Carbon Markets

The EBRD is providing support to Turkey on its path to low carbon and climate resilient development. Carbon pricing and related carbon markets are an important policy tool that would help Turkey meet its climate change objectives, in particular with regards to meeting its greenhouse gas emission reduction targets in a cost-effective way.


Turkey and the Paris Agreement

On 12 December 2015, 196 Parties to the UN Framework Convention on Climate Change (UNFCCC) adopted the Paris Agreement, a new legally-binding framework for an internationally coordinated effort to tackle climate change. The Agreement represents the culmination of six years of international climate change negotiations under the auspices of the UNFCCC. It requires countries to formulate progressively more ambitious climate targets which are consistent with this goal.

To achieve the ambition of the Paris Agreement – keeping global warming “well below” 2°C, or even 1.5°C – rapid implementation of large-scale mitigation action is urgently needed. Leveraging existing carbon markets and strengthening climate finance institutions is vital to achieve the scale of finance needed to trigger the transition towards low carbon development. Recognising this, Parties decided that successful elements of existing market mechanisms should serve as the foundation for the future mechanism established under Article 6 of the Agreement.

This presents Turkey with a new opportunity to link domestic emission reduction activities to market mechanisms, which are to be further worked out during future Convention meetings. To date, Turkish project sponsors have not been able to participate in the mechanisms operationalised under the UNFCCC (including the Clean Development Mechanism) as Turkey was granted a special designation under the Kyoto Protocol as an “advanced developing country”. This implied that Turkey was not required to take up GHG emission reduction obligations, unlike the developed countries listed in Annex I of the Protocol. Turkey’s signing of the Paris Agreement in April 2016 marks the first step towards the implementation of the commitments reflected in the Intended Nationally Determined Contribution submitted to the UNFCCC in September 2015.

Figure: Timeline of developments


Carbon markets in Turkey

Turkey plays a prominent role in the global voluntary carbon market. The voluntary carbon market relates to transactions in carbon credits that fall outside the compliance schemes created under the Kyoto Protocol. Demand for carbon credits in this market is driven largely by companies that pursue voluntary greenhouse gas emissions targets and intend to demonstrate climate leadership within the industry.

Turkey represents the largest seller of voluntary carbon credits in Europe. Over the period 2007 – 2015, Turkey transacted around 35 million tonnes of CO2e valued at over US$ 200 million. This is equivalent to approximately 70 per cent of total market volume in Europe to date. In 2015, Turkey was responsible for around half of all primary transactions in Europe, amounting to 3.1 million tonnes of CO2e. This made Turkey the fourth largest supplier of voluntary carbon offsets globally after the United States, India and Indonesia, on par with other large players including Kenya and Brazil. Despite high transaction volumes, however, the total value of these transactions declined from US$ 18.6 million in 2013 to US$ 4.3 million in 2015 due to a decline in the price of carbon in recent years. The majority of Turkey’s voluntary carbon transactions were derived from sales of VERs generated by wind, hydro, and landfill methane projects.

Figure: Top players in the voluntary carbon markets, including Turkey’s role in terms of transacted volumes and valuation (2015 data)

                                          

Source: adapted from Ecosystem Marketplace. Raising Ambition: State of the Voluntary Carbon Markets 2016. May 2016

Turkish carbon projects are developed primarily under one of two standards: the Gold Standard and the Verified Carbon Standard (VCS). As of April 2016, Turkey had 235 registered projects, 125 of which were under the Gold Standard and 110 under the VCS. Both standards stand out as internationally respected frameworks for the development and implementation of emission reduction projects and are transacted globally.

Figure: Volume of offsets transaction by country (2015 data)

                                 

Source: adapted from Ecosystem Marketplace. Raising Ambition: State of the Voluntary Carbon Markets 2016. May 2016

Turkey’s active presence in the voluntary carbon market is reflected in MidSEFF’s portfolio of financed projects, many of which have been developed as carbon projects and are monetising carbon revenues. For an overview of carbon projects currently being supported under the MidSEFF Carbon Market Development Support consultancy, please click here.


Link to emissions trading

In the EU, a cap-and-trade legislation is in place regulating the amount of greenhouse gases emitted by major emitters. The EU emissions trading scheme (EU ETS) is the region’s key policy tool for containing rising greenhouse gas emissions and meeting internationally agreed emission reduction targets cost-effectively. Through the strong trading ties with the EU, many commercial clients of Turkish banks are directly or indirectly exposed to the prices of emission allowances traded under the EU ETS.

The EU ETS is currently in its third phase, which began in 2013 and will continue until the end of 2020. The allocation of emission allowances takes place through auctions, whereas secondary market transactions are performed through organised exchanges, such as the Intercontinental Exchange and the European Energy Exchange. The scheme covers three types of greenhouse gases (i.e. carbon dioxide, nitrous oxide and perfluorocarbons), with key sectors including power and heat generation, steel works and production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, among others. Furthermore, emissions from all flights from, to and within the European Economic Area (EEA) are included in the EU ETS. In total, around 12,000 installations are covered, representing close to 45 per cent of the EU’s carbon dioxide emissions. Some of these assets are fully or partially controlled by Turkish corporations, creating direct exposure to carbon pricing legislation.

Phase IV, which will commence on 1 January 2021, will further tighten the overall emissions cap (by 2.2% each year, compared to a reduction of 1.74% per year in the current phase). Continued operation of the ETS will be instrumental to help the EU achieve the three main targets stipulated in the 2030 climate and energy framework:

  • At least 40% cuts in greenhouse gas emissions (from 1990 levels);
  • At least 27% share for renewable energy;
  • At least 27% improvement in energy efficiency.

For more information about the EU ETS, please click here.

Turkey is taking steps to prepare its economy for closer ties with EU legislation. One important step towards this integration has been the preparation of new legislation to monitor and verify emissions across a range of sectors. The legislation, which was enacted in April 2012, implements key parts of the EU Monitoring Mechanism Decision 280/2004/EC and establishes an installation-level MRV system for close to 1,000 installations. Sectors covered under the regulation include the energy sector (combustion fuels >20MW) and industry sectors (cement, metals, coke production, paper and pulp, glass, ceramic products, insulation materials, and chemicals). All regulated installations in these sectors were obliged to report their 2015 emissions before end of April 2016.

Further support work is currently being undertaken through the World Bank’s Partnership for Market Readiness (PMR) programme that seeks to explore (i) Turkey’s low carbon development policies, and (ii) potential use of market based instruments (MBIs). To find out more about the PMR programme in Turkey, please click here. As part of this work, an assessment is being conducted on the consideration of establishment and operation of an ETS for Turkey. In addition to this, the EU continues to be engaged in supporting the creation of a fully functioning monitoring mechanism of greenhouse gas emissions in Turkey, in line with the work already initiated by the Turkish government. Other organisations involved in carbon pricing initiatives in Turkey include the International Carbon Action Partnership (ICAP) and the German Gesellschaft für Internationale Zusammenarbeit (GIZ). To find out more about ICAP's support to Turkey, please click here, and to find out more about GIZ's support to Turkey, please click here.

Besides supporting carbon pricing activities in Turkey, EBRD is also active in identifying potential road maps towards (i) implementation of domestic cap and trade schemes, and (ii) linking with external cap and trade schemes for a number of EBRD countries outside of the EU. For more information about the Bank’s Preparedness for Emissions Trading in the EBRD Region (PETER) initiative, please click here.

Turkey’s GHG emissions outlook

An upper middle-income country with a population of 75 million, Turkey boasts a vibrant economy with an average annual growth rate of nearly 5 per cent between 2005 and 2015. The country’s rapid development has also increased GHG emissions across key economic sectors. Over the past decade, economy-wide GHG emissions increased by more than 35 per cent. Turkey’s transition to a low carbon economy will require significant financial resources.

Figure: GHG emissions trajectory of Turkey under a business-as-usual scenario and pathway per INDC (submitted to the UNFCCC in September 2015)

In response to the rapid increase in GHG emissions, Turkey is working towards developing new domestic policies that will facilitate the country’s transition into a greener growth trajectory. In 2010, Turkey adopted a National Strategy and Action Plan on Climate Change, which includes a renewable energy target of 30 per cent of the country’s power supply by 2023. The Intended Nationally Determined Contribution (INDC) submitted to the UNFCCC in 2015 further reconfirms a 21 per cent GHG emission reduction from a business-as-usual level by 2030, prioritising interventions in renewable energy, industrial efficiency, transport, buildings and agriculture.

Turkey’s INDC submission to the UNFCCC can be found here.