What is not as starkly apparent, but which carries equally profound risks for people and their livelihoods, is the economic risk from climate change. Not only because firms will need to adapt to a world with less water, more heat, and higher sea levels but also because if they do not adjust production processes to mitigate emissions, their competitiveness in key export markets will be negatively impacted. And on the contrary to the extent that firms adjust and become greener, they will be more competitive and, particularly if they are first movers, increase market share.
Türkiye’s export-oriented economy and the large number of workers employed in brown jobs are exposed to global efforts to reduce climate change-causing carbon emissions, particularly in the European Union (EU) which absorbs 40% of Turkish exports. The EU’s Carbon Border Adjustment Mechanism (CBAM), a carbon tariff on carbon-intensive products such as cement, iron and steel, aluminum or fertilizers, is a centerpiece of the bloc’s emission-reduction efforts which has significant implications for manufacturers for whom the EU is an important export market. CBAM will enter into effect in 2026 after the current transitional phase which already requires the disclosure of emissions from production processes.
How does this affect Türkiye? Turkish manufacturing is currently more carbon-intensive than the EU average, exposing Turkish-made goods to import tariffs in the form of a ‘carbon levy’, which will make them more expensive than similar products from companies using low carbon processes. Thus unless Turkish exporters adapt and decarbonize to preserve their export potential, the introduction of CBAM may result in declining exports in CBAM affected sectors. And CBAM is expected to expand and include additional products by 2030, a year that is not that far way.
Big challenges need big actions. And these actions should come from the public and private sector and from national and global institutions, including the World Bank Group (WBG), which we think is well positioned to accompany Türkiye in its efforts to adjust to climate change. Indeed, we have done quite a lot of work analyzing the issue, describing the steps that would be needed to move in that direction, and estimating the financial needs of such a strategy (around $650 billion in net present value until 2040).
And building on that knowledge, we are already working to support a green transition in Türkiye relying on our complement of global technical expertise, financing solutions in the public and private sector, and providing guarantees for cross-border investments.
We are actively involved in the green transformation of firms with projects like the $450 million Green Industry, implemented by KOSGEB and TUBITAK, to help small and medium enterprises (SMEs) reduce carbon emissions, and like the $120 million blue and green loan to Yapı Kredi Leasing to enhance access to climate finance for small businesses involved in climate mitigation and adaptation.
We are providing a $660 million guarantee to Eximbank which will mobilize $1 billion for firms to align with CBAM requirements and a $150 million investment in leading industrial group Sanko Holding, which seeks to stimulate job creation, competitiveness, and sustainable growth with activities such as the construction of green-certified manufacturing facilities. The investment in Sanko is particularly important to us as the company is based primarily in Gaziantep, the epicenter of the February 2023 earthquakes. Sanko employs about 15,000 people and is a significant contributor to the economy of the earthquake affected areas.
Our partnership with Türkiye in the energy sector is also noteworthy since electricity is the largest contributor to the country’s carbon emissions. Decarbonizing the power sector is also vital for industries to reduce their own emissions if the engine on which they run – electricity – is made clean and green. Ongoing work includes analysis and financing designed to crowd in additional financing from other development partners to support electricity generation from geothermal, wind and solar sources, as well as promoting energy efficiency. We are working to enhance energy security in Türkiye and rebalance the energy mix through selective and strategic engagements in the sector, including in the renewable space through the provision of political risk insurance guarantees. Some of the achievements from these interventions include over 11 million MWh in energy saved in 2023 through energy efficiency projects; nearly 7 million private sector firms reached through renewable energy generation and distribution; and 3 million customers in the southern Marmara region reached by clean electricity distribution companies.
And more engagements are ahead of us. During COP28 the Minister of Energy announced a plan to install 60 GW of renewable energy by 2035. This is one of the most ambitious plans in emerging markets, with the exception of China and India, which will require interventions in generation, distribution, and transmission. We estimate the investment needed for this plan at about $100 billion and anticipate that in addition to contribute to net zero emissions by 2053 will also advance the country’s objective of energy security. This is what it is usually referred as a win-win proposition. And yes, since there is no time to waste, we are already working on a $750 million investment to modernize energy transmission networks as well as looking at ways to facilitate private sector funds to flow to generation and distribution.
We know that there are challenging times ahead. From a climate change and from a business perspective. We have briefly reviewed a few above. But let’s not forget that with every challenge comes an opportunity. Together we can address the challenges and exploit the opportunities to ensure that Turkish firms’ path to growth and market share lies in green solutions.
This op-ed was originally published in Turkish in Ekonomim on February 19, 2024 Source: World Bank.