Assoc. Prof. Dr. Ahmet Atil Asici warns that Turkey’s Emission Trading System (ETS) could be stillborn due to insufficient climate targets.
Aşıcı, a faculty member at ITU Department of Management Engineering, works on economic growth-sustainability-happiness relations and green economic transformation. He worked as a researcher at the United Nations Conference on Trade and Development (UNCTAD) in 2005-2006 and has a study on the Turkish Emissions Trading System.
Aşıcı states that there is a risk that the Turkish ETS could be stillborn and says, “Turkey’s lack of climate targets could lead to very low carbon prices and a 17 million allowance surplus in 2027. For the system to work effectively, Turkey needs to strengthen its greenhouse gas mitigation targets.” Assoc. Prof. Dr. Ahmet Atıl Aşıcı interprets the prominent results of the study as follows:
Scope should not be determined solely by emission size
“Emissions Trading System (ETS) is one of the most important tools that can be utilized to reduce greenhouse gases. As of 2023, 18 percent of global emissions will be controlled under 36 different ETSs. Turkey launched its greenhouse gas monitoring system (IRD) in 2017, which is the first step towards establishing an Emissions Trading System. It plans to include certain sized manufacturing industries and power plants within the scope of the ETS from the beginning of 2025. However, Turkey’s ETS risks being stillborn due to the insufficient emission reduction target set for 2030. Moreover, determining the scope of the ETS based solely on the size of emissions may result in facilities operating in polluting sectors being excluded from the ETS. The details of the implementation have not yet been officially announced. However, according to officials, facilities producing electricity, iron and steel, aluminum, cement, glass, ceramics, gypsum, lime, paper, refinery products and chemicals that emit 100,000 tons or more of carbon dioxide (CO2) per year will initially be covered. However, there are negative consequences of using only the emission size as a facility selection criterion and excluding facilities emitting less than 100 thousand tons. Studies show that in such a case, no facility producing gypsum, glass, mineral wool and iron will be covered by the ETS. This will negatively affect the decarbonization efforts of Turkish industry. The European Union, which is one of the oldest and most widely implemented examples of the ETS, can be taken as an example. In the EU ETS, facility criteria are determined on a product basis. For example, in the case of gypsum, plants with more than 20 MW combustion units are included in the scope. In this way, on average, facilities that emit 30 thousand tons of CO2 per year can be included.”
Low carbon price neutralizes ETS
“Another important factor to be considered for any ETS implementation to be effective is the level of the cap to be set for facilities and its course over time. ETS applications aim to regulate greenhouse gas emissions through the prices formed in the carbon market. Companies that exceed their emission budget are required to purchase pollution rights (allowances) from companies that have not consumed their entire emission budget. In this way, facilities are incentivized to emit less. Of course, this system only works if the carbon price remains at an adequate level. Therefore, a cap set higher than it should be causes carbon prices to fall and the ETS to be ineffective. In the early stages of implementation in the EU, this cap was set above the current emission levels of installations. This is why carbon prices dropped to almost zero in 2008.”
17 million units of oversupply if not based on historical path
“Turkey’s projection in its Declaration of National Contribution on how much it will emit in 2030 if it pursues no climate policy is highly controversial. Turkey says its emissions will rise from 564 million tons in 2021 to 1.2 billion tons in 2030 if no measures are taken. Its target for the same year is to reduce emissions by 41 percent to 695 million tons. However, when we look at Turkey’s historical emissions between 1990 and 2021, we see an average annual increase of 11.2 million tons. Assuming that this trend will continue in the coming period, Turkey’s total emissions can be expected to reach 653 million tons of CO2 in 2030. This is lower than both the estimated 1.2 billion tons of emissions in 2030 and the targeted 695 million tons. Therefore, if the projection in the National Contribution Statement is taken as a basis and facilities’ pollution allowances are allocated based on it, but the actual increase in emissions follows the historical path, the carbon market will be oversupplied by 17 million units in 2027. Oversupply means that the price would fall to zero and the ETS would be ineffective.”
Carbon-intensive plants can make unfair profits
“One of the negative consequences of an oversupply in the carbon market is the opportunity for unfair profits for some facilities. This unfair gain can be achieved by selling unused allowances in the market for money and reflecting the carbon cost – even if it is not incurred – in prices. In the aforementioned EU example, it is estimated that between 2008 and 2015, companies made a total of EUR 7.5 billion by selling their extra allowances. In addition, they are said to have made a total of EUR 16.7 billion in ill-gotten gains by passing on carbon prices they did not bear.”
Turkey must strengthen climate targets and end fossil fuel subsidies
“Both civil society organizations active in Turkey and international organizations such as Climate Action Tracker, which examines the climate targets of countries, find the path presented by Turkey in its Declaration of National Contribution incompatible with the goal of limiting global warming to 1.5 degrees. According to the studies, for the 1.5 degree target, Turkey should limit its 2030 emissions to 434 million tons, not 695 million tons. When the share of companies in the ETS in total emissions is calculated, it becomes clear that the emission limit of the system should be set at 192 million tons. Turkey’s most fundamental policy incompatible with the ETS is the incentives given to fossil fuels. If the domestic ETS is to be successful, fossil fuel incentives must be removed immediately.”
