Environmental problems, especially “climate change” due to significant increase in anthropogenic greenhouse gases, have been on the agenda since 1980s. Among the greenhouse gases, carbon dioxide (CO2) is the most important one and is responsible for more than 60% of the greenhouse effect. The objective of this study is to identify the factors that contribute to changes in CO2 emissions for the Turkish economy by utilizing Log Mean Divisia Index (LMDI) method developed by Ang (2005) [Ang, B.W., 2005. The LMDI approach to decomposition analysis: a practical guide. Energy Policy 33, 867–871]. Turkish economy is divided into three aggregated sectors, namely agriculture, industry and services, and energy sources used by these sectors are aggregated into four groups: solid fuels, petroleum, natural gas and electricity. This study covers the period 1970–2006, which enables us to investigate the effects of different macroeconomic policies on carbon dioxide emissions through changes in shares of industries and use of different energy sources. Our analysis shows that the main component that determines the changes in CO2 emissions of the Turkish economy is the economic activity. Even though important changes in the structure of the economy during 1970–2006 period are observed, structure effect is not a significant factor in changes in CO2 emissions, however intensity effect is.
Environmental problems, especially “climate change”, have been on the agenda since 1980s. Intensive use of fossil fuels and destruction of forests can be cited among the main reasons of the significant increase in anthropogenic greenhouse gases that lead to climate change. Among those gases, carbon dioxide (CO2) is the most important one and is responsible for most of the greenhouse effect. Enacted in February 2005, Kyoto Protocol is the first agreement which tries to limit greenhouse gas emissions and requires a timetable for realization of those reductions. The predecessor of Kyoto Protocol, UN Conference on Environment and Development was held in 1992 and a voluntary non-binding mechanism, UNFCCC (United Nations Framework Convention on Climate Change) was enacted in 1994. Turkey has joined UNFCCC in May 2004 and is considered as an Annex I Party, and eventually ratified the Kyoto Protocol in February 2009.
Turkey's contribution to CO2 emissions is quite low; in 2003 per capita CO2 emissions were 2.87 tons, much lower than the OECD average of 11.08 tons and also her share was 1.59% in total OECD emissions and 0.81% in world emissions (WECTNC, 2006a, WECTNC, 2006b). However, a rapid increase in CO2 emissions is observed in recent years. CO2emissions excluding emissions/removals from land use, land-use change and forestry (LULUCF) (including emissions/removals from LULUCF) amounted to 140 (96) million tons in 1990 and 242 (168) million tons in 2004 which corresponds to a 73.3% (74.7%) increase between these years. This increase corresponds to one of the highest increases in the CO2emissions among Annex I parties (UNFCCC, 2007).
Even though Turkey tries to comply with international standards, implementation of them is weak. This is mainly because of the priority given to the “industrial development strategy” over the environmental concerns. Although, the concept of “sustainable development” takes its place in the latest development plans, implementations in the environmental arena contradict with this theme.
Objective of this study is to identify the factors that contribute to changes in CO2 emissions for the Turkish economy by utilizing “decomposition analysis”. Turkish economy is divided into three aggregated sectors, namely agriculture, industry and, services. This study covers the period 1970–2006, during which significant policy changes have been observed in the economy. While Turkey had pursued an import-substitution development strategy until 1980, after this year she has adopted an export oriented strategy, gradually liberalizing the economy. At the same time, Turkish economy encountered several economic crises during the study period and adopted many stabilization programs under the auspices of IMF. Therefore, this study period enables us to observe the effects of different macroeconomic policies on carbon dioxide emissions through changes in shares of industries and the use of energy sources.
Decomposition analysis is one of the widely employed approaches in energy use and CO2emission analyses in the literature. Among different methods of decomposition, Log Mean Divisia Index (LMDI) method developed by Ang (2005) is employed in this study. Furthermore, additive version of this method is utilized in which the change in one variable is decomposed as summation of changes in the components of that variable. Therefore, changes in CO2 emissions can be decomposed into changes in overall activity (activity effect), activity mix (structure effect), sectoral energy intensity (intensity effect), sectoral energy mix (energy-mix effect) and CO2 emission factor (emission-factor effect).
Considering the pace of increase in CO2 emissions, it is necessary to understand the share of different sectors in emissions, the sources and changes in the sources of emissions from 1970s to mid-2000s. Accordingly, effective policies for reducing CO2 emissions can be developed which can also be considered as a step towards sustainable use of energy sources.
There is a vast literature on decomposition analysis on energy consumption and CO2emissions. However, applications of these techniques on the Turkish economy are limited. There are a couple of studies that decompose the energy consumption in Turkey. One of them which investigates sectoral energy consumption is Ediger and Huvaz (2006). Applying additive LMDI method by Ang et al. (1998) primary energy is mainly found to be determined by the production effect, structure effect and intensity effect for agriculture, industry and service sectors in the 1980–2000 period. The authors find that the production effect is more important than other effects and this is more apparent in industry and services sectors.
Türüt-Aşık et al. (2008) analyze the sources of the change in energy intensity at four digit sectoral level in the Turkish manufacturing industry, for the period of 1992–2001. Using energy decomposition method suggested by Choi and Ang (2003), it is found that the change in energy intensity of the manufacturing sector results from the change in sectoral energy intensities rather than the change in sectoral shares.
Another strand of literature applies similar techniques on CO2 emissions. An example is Karakaya and Özçağ (2003). For 1973–1999 period, the growth effect and population effect are identified as the main contributors to CO2 emissions in the Turkish economy. These effects are followed by fossil-fuel intensity effect (share of fossil fuels in total energy) and conversion-efficiency effect (primary energy required to deliver energy for final consumption). The authors claim that increasing energy demand due to economic growth in the Turkish economy has been satisfied increasingly by fossil fuels and decreasingly by renewable sources.
Lise (2006) reaches similar conclusions. CO2 emissions for the period 1980–2003 are analyzed for four aggregated sectors; agriculture, industry, transportation and services. In this study refined Laspeyres method is used. The author concludes that while the growth of the economy (scale effect) is responsible for most of the CO2 emissions, the carbon intensity and composition effects also contribute to CO2 emissions. Energy intensity effect on the other hand is only responsible from a modest reduction in CO2 emissions.
Different from the aggregate decomposition studies that are mentioned above Akbostancı et al. (2008) look into the CO2 emissions of Turkish manufacturing industry at four digit level by using four fuel groups for 1995–2001 period. Similar to the current study, authors utilize additive LMDI method developed by Ang (2005). It is found that main causes of the change in CO2 emissions during the study period are the changes in total industrial activity and energy intensity. It is also indicated that among the fuels used, coal is the main determining factor and among the sectors iron and steel basic industries is the single dirtiest sector dominating the industrial CO2 emissions. Following iron and steel sector, manufacture of cement, lime and plaster, petroleum refineries and manufacture of synthetic resins, plastic materials and man made fibers except glass sectors are the other higher CO2 emitters.
Current study improves the previous decomposition studies of CO2 emissions by updating the coverage of the time period as well as utilizing the additive LMDI which is not used in the previous studies. Advantage of the LMDI method is that it does not result in an unexplained residual term. The decomposition literature deals with the residual term by different methods, which are mainly arbitrary like equally distributing the residual among the components.1 This study utilizes the decomposition method suggested by Ang (2005) which deals with this problem. Additionally, another novelty is that the decomposition method used by the current study enables us to look into the contributions of energy sources to the changes in CO2emissions. This way we are able to track the changes in different energy sources used throughout the study period and impact of this change in the energy consumption structure on the CO2 emissions. This allows the researchers to devise policy implications from this perspective as well.
Rest of the study is organized as follows. Turkish energy policy is discussed in Section 2, decomposition analysis methodology and the data set are discussed in 3 Methodology, 4 Data set respectively. Results of the decomposition analysis are presented in Section 5, and finally Section 6 concludes the paper.
2. Energy policy of Turkey
In terms of total and per capita energy consumption, developed countries are ahead of developing countries. Most of the energy is consumed by high income countries and USA is the number one among the highest energy consuming countries. Even if it can be argued that the developed countries have reached the saturation point in terms of their energy use, this is not true for developing countries. According to Churchill (1993), in the following decades the increases in energy demand will emanate from developing countries to a large extent. We can observe this trend by looking at the changes in energy consumption of these countries. Similar findings also exist for CO2 emissions. Although, energy consumption levels, per capita energy consumption and CO2 emissions of high income countries are very high, the rate of increase in these indicators is higher for low and middle income country groups. This observation points out the fact that energy use and environmental problems will be much more on the agenda of low and middle income countries.
Turkey with her increasing population, growing economy and her economic structure transforming from agriculture to industry, is among the fastest growing energy markets (IEA, 2001). Turkey does not have an important share in world energy consumption; in 2005 the share of primary energy consumption of Turkey in world energy consumption is less than 1%. On the other hand primary energy and electricity consumption has risen by 5.4% and 7.2%, respectively, due to the growth observed in the industry. Contrary to consumption, an important increase is not observed in the production of primary energy sources. This leads to an increase in the rate of import dependency and worsened the trade deficit (WECTNC, 2006a). It is expected that growth in Turkey's energy demand will continue in the future as well. To meet this foreseen demand, Turkey pursues policies such as increasing privatization, granting incentives to foreign investments in constructing power stations and pipe lines.
During 1970–2006 study period, we can see two main strands of energy policies: one is corresponding to pre-1980 period which starts with First Five Year Development Plan period (1963–1967) and post-1980 period corresponding to privatizations in line with neoliberal policies adopted.
Policy objectives related to the energy sector in the development plans remained more or less the same throughout the study period. These objectives are: to ensure sufficient, reliable and economic energy supplies in order to support economic and social development, to maintain security of energy supply as a result of increasing import dependency, and to encourage sufficient investments to meet growing energy demand (IEA, 2002).
In the first two plans (1963–1967, 1968–1972) (SPO, 1963, SPO, 1968) it is aimed to minimize energy production cost, to decrease the use of non-commercial fuels, to meet the industrial energy demand primarily by domestic production and to maintain efficiency in energy use. In the third plan period (1973–1977) (SPO, 1973), the main objective about energy is to meet the increasing demand. In this context, especially, use of domestic resources (hard coal, lignite, hydraulic) and reduction of dependency on foreign sources are targeted. However, in the third plan period only 50% of commercial energy demand is met by petroleum products implying that this aim of reducing dependency on foreign sources cannot be realized. The importance attached to increasing the share of population consuming electricity (especially electrification of villages) is stressed in all annual programs. However, as of 1977, only 50% of the population was using electricity.
In the third plan, a section about environmental problems appears for the first time. According to this plan, when there is a conflict between environmental and development issues priority should be given to development. Additionally, it is mentioned that no international sanctions about environment that could cause deviations from development targets can be accepted. Energy related environmental problems however are neglected in this plan. One of the main concerns of the third plan period is emergence of important bottlenecks in the economy, especially in the infrastructure. During this period, from time to time, disorganizations and delays in investments, decreases in production and exports and energy crises are observed. Importation of crude petroleum becomes an important problem in the economy due to growing petroleum demand and fourfold increase in oil prices since 1973. At the end of 1977, only half of the energy demand could be met with domestic sources.
In the fourth plan period (1979–1983) (SPO, 1979), since problems of economic and social development are worsened, solutions to these problems and rational use of resources are strongly emphasized. Fourth plan period suggests policies for rapid industrialization with necessary institutional reorganizations and inline with this goal important steps towards increasing exports are taken. During the plan period, the developments in energy sector are inadequate to provide the energy necessary for the economy. The targets set in plans cannot be reached hence first electricity and then energy sector begin to create bottlenecks for the Turkish economy.
Jobert and Karanfil (2007) define 1960–1980 period as a capital accumulation period without any serious regulation to reduce the energy consumption and any energy-saving technical progress in the industry. Import-substitution policies increase energy requirements of the industry in this period. Although, the first energy crisis in 1973 is not able to slow down the energy consumption, the second one in 1979 is able to interrupt the increase in energy consumption of the industry.
In January 1980, the Turkish government announces a major stabilization and economic liberalization program. On the one hand, the short-term objectives of this program are to reduce the rate of inflation, improve the balance of payments situation through export growth and thereby, reestablish Turkey's international creditworthiness. On the other hand, the long-term objectives are to adopt a more market directed system of resource allocation in general and an export oriented trade strategy based on comparative advantage. The role of the government in economic and financial sectors has been minimized: the state economic enterprises in industry, agriculture and services are privatized, financial liberalization is realized, the distinction between domestic–foreign companies is eliminated, and suitable conditions are created for foreign capital (Baysan and Blitzer, 1990).
In line with these neoliberal economic policies adopted, we also observe liberalization and competition in the energy sector. Public investments, including electricity investments, have been gradually cut down to decrease the public share in the economy. Additionally, the government through legal arrangements tries to attract private investors to the sector (Yılmaz and Uslu, 2007).
Fifth (1985–1989) (SPO, 1985) and sixth (1990–1994) (SPO, 1990) plans have more or less similar objectives. They aim to meet energy demand on time, sufficiently and reliably. If domestic energy sources are economical, then they are preferred otherwise primary energy will be imported. In line with neoliberal policies, in exploration and production of energy raw materials utilization of non-public sources is encouraged and private sector and foreign capital ventures are supported.
In addition to these, seventh plan (1996–2000) (SPO, 1996) emphasizes investments in the electricity sector. To minimize the losses and to improve the networks, investments in distribution and network are given priority.2 Other aims of the plan are: diversifying the imported products and originating countries, increasing energy productivity, and implementing energy-saving programs.
In the sixth and seventh plan periods, hardly up to 60–70% of investments that are foreseen can be realized. Public sector does not develop and realize investment projects at sufficient levels due to expected private sector investments. However, the private sector could not carry out the expected investments.
The eighth plan (2001–2005) (SPO, 2001) stresses the role of the private sector in energy. It mentions implementation of the necessary legal and institutional changes at every stage, for private sector's participation in investment and operation activities at the maximum level, primarily in electricity and natural gas sectors. Another objective of this plan is to decrease the losses in the electricity distribution system and thus, to increase the collection rate.3Additionally, to increase the share of natural gas in energy consumption, the plan stresses the importance that should be given to international crude oil and natural gas pipeline investments that would make Turkey one of the important energy distribution centers of the world.
Among the objectives of the ninth plan (2007–2013) (SPO, 2007) we see the emergence of an emphasis on minimization of the environmental damages while meeting the energy demand and using energy efficiently at every stage from production to consumption. Other priorities of the ninth plan are set as: increasing privatization of public electricity generation plants and distribution system, providing a suitable environment for the private sector to make investments, making necessary changes in the laws so that public sector will concentrate on its regulative and auditing roles.
In line with the neoliberal policies followed since 1980s and efforts of Turkey to be a member of EU, legislative framework in the country has been upgraded to be compatible with that of EU countries since 2001. Electricity Market Law, Natural Gas Market Law, Petroleum Market Law and Energy Efficiency Law can be given as examples for these new legal frameworks which aim to end the state monopoly, to allow private sector participation in energy industries, and to open the sector to competition under independent regulation and supervision of the Energy Market Regulatory Authority (Okay et al., 2008).
Attempts towards increasing energy efficiency are administered by the Ministry of Energy and Natural Resources. To improve energy efficiency in industry, in 1995 Energy Saving Directive is published. Additionally, in recent years in projects conducted together with Japanese International Cooperation Agency (JICA), increasing consciousness in energy saving and contribution to energy saving nationwide are intended (IEA, 2001; WECTNC, 2003). The most recent regulation, the Energy Efficiency Law which intends to achieve 25–30% savings in total energy consumption, is enacted in 2007 as a result of compliance with the EU directives (Okay et al., 2008).
In light of the developments in the energy policy explained in this section, we try to analyze the CO2 emissions of the energy use in the Turkish economy and the factors that contribute to the changes in these emissions with the decomposition method.
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