long-term energy transition towards renewable energy. However, in the short-term, it might prompt increased gas exploration in the Black Sea near the Sakarya gas field which is expected to meet approximately 30 per cent of current domestic demand by 2028. It might also lead to a stronger diplomatic push by Turkey to become a major hub for Cypriot and Israeli gas trying to reach European markets.
Finance and investment
Decarbonization requires a whole system change. It involves developing new climate policies, adopting new technologies and attracting new investments. These require both technological and industrial transformation as well as significant financial investment. Yet, given Turkey’s high savings deficit, the current state of its economy and its recovery from COVID-19, decarbonization will require significant foreign finance and investment.
According to estimates by Shura, a Turkish energy research center, Turkey needs an investment of $5.3-7 billion annually until 2030 to finance its energy transition. To put this into context, Turkey attracted only $5.8 billion of total Foreign Direct Investment (FDI) in 2019. In spite of early success in attracting some climate finance, Turkey has been attracting less and less FDI since 2016. With increased risk premium caused by the deteriorating political situation domestically, including the state of the rule of law and macroeconomic policies such as the unorthodox loose monetary policy pursed by the central bank, the incentive for investors to invest in Turkey has decreased. Long-term impacts of reduced interest rates on FDI are yet to be determined, but in the short-term, investor sentiments have shifted away from Turkish bonds and Lira-denominated assets.