Report No: Shaping Sustainable Consumption and Production Agenda in Turkey: A Study on Economic Instruments to Support SDG 12 August 2017 Document of the World Bank Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. 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Shaping Sustainable Consumption and Production Agenda in Turkey: A Study on Economic Instruments to Support SDG 12 August 2017 Document of the World Bank Table of Contents Abbreviations and Acronyms .................................................................................................................. 6 Acknowledgements ................................................................................................................................. 8 Executive Summary ................................................................................................................................ 9 I. Introduction ........................................................................................................................................ 14 II. Implementation of Sustainable Development Goals in Turkey ........................................................ 16 2.1 Turkey’s Involvement in the Global Sustainable Development Agenda: From MDGs to SDGs ..................................................................................................................................... 16 2.2 Initial Steps Taken Toward Implementing SDGs in Turkey .......................................... 17 2.3 SDG 12 and Its Relevance with Turkey ......................................................................... 17 2.3.1 The Meaning of Sustainable Consumption and Production ................................................. 17 2.3.2 Key SCP Issues in Turkey ................................................................................................. 19 III. Overview of International Experience in Supporting Sustainable Consumption and Production ... 25 3.1 Conceptual Framework and Global Trends of Green Financing ............................... 25 3.2 Economic Instruments to Support SDG12 ................................................................ 27 3.3 Application of Economic Instruments in OECD Countries ...................................... 29 3.4 Possible Implications for Turkey............................................................................... 35 IV. Economic Instruments to Support SCP-related Activities in Turkey: A Situation Analysis .......... 37 4.1 An Overview of Economic Instruments for Supporting SCP in Turkey ........................ 37 4.2 Review of the Policy Applications in Existing National Plans and Programs in Support of SCP ................................................................................................................................... 50 V. Areas for Improvement and Policy Recommendations .................................................................... 59 5.1 Areas for Improvement ................................................................................................... 59 5.2 Policy Recommendations ............................................................................................... 65 VI. Concluding Remarks ....................................................................................................................... 68 References ............................................................................................................................................. 69 Annex 1. Targets and Indicators under SDG 12.................................................................................... 76 Annex 2. An Overview of Financial Vehicles for Green Investing ...................................................... 78 4 List of Tables Table 1. Key SCP Indicators for Turkey and EU28 ................................................................. 21 Table 2. National Strategies and Action Plans Related to Key Themes of SCP ...................... 22 Table 3. Economic instruments relevant for supporting SDG12 ............................................. 28 Table 4. Use of green bonds to conserve the environment ...................................................... 34 Table 5 Summary of available economic instruments supporting SCP practices in Turkey 48 Table 6. Policies related to promotion and financing of SCP within the main plans, strategies, programs ................................................................................................................................... 54 List of Figures Figure 1. Domestic Material Consumption by Main Material Category in EU28 and Turkey 20 Figure 2. Ecological Footprint and Bio-capacity of Nations ................................................... 23 Figure 3. Turkey's ecological footprint and bio-capacity (1961-2012) .................................... 24 Figure 4. Funding flows for sustainable development ............................................................. 26 Figure 5. Environmentally related taxes (% of GDP, 2011) .................................................... 30 List of Boxes Box 1. An Important Indicator for Measuring Sustainability: Ecological Footprint ............... 23 Box 2. Examples of environmental taxes and charges in the OECD ....................................... 30 Box 3. Examples of deposit refund-schemes ........................................................................... 31 Box 4. Examples of phasing out EHS ...................................................................................... 33 Box 5. Examples of debt for nature swaps ............................................................................... 33 Box 6. Examples of energy efficiency support programs in Turkey ....................................... 39 Box 7. Coal subsidies in Turkey .............................................................................................. 44 Box 8. Shaping clean energy in Turkey through the Clean Technology Fund (CTF) ............. 45 5 Abbreviations and Acronyms AFD French Development Agency CIF Clean Investment Fund CTF Clean Technology Fund DMC Domestic Material Consumption EBRD European Bank of Reconstruction and Development EHS Environmentally Harmful Subsidies EIB European Investment Bank EMRA Energy Market Regulation Authority EU European Union ETS Emissions Trading System Eurostat European Union Statistical Office GHG Greenhouse Gas GoT Government of Turkey G20 The Group of Twenty HLPF High Level Political Forum IBRD International Bank for Reconstruction and Development KOSGEB The Small and Medium Sized Industry Development Organization MBIs Market-based Instruments MDBs Multilateral Development Banks MDGs Millenium Development Goals MidSEFF The Turkish Mid-size Sustainable Energy Financing Facility MIGA Multilateral Investment Guarantee Agency MoD Ministry of Development MoENR Ministry of Energy and Natural Resources MoEU Ministry of Environment and Urbanization MoFAL Ministry of Food, Agriculture and Livestock MoSIT Ministry of Science, Industry and Technology MRV Measurement, Reporting and Verification MTP Medium Term Program NCCAP National Climate Change Action Plan NDP National Development Plan NSDC National Sustainable Development Commission OECD The Organization for Economic Co-operation and Development PES Payments for Environmental Services PMR Partnership for Market Readiness PPP Public-Private Partnership PTP Priority Transformation Program SCP Sustainable Consumption and Production SDGs Sustainable Development Goals SMEs Small and Medium Enterprises SRI Socially Responsible Investing TKB Development Bank of Turkey TSKB Industrial Development Bank of Turkey TurkStat Turkish Statistical Institute TurSEFF Turkey Private Sector Sustainable Energy Finance Facility TUSİAD Turkish Industry and Business Association UN United Nations 6 UNDP United Nations Development Programme UNEP United Nations Environment Programme UNIDO United Nations Industrial Development Organization VAT Value-added Tax WBG World Bank Group YEKA Renewable Energy Resource Area YEKDEM Renewable Energy Resources Support Mechanism 10YFP 10-year Framework of Programmes 7 Acknowledgements This report is an output of the World Bank’s Turkey Environment and Natural Resource Management (ENRM) Technical Assistance (TA) Program. It was written by a team led by Jian Xie and comprising Mehmet Arda (consultant), Buket Bahar Dıvrak (consultant) and Lelia Croitoru (consultant). The report benefitted from valuable discussions with and review by İzzet Arı, Selcen Altınsoy, Rıza Fikret Yıkmaz and Selen Arlı Yılmaz of the Ministry of Developmen t. Gülsevil Bahçeli of the Turkish Statistical Institute (TurkStat) also contributed to the data collection, and provided useful comments. The team would like to thank the peer reviewers Alper Ahmet Oguz, Giovanni Ruta, and Martin Heger of the World Bank for their valuable contributions. The report also benefited from valuable and suggestions of Valerie Hickey, Tamara Sulukhia, Xavier Chauvot de Beauchene, Jari Vayrynen, Yeşim Akçollu, and Jas Singh. The Turkey ENRM Program is managed b y Jian Xie and Esra Arıkan under the guidance and support of Johannes Zutt, Valerie Hickey, and Tamara Sulukhia. Ülker Karamullaoğlu provided the program administrative assistance. 8 Executive Summary The twelfth goal of the 2030 Agenda for Sustainable Development advises countries to ensure Sustainable Consumption and Production (SCP) patterns. SCP is a concept of promoting resource and energy efficiency, sustainable infrastructure, and providing access to basic services, green and decent jobs and a better quality of life for all. It has links to most SDGs and connects economic processes to the environment and natural resources and suggests policy instruments and tools to encourage cleaner production and responsible consumption. SCP is recognized as a fundamental target for mitigating the environmental degradation and resource depletion that often results from economic growth. To promote SCP, Sustainable Development Goal (SDG) 12 provides specific objectives and targets addressing –the efficient use of natural resources, reduction of food waste and food loss, management of chemicals and all wastes through the life cycle, reduction of waste generation, and rationalization of inefficient fossil fuel subsidies. SDG 12 –is increasingly important at the global and national levels. Finance is a critical cornerstone of achieving SDGs and economic instruments can help effectively channel financial resources or incentivize behavioural changes towards SCP. To meet the financing needed for sustainable development, existing financial systems including financial intermediaries and financing methods require reshaping and greening, and a concerted approach that ensures the interplay of different types of financing flows–public and private, domestic and international–is needed. Shifting the consumption and production patterns to a sustainable approach requires the effective implementation of existing financial and economic instruments as well as designing of new ones. Globally, there is a growing recognition that the market-based instruments (MBIs) are important tools for achieving SCP and environmental sustainability. MBIs relevant for SDG12 can be classified under two categories: traditional instruments which are commonly used, such as taxes; charges; incentives; deposit refund systems; environmentally motivated subsidies; and emerging instruments like payments for environmental services, green bonds and other private sector initiatives including voluntary commitments and principles. Furthermore, global discussions point out that capturing the benefits of innovative instruments would assist countries in their efforts to finance and implement SDG12. The Government of Turkey (GoT) is dedicated to incorporating SDGs into its national plans and policies, and key SCP themes are reflected in some nation-wide and sectoral strategies. The Ministry of Development (MoD), which is responsible for the overall coordination with other government agencies on SDG implementation, is planning to integrate SDGs, including SDG 12, into the upcoming 11th National Development Plan (NDP). Waste management, agriculture, energy and water are all traditionally considered as separate policy fields, and comprise part of Turkey’s national approach to resource efficiency and other key themes of SCP. Currently, together with the 10th Development Plan, about eighteen national strategies and action plans relevant to SCP are in effect. However there is more to be done in Turkey to ensure success in SDG implementation. To effectively implement SCP activities, MoD highlighted the need for developing policy instruments. It is conducting a stock-taking analysis and expressed an interest in technical assistance from the World Bank in policy analysis for implementation of SDG12. In a response to this interest, the World Bank Group prepared the present study which aims to review Turkey’s on-going efforts as well as international experiences in financing SCP, 9 analyze the gaps, and identify the areas where Turkey may further improve policy instruments, particularly economic instruments, for implementing SCP activities and achieving SDG 12. Turkey has recognized the role of economic policy instruments in achieving its SD agenda and adopted taxes, charges, subsidies, and support schemes and other MBIs to promote sustainable development. The application of these instruments also aims to accomplish the main principles of SCP - promoting resource and energy efficiency, sustainable use of natural resources, and the reduction of waste and pollution by making such practices more financially attractive than their alternatives. Turkey’s green financing practices, including those in its national plans and strategies, do not show much divergence from the global trends observed in many developed countries. Neither the national development plans nor the sector-specific strategies and action plans, however, provide clear insights on the economic instruments or incentives to be developed for successful implementation of SCP. Green financing is not yet clearly and consistently defined and elaborated upon in national strategy and programs. Tangible policies and measures remain insufficient, and existing market-based instruments are inadequate. Moreover, no comprehensive framework or program has been developed for financial mechanisms to promote SCP. Therefore, it is necessary that Turkey deepen its understanding of green financing mechanisms, including the roles of the public and private sector, financial intermediates, and economic instruments in this domain. It also needs to adopt a policy framework, provide guidance and effectively mobilize and use both public and private SCP funding by implementing economic instruments to incentivize stakeholders. As a priority economic sector and important driver of economic growth in Turkey, the energy sector takes the first place in terms of available subsidies, support schemes, and favorable credits which also make positive contributions towards SCPs. Utilization of domestic renewable energy sources and increasing energy efficiency, and the subsequent reduction of GHG emissions, are considered as strategic benefits for Turkey. To achieve these, important reforms were pursued through the enactment of a series of laws, regulations and strategic plans, including some provision of financial instruments in the Turkish energy market since 2001. In addition to existing efforts, more are necessary to improve the investment environment, including regulatory framework, and diversify the energy supply mix in an environmentally sustainable way. The establishment of a Renewable Energy Resources Support Mechanism (YEKDEM) and implementation of Renewable Energy Resource Area (YEKA) are significant steps to support renewable energy production in Turkey. The recently concluded tender for wind energy is also an indication of progress in this regard. Bearing in mind its large potential to reduce emissions, energy efficiency should be supported through the fiscal system, for example by favorable treatment of expenditures made for that purpose or conferring to energy efficiency a more prominent place in the overall incentive structure. The government should use national development programs to scale-up, rationalize, and mainstream financial support for energy efficiency. The effectiveness of support to SMEs, including soft-loan schemes, grants, and improved access to financial markets, should also be analyzed and improved without creating undue distortion in financial markets. Economic instruments do not yet make an adequate contribution to SCP, and policies often lack synergy and sometimes contradict each other at the sectoral level. An example of this is the current financial assistance given to coal mining and favourable incentives provided for coal-fired power plants. The main concern is that current coal 10 subsidies have high costs associated with the social and environmental externalities and impacts generated by coal-fired power plants. Although phasing out these subsidies and reforming the incentive mechanism seems a political challenge in the short- and medium-term, in order to build a sustainable energy and climate future for the country, coal subsidies should be evaluated with the perspective of phasing out harmful ones while increasing the use of renewable energy. Government incentives for cleaner production, eco-efficiency and waste reduction are quite limited in Turkey. Although some steps have been taken towards promoting cleaner production, efforts are mostly project-based and economic instruments are limited in terms of variety and funding. A notable success was the establishment of the National Eco-Efficiency (Cleaner Production) Centre for Turkey, which helps transform Turkish industrial enterprises into more climate-friendly systems with the use of cleaner production and eco-efficiency applications. Nevertheless, there is room for improvement in terms of developing effective economic and financial instruments for cleaner production, eco-efficiency and closing material loops in industry. Turkey should initiate a process of considering the introduction of new environmental taxes or amending the existing tax systems to increase their effectiveness and overall positive impacts. Currently, the only tax based on environmental considerations appears to be the Environment Cleaning Tax. Turkey has been making advances in aligning its environmental legislation into the EU acquis since 2009, including the regulations for environmental tariffs, fees, and charges. Plans and initiatives are also underway for aligning with the European Emission Trading Scheme. The country’s environmental agenda, however, seems quite far away from the ongoing discussions in many European countries about re-designing the existing financial instruments to support SCP, particularly the growing momentum behind an environmental tax reform agenda. EU and other international experience could be useful in guiding Turkey to introduce environmental sustainability concerns into the tax system and adopt effective policy instruments for SCP. Natural resource charges or prices should be improved too. Given Turkey’s increasing population and demand for water, as well as its water resources’ vulnerability to climate change, the design and implementation of a water resource tax and/or water pricing scheme deserves special attention. Following the EU Water Framework Directive, Turkey needs to adopt an effective water pricing or taxation system to implement cost recovery and polluter/user pays principles in pricing mechanisms, and set the right prices in order to protect its water resources and improve the efficiency of agricultural, industrial and domestic uses of water. While traditional MBIs maintain their importance, international and domestic experience marks a new period in which the potential for innovative green finance instruments, such as green bonds, tradable permits, and payments for environmental services (PES), provide a substantial potential for Turkey to achieve its SCP objectives. To give an example, Turkish Industrial Development Bank (TSKB) became one of the first emerging market institutions to issue a green/sustainable bond, the demand for which was more than thirteen times the amount offered. These tools have been demonstrated to be a cost-effective and efficient means for directing investments to the appropriate areas, such as cleaner production technologies and achieving the desired results. In terms of adopting those new and innovative instruments for better implementing SCP, Turkey should analyze international experiences in light of its national circumstances, and 11 needs a strong impetus to put these tools into broader operation in Turkey. Given the large potential of economic instruments and their relative novelty in Turkey, the introduction and application of economic instruments deserve special attention. Together with the areas where Turkey performs well, and areas for improvement summarized above, this Study further identified the following set of recommendations that the Government of Turkey could consider in its endeavor to finance and implement SDG 12. 1. Developing a National SCP Program. Turkey should initiate a process of developing a National SCP Program which would provide a long-term vision for financing and implementing SDG 12, specify the roles of the public and private sector, identify priority areas and actions, and install a comprehensive set of economic and financial policy instruments with predictable, consistent, and reliable results. 2. Improving coherence and integration of sectoral policies for SCP. It is necessary for Turkey to conduct a comprehensive review of its SCP-related sectoral, macro-economic and fiscal policy portfolio; assess the economic and environmental impacts of the policies, and understand how macro-economic, sectoral policies, and fiscal policies in non-environmental domains shape up and influence the patterns of consumption and production. 3. Seeking synergy between economic instruments and the policy response to climate change. SCP policies are closely connected with climate change policies. Therefore, Turkey should take into account the long-term climate policies built upon the COP21 pledge and the 2030 Agenda for Sustainable Development, and seek synergy between SDG 12 and SDG 13 (climate actions). On the way to developing and implementing such a comprehensive policy framework, existing financial instruments should be reviewed, particularly in the energy and industrial sectors with the largest share of GHG emissions. 4. Learning and sharing experience through strengthened international cooperation and public-private dialogue and partnership. Launching a national dialogue on green financing and exploring collaborative options across public and private sector banking would be a precious step for Turkey to achieve its SCP targets. 5. Monitoring and evaluating SCP financing. Turkey should continue to develop and consolidate its SDG indicators with a strengthened data collection, processing and evaluation system. Meanwhile, natural capital accounts should be further developed and adopted as a monitoring and evaluating tool to support decision making on SCP activities. 6. Setting the right incentives by adopting appropriate economic instruments. In the context of SCP, Turkey should improve the design and application of environment-related economic measures and MBIs in order to bring about enough incentives and necessary behavioral changes to consumers and producers. In this context, Turkey should carefully analyze the economic, social and environmental impacts (externalities) of existing coal subsidies. From the point of view of energy security, increasing the use of domestic coal is an option for reducing dependence on imported carbon fuels, but the environmental impacts call for a serious consideration of the reduction, and even phasing out, of these subsidies. 12 7. Introducing innovative instruments for financing SCP. Beyond traditional economic measures already used in Turkey, the Government of Turkey should try to study and experiment with a range of new and innovative economic instruments and international good practices that can support the effective implementation of SDG 12, such as green loans, green bonds, green infrastructure funds, carbon market, tradable permits, PES, and debt for natural swap and find the best situations for introducing them. Furthermore, Turkey needs to consider deepening the role of the financial sector in financing SCP-related activities and attract capital markets and equity markets as well as pension funds and the insurance sector to provide finance to SCP projects. 8. Investing in public education to support SCP. Turkey should develop SCP policies hand-in-hand with its education policies in order to promote sustainable lifestyles as well as to support new business models with new specialists having the capacity to implement sustainable production methods. 13 I. Introduction In September 2015, the 2030 Agenda for Sustainable Development was adopted by Member States of the United Nations (UN) at an historic UN Summit. The 2030 Agenda features 17 Sustainable Development Goals (SDGs) and 169 associated targets which are built on the success of the Millennium Development Goals (MDGs) and aim to go further to end all forms of poverty. The 2030 Agenda for Sustainable Development officially came into effect upon the expiration of MDGs, on 1 January 2016, and will run through 2030. This new universal agenda will be the international community’s focus in the years to come. SDG implementation, particularly how to finance it, is critical to the success of the 2030 Agenda. In order to mobilize the sources of both public and private funding, it is essential to involve all players and effectively introduce economic and incentive instruments for supporting the implementation of SDGs on the country level. Sustainable Consumption and Production (SCP), as specifically reflected by SDG 12, is among the most important SDGs in the 2030 Agenda for Sustainable Development. SCP is a holistic approach that minimizes the negative environmental impacts of consumption and production systems while promoting quality of life for all. From the production side, SCP refers to a set of cleaner production practices and increasing resource efficiency which are enabled by innovation and technological change. On the consumption side, SCP implies changing the consumption patterns of households and governments through changes in lifestyles and individual consumer behavior and choices, as well as through changes to procurement strategies in the public sector. SDG 12 and its targets cover a very broad area. Mapping links it to 14 other SDGs, making it the most interlinked one (Le Blanc 2015). Thus, it will both contribute to and be helped by the progress in other SDGs. Therefore, policies and actions associated with SDG 12 need to be considered not in isolation, but within a cluster of related goals and targets. As demonstrated for the EU (Coopman, et al., 2016), this will help to reinforce synergies that magnify the positive results and avoid unintended consequences. The Government of Turkey (GoT) is dedicated to taking action for the successful implementation of the 2030 Agenda for Sustainable Development, it welcomes the universal and integrated nature of SDGs. Main issues of implementing the 17 SDGs are translating global goals into national programs and designing sustained financing solutions. In this regard, the GoT aims to reflect the objectives of the 2030 Agenda into its national plans and policies. Particularly the Turkish Ministry of Development (MoD), which is responsible for the coordination of SDG implementation within the GoT, plans to integrate SDG implementation into the upcoming 11th National Development Plan (NDP) for 2019-2023. Transforming existing consumption and production patterns into a sustainable system is a priority for Turkey not only to mitigate environmental impacts, but also to use natural resources effectively and safeguard economic development in the long run. In addition to coordinating with other line ministries on various SDGs, MoD is particularly interested in the issues of economic instruments to support SCP targets under SDG 12. The World Bank (WB) and other Multilateral Development Banks (MDBs) are committed to helping national governments integrate their development agendas with the SDGs and supporting the design and use of economic instruments to ensure their effective implementation. As a longstanding partner of the Turkish Government, the WB aims to assist the GoT in its efforts to implement SDGs, particularly SDG 12, and to integrate the 14 SDGs and targets into the 11th NDP. The purpose of this report is to review Turkey’s on-going efforts as well as international experience in implementing economic instruments to support SCP as specified in SDG 12, analyze the gaps, and discuss areas where Turkey may better adopt economic instruments and other incentive policies for promoting SCP in the new NDP. The Study contains six chapters. Following this introduction, Chapter 2 provides an overview of Turkey’s involvement in the global sustainable development agenda, a summary of SDG12 and key themes of SCP. Chapter 3 introduces the conceptual framework on green financing, and summarizes international experience on the use of economic instruments with a focus on SCP. Chapter 4 explores the Turkish context of economic instruments to support SCP and reviews existing economic policies and instruments. Areas for improvement and recommendations are presented in Chapter 5. Chapter 6 provides concluding remarks. 15 II. Implementation of Sustainable Development Goals in Turkey 2.1 Turkey’s Involvement in the Global Sustainable Development Agenda: From MDGs to SDGs Turkey has been contributing to the global sustainable development agenda since the 1992 Rio Summit, and has had a fairly successful record with regards to achieving MDGs over the past 15 years. The GoT has installed MDGs in its national development priorities and has made considerable achievements on most of the goals. For the goals of eradicating extreme poverty, reducing child mortality, improving maternal health, providing and improving safe water and sanitation facilities, and building global partnerships for development, Turkey is among the top ten performers as measured by average annual rates of relative progress. In contrast, less progress has been observed in gender equality, empowering women, and environmental sustainability (MoD, 2015). According to mdgTrack, a global portal designed to track progress on these MDGs over more than 140 locations worldwide using the World Bank MDGs database, the Global Index for Turkey is 64%, which represents results of the mean average of each goal's percentage of completion. Turkey is indicated as being “on track� for the year 2020. As mentioned above, Turkey had shortcomings in achieving targets under Goal 3 (Promoting gender equality and empowering women) and Goal 7 (Ensuring environmental sustainability). In terms of environmental sustainability, particularly the increase in terrestrial protected areas and decrease in CO2 emissions, it could not have been achieved as of 2015 (TAC mdgTrack). Furthermore, while not a part of MDGs process, the Turkish Statistical Institute (TurkStat) has carried out studies on sustainable development indicators with respect to the European Union Statistical Office’s (Eurostat) sustainable development indicators set since 2007. Sustainable development indicators consist of 132 benchmarks defined by Eurostat under the following 10 themes: (1) Socioeconomic development, (2) Sustainable consumption and production, (3) Social inclusion, (4) Demographic changes, (5) Public health, (6) Climate change and energy, (7) Sustainable transport, (8) Natural resources, (9) Global partnership, and (10) Good governance. In general, indicators are calculated by relevant units of TurkStat and the rest are collected from other ministries or agencies. 1 Turkey has been actively involved in intergovernmental negotiations during the Post-2015 discussions. In a group with Italy and Spain, Turkey joined Open Working Group meetings and contributed to overall discussions. Turkey’s emphasis was mainly shaped around a human-centered development approach. During the intergovernmental sessions (MoD, 2015), economic growth, education, health, employment, cooperation and governance issues had been its priority areas. In addition to governmental efforts, Turkey was among the first 50 countries selected for national consultations on the Post-2015 development agenda. UN Country Team has initiated a country dialogue process with open and inclusive consultations around the post-2015 agenda. 1 http://www.turkstat.gov.tr/PreHaberBultenleri.do?id=16124 16 2.2 Initial Steps Taken Toward Implementing SDGs in Turkey GoT is dedicated to taking action for the effective implementation of the 2030 Agenda for Sustainable Development. It welcomes the universal and integrated nature of SDGs and aims to reflect the 2030 Agenda’s objectives into the country’s national plans and policies. As a signal of this strong desire, Turkey was among the 22 countries presenting voluntary national reviews at the first UN High Level Political Forum (HLPF) held in July 2016. The Ministry of Development has been the main government authority for coordinating and convening the technical work shaping the post 2015 process both within Turkey and on international platforms. In line with this experience, MoD continues to coordinate the overall process for the implementation of SDGs in Turkey. Since September 2015, MoD is conducting some preliminary analyses to display the national circumstances for the implementation of SDGs and has declared that SDGs, and its complementary Addis Ababa Action Agenda, will be integrated in the upcoming 11th National Development Plan (NDP), which tops the development planning and policy making processes in Turkey. Furthermore, the government has stressed that SDG implementation will be the shared responsibility of all ministries, and thus the integration of SDGs into all relevant strategy and policy documents at the national and local levels will be ensured through this collaborative approach (MoD, 2016a). On the institutional side, the structure and role of the existing National Sustainable Development Commission (NSDC) would be strengthened and widened taking the comprehensive nature of the 2030 Agenda into account. The NSDC will play a role in the follow-up and review process of SDG implementation, while MoD will undertake its coordination duties. Further, the Government guarantees a national setting that will help ensure effective contributions from all relevant stakeholders for the SDG planning, implementation and review process. Regarding follow-up and review, Turkey intends to develop a review framework that conforms with the UN framework of monitoring and review. In line with that, National SDG Review Reports are expected to be prepared on a periodical basis, in consideration of the HLPF agenda. In terms of monitoring the SDGs at a national level, TurkStat will play a central role in developing a national monitoring framework in light of SDGs’ global indicators. It is expected that Turkey will develop its current set of indicators taking into account results of UN Statistics work for a global common monitoring framework as well as the SDG’s national priority list (MoD, 2016a). 2.3 SDG 12 and Its Relevance with Turkey 2.3.1 The Meaning of Sustainable Consumption and Production The need for Sustainable Consumption and Production (SCP) was first highlighted at the 1992 UN Conference on Environment and Development held in Rio de Janerio. World leaders acknowledged that “the major cause of the continued deterioration of the global environment is the unsustainable pattern of consumption and production.� Two years later, the first definition, known as Oslo Definition, of SCP was proposed at the 1994 Oslo Symposium on Sustainable Consumption as “the use of services and related products, which respond to basic needs and bring a better quality of life while minimizing the use of natural resources and toxic materials as well as the emissions of waste and pollutants over the life cycle of the 17 service or product so as not to jeopardize the needs of further generations.� Almost two decades on, the definition of SCP has evolved as “a holistic approach to minimising the negative environmental impacts from consumption and production systems while promoting quality of life for all� which was developed by United Nations Environment Program (UNEP) in 2011. Later, the SCP was recognized in the Johannesburg Plan of Implementation, adopted at the World Summit on Sustainable Development in 2002. The Johannesburg Plan of Implementation called on all countries to promote sustainable consumption and production patterns. Paragraph 15 of the Plan says "Encourage and promote the development of a 10-year framework of programmes (10YFP) in support of regional and national initiatives to accelerate the shift towards sustainable consumption and production to promote social and economic development within the carrying capacity of ecosystems." This would form the foundation of the so-called Marrakech Process, an informal multi-stakeholder approach to promoting the implementation of policies and capacity building on SCP and to support the development of a 10 Year Framework of Programmes on SCP. (UN, 2017) SCP aims to do more and better with less, i.e., to fulfill the needs of people and increase welfare from economic activities by using less resources, including energy and water, and producing less waste and pollution both at the supply (production) and demand (consumption) side. To be more specific, on the production side the objective of SCP is to reduce material/energy intensity of economic activities and reduce emissions and wastes. While on the consumption side, the objective is to promote a shift of consumption patterns towards groups of goods and services with lower energy and material intensity without compromising quality of life. Therefore, application of the life-cycle method plays a fundemental role for both sides (UNEP, 2015). Given these broad parameters of SCP, different sustainability issues are addressed under different SCP efforts based on the priorities, cultural and economical dynamics and behavioural patterns of each region or country. For instance, as part of the global Marrakech Process on SCP, The African 10YFP embodies four main thematic priority areas: energy, water and sanitation, habitat and sustainable urban development; and industrial development. Whereas in the European Union, there have been extensive efforts on European consumer and producer behaviour and several Directives by EU member states. On the other hand, China and the Republic of Korea have Green Growth Strategies, which address several objectives towards SCP. And as another example, Canada, like many countries, does not have a national strategy for SCP but has specific policies for different sectors, such as the Canadian Green Procurement Policy. (UNEP, 2015). SCP is one of the most important components of the 2030 Agenda for Sustainable Development. Goal 12 of the Agenda aims to ensure sustainable consumption and production patterns. Paragraph 28 of the 2030 Agenda reads: “We (Countries) commit to making fundamental changes in the way that our societies produce and consume goods and services. Governments, international organizations, the business sector and other non-state actors and individuals must contribute to changing unsustainable consumption and production patterns, including through the mobilization, from all sources, of financial and technical assistance to strengthen developing countries’ scientific, technological and innovative capacities to move towards more sustainable patterns of consumption and production. We encourage the 18 implementation of the 10-Year Framework of Programmes on Sustainable Consumption and Production. All countries take action, with developed countries taking the lead, taking into account the development and capabilities of developing countries�. The 2030 Agenda also defines SCP as an integral component of SDGs, and SCP is reflected as a cross-cutting enabler for the achievement of many SDGs. In particular, there are several SCP-related targets placed under different SDGs related to agriculture, water, energy and economic growth. To be more specific, Target 2.4 under SDG 2 (Goal 2. End hunger, achieve food security and improve nutrition, and promote sustainable agriculture), Target 6.4 under SDG 6 (Ensure availability and sustainable management of water and sanitation for all), Target 7.2 and Target 7.3 under SDG7 (Ensure access to affordable, reliable, sustainable and modern energy for all), and Target 8.4 under SDG8 (Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all) have close relationship to achieving SCP patterns. Goal 12 consists of eight targets, plus three targets for means of implementation and thirteen indicators for monitoring the progress. Please see Annex 1 for the list of targets and indicators under SDG12. 2.3.2 Key SCP Issues in Turkey Turkey has witnessed dynamic change and a rapid growth since the beginning of the 2000s. Since then the country’s GDP has almost tripled in nominal U.S. dollar terms. Turkey’s per capita income of roughly US$11,000 places it in the group of upper-middle-income countries. With a population close to 80 million, the country has become the world’s 17th-largest economy (World Bank, 2016). Turkey is a member of the G20 and the Organisation for Economic Co-operation and Development (OECD). Industrialization has been a main driver of Turkey’s economic growth, which also leads to a rapid increase in the share of population living in urban areas. Today, about 77 percent of the country’s population lives in urban areas. However, with these achievements and changes have come significant environmental challenges. Increasing demands for energy, water, food and other resources have resulted in the over-exploitation of natural resources, pollution, soil erosion as well as fragmentation, degradation and loss of natural habitats. In particular, increase in energy and water demand were significant over the past decades. For instance, the country’s total final consumption of energy has increased by 35.8% in all sectors since 2004 (IEA, 2016). Likewise, water demand has approximately doubled in the second half of the last century and due to an enormous population increase from 28 million in the 1960’s to 77 million in 2017, the availability of water resources has decreased from around 4000 m 3 to 1500 m3 per capita/year today (MoEF, 2010). Turkey’s economic growth has also been accompanied by a remarkable increase in Greenhouse Gas (GHG) emissions over the same period. According to TurkStat’s GHG Emissions Inventory, the total GHG emissions in Turkey were equivalent to 316.9 million tons CO2 in 2004. In 2014, it reached to 468 million tons CO2 (excluding LULUCF) with a 125% increase compared to the 1990 emissions. Looking at the GHG emissions by sectors in 2014, energy (electricity generation, manufacturing, transport, residential etc.) and industrial processes are the top two sectors with the largest share of GHG emissions–72.4% and 13.2%, respectively. The share of agriculture and waste sector related emissions are 10.4% and 3.4% respectively (TurkStat, 2014a). It is remarkable though, that demand in Turkey has grown substantially for green buildings that use less energy. This placed Turkey at the 19 number nine spot on US Green Building Council’s annual ranking of the Top 10 Countries for Leadership in Energy and Environmental Design (LEED). Demand for upmarket and luxury housing, however, seems to emphasize “smart� houses with much electronic gadgetry rather than energy efficiency (Arsan 2008). Domestic Material Consumption (DMC) measures the total amount of materials directly used by an economy 2 . Materials are classified in four main categories: biomass, metal ores, non-metallic minerals and fossil energy materials. Turkey’s DMC was 931 million tonnes in 2014. Country’s DMC has increased by 58% between 2004 and 2014, which indicates Turkey’s economic growth and rising resource use went hand-in-hand over the past 15 years. Looking at the domestic material consumption by main categories in EU28 countries and Turkey as shown in Figure 1, with per capita resource use of 11.9 tonnes, Turkey stands below the EU28 average of 13.1 tonnes per capita (EEA, 2016b). In Turkey, by far the largest material consumption category was non-metallic minerals, mostly materials used in the construction sector. Figure 1. Domestic Material Consumption by Main Material Category in EU28 and Turkey Source: EuroStat (2016b) Tracking the resource efficiency of economies is one way of understanding whether a country is progressing towards sustainable development. The terms “resource efficiency� and “resource productivity� are often used to describe the amount of natural resources-measured as DMC—used to produce one unit of economic activity—measured as GDP (EEA, 2016). 2 DMC is defined as the annual quantity of raw materials extracted from the domestic territory, plus all physical imports minus all physical exports. 20 Although Turkey’s resource productivity has increased from 0.55 Euro/kg in 2004 to 0.75 Euro/kg in 2014, it is still much below the EU28 average of 1.98 Euro/kg. With regard to the waste sector, thanks to the help of regulatory requirements which have been mainly adopted from EU environmental directives over the last 10 years, municipal and industrial waste management services (collection, separation, transportation, disposal, and recovery) have improved in Turkey. A vast majority of the population—91%—lives in municipal areas served by municipal waste services that cover collection, separation and the transportation of municipal solid waste. In Turkey, about 28 million tons of municipal waste have been collected in 2014 (TurkStat, 2014b). According to 2016 National Waste Management Plan and Action Plan data, 61% of the municipal waste is sent to sanitary landfills and 28% is dumped at municipal dumpsites. Waste recycling and recovery services remain low compared to developed countries, probably owing to a lack of education and consciousness on environmental and economic merits of recycling as well as weakness of economic measures such as deposit return systems. With regards to muncipal waste, only 11% was reported as recycled (packaging waste included), composted or disposed of by other recycling methods. However, the number of licensed recycling and recovery facilities has rapidly increased over the last decade. In 2003, there were 46 recycling and recovery facilities for different recyclable wastes, whereas by 2015 the number of licensed facilities had increased to 1,226 (EEA, 2016b). On the other hand, Turkey with a per capita average of 405 kg/year of generated municipal waste, falls below the EU28 average of 475 kg/year (EuroStat, 2016a). In terms of the manufacturing industry, approximately 15.7 million tonnes of waste was generated in 2014, about 6.3% of this was hazardous waste (TurkStat 2014c). The values of key SCP indicators for Turkey and for EU28 are presented in Table 1 below. Table 1. Key SCP Indicators for Turkey and EU28 SCP Indicators Turkey EU-28 2004 2014 2014 Population 67.8 million 77.6 million 510.1 million Gross Domestic Product (GDP in current 326.4 billion Euro 703.5 billion Euro 13.9 trillion Euro prices) Total Domestic Material Consumption 588 billion kg 931 billion kg 6640 billion kg (DMC) DMC per capita 8.64 tonnes 11.98 tonnes 13.1 tonnes Resource Productivity (GDP/DMC) 0.55 Euro/kg 0.75 Euro/kg 1.98 Euro/kg GHG emissions (CO2 equivalent) 316.9 million 468 million 4.4 billion tonnes tonnes Tonnes GHG emissions per capita (CO2 equivalent) 3.6 tonnes 6.1 tonnes 7.2 tonnes Energy Intensity of the economy (kg of oil 180.0 160.6 121.5 equivalent per 1 000 EUR of GDP) Share of electricity generated from 30.9 21 25.4 renewable sources in total electricity generation (%) Municipal waste collected 25 million tonnes 28 million tonnes 2,598 million tonnes Municipal waste generated per capita 418 kg/capita/year 405 kg/capita/year 475 kg/capita/year Municipal waste treated per capita 348 kg/capita/year 363 kg/capita/year 465 kg/capita/year Manufacturing industry waste generated 17.4 million tonnes 15.7 million 256 million tonnes Tonnes Manufacturing industry hazardous waste 1.1 million tonnes 1 million tonnes 95.6 million tonnes generated Share of municipal waste recycled (%) 11 28 Water availability per capita 1,647 m3 1,519 m3 No data for EU28 Land used for organic farming (ha) 209.573 842.216 11.139.595* Number of companies publishing No data 96 No data for EU28 21 sustainability reports *2015 data used instead of 2014 for EU-28. Sources: MoD (2017), TurkStat (2014a, b, c, d, e, 2015), EuroStat (2016), EEA (2016b), European Commission (2017a), DSİ (2015), EuroStat (2016b), EuroStat (2017), MoFAL (2017), www.kurumsalsurdurulebilirlik.com Similar to many other countries, Turkey does not have a National Sustainable Consumption and Production Strategy or Action Plan. Instead, key SCP themes are mostly incorporated in nation-wide and sectoral strategies and policies such as the national development plan, and strategy and action plans on energy, waste, agriculture, industrial development and the environment. Furthermore, waste management, energy and water are traditionally considered as separate policy fields, and represent an important part of Turkey’s national approach to resource efficiency and other key SCP themes. Table 2 below summarizes the national strategies and action plans related to key themes of SCP in addition to the 10th Development Plan. Table 2. National Strategies and Action Plans Related to Key Themes of SCP Theme Strategy/Action Plan Waste & Recycling  Turkey EU Integrated Environmental Approximation Strategy (2007-2023)  National Recycling Strategy and Action Plan (2014-2017)  Integrated Urban Development Strategy and Action Plan (2010-2023)  National Action Plan on Stockholm Convention on Persistent Organic Pollutants  Solid Waste Action Plans on Municipal Level Climate & Energy  National Climate Change Strategy (2010-2023)  National Climate Change Action Plan (2011-2023)  National Climate Change Adaptation Strategy and Action Plan (2011-2023)  Energy Efficiency Strategy Document (2012-2023)  The Strategic Plan of Ministry of Energy and Natural Resources (2015-2019)  National Energy Efficiency Action Plan (2015-2023) Sustainable Use of  National Basin Management Strategy (2014-2023) Natural Resources  National Forestry Program (2004-2023)  National Action Program on Combatting Desertification (2013-2017)  River Basin Protection Action Plans and River Basin Management Plans (under preparation) Resource efficiency/  National Science, Technology and Innovation Strategy (2011-2016) Clean Production/  National Productivity Strategy and Action Plan (2015-2018) Industry oriented  National Eco-Efficiency/ Cleaner Production Program (2013-2017) strategies  National Recycling Strategy and Action Plan (2014-2017)  National SME Strategy and Action Plan (2015-2018)  Turkish Industrial Strategy (2015-2018) The concept of Ecological Footprint may also provide useful insights to better understand the impacts of economic decisions on a country’s natural resources, and help to measure the level of sustainability in an alternative way. To put it simply, footprint and bio-capacity accounting helps us answer this basic question: How much do people demand from biologically productive surfaces (Ecological Footprint) compared to how much the planet can (or a country's productive surface) regenerate on those surfaces (bio-capacity)? Global Footprint Network (GFN), a global non-profit organization, calculates the National Footprint Accounts to measure ecological resource use and the resource capacity of nations over time. Based on the 2016 edition of GFN’s National Footprint Accounts, Turkey’s total ecological footprint 22 was 3.3 global hectares per capita (gha) in 2012, which was higher than world average (2.8 gha). The following box demonstrates the concept of ecological footprint and key figures for Turkey’s ecological footprint in more details (GFN, 2016). Box 1. An Important Indicator for Measuring Sustainability: Ecological Footprint The Ecological Footprint is the area of land and water it takes for a human population to generate the renewable resources it consumes and to absorb the corresponding waste it generates, using prevailing technology. In other words, it measures the "quantity of nature" that we use and compares it with how much "nature" we have. If the Ecological Footprint exceeds bio-capacity, it means human demands on renewable resources (such as forest products and crops) and CO2 absorption will be unsustainable in the long term. According to an analysis conducted by Global Footprint Network (GFN), in the global scale, ecological footprint was 2.8 gha per capita in 2012. For the same year, bio-capacity per capita was calculated as 1.73 gha which indicates a bio-capacity deficit of 1.1 gha per person. This global bio-capacity debt, also called “overshoot,� is gradually growing as the population increases. Ecological Footprint of Turkey Based on the 2016 edition of GFN’s National Footprint Accounts, Turkey’s total ecological footprint was 3.3 gha in 2012, which was higher than the world average (2.8 gha) and lower than the EU-27 average (4.8 gha). The total bio-capacity (gha per capita) for Turkey was 1.5 gha, meaning that country’s bio-capacity deficit is 1.8 gha. In other words, if every individual on earth would consume as much as an average Turkish citizen, humanity would need 1.9 planets. Figure 2 Ecological Footprint and Bio-capacity of Nations Source: GFN, 2016 As Turkey consumes its natural resources faster than the speed at which they can renew themselves, since 1989, it has been running a bio-capacity deficit and has become a net bio-capacity importer, which means the Ecological Footprint of consumption in the country has partly depended on resources from abroad. The main reason Turkey transformed from being a country with “bio -capacity reserve� to being a country with “bio-capacity deficit� is its population increase and changing consumption patterns with the rise of wealth Similar to many other countries, the biggest denominator of Turkey’s total ecological footprint is of carbon origin with 1.9 gha in 2012. Looking at the country’s footprint trends, it can be observed to have increased for all 23 six land categories (carbon sequestration areas, agricultural lands, forests, grazing lands, fisheries and built-up areas) between the years 1961 and 2012, but the highest increase occurred in carbon footprint. The largest share in CO2 emissions that constitute the carbon footprint belongs to the electricity sector. According to Turkey’s Ecological Footprint Analysis conducted by WWF-Turkey and GFN in 2012, if existing resource use trends continue, increasing economic welfare, overcoming ecological crises and maintaining ecological services will become much harder with the growing ecological debt. According to the best case scenario developed within the Analysis, which is based on investments in efficient technologies and restoration of bio-capacity, Turkey can begin to close this ecological debt. The Analysis also concludes that sustainable natural resource use can be achieved through integrated policies which provide economical durability in addition to welfare increases and which include sustainable production and consumption models and measures to protect biodiversity (WWF-Turkey, 2012). Figure 3. Turkey's ecological footprint and bio-capacity (1961-2012) Source: GFN, 2016 24 III. Overview of International Experience in Supporting Sustainable Consumption and Production This chapter presents the conceptual framework for green financing and a short overview of the international experience in using economic instruments to support the key themes of SDG12 – the efficient use of natural resources, reduction of food waste and food loss, management of chemicals and all wastes through life cycle, reduction of waste generation, and rationalization of inefficient fossil fuel subsidies. The chapter presents the commonly used and some emerging economic instruments (particularly market-based instruments), and demonstrates their application to support SDG12 through examples from OECD countries. However, due to the limited timeframe of the study, it is not intended as a comprehensive inventory of all existing instruments covering all key themes of the SDG12. 3.1Conceptual Framework and Global Trends of Green Financing Green financing is understood as the financing of investments that provide environmental benefits in the broader context of environmentally sustainable development (UNEP, 2016). Understanding the concept of sustainability has changed dramatically over time: from the Stockholm Convention in 1972, which introduced the idea of sustainability into the political agenda; to the Earth Summit in 1992, which opened a new era of ‘Sustainable Development’; and to the present, when political and economic agendas are shaped around concepts like sustainable value creation, green growth, and green economy (European Commission, 2011). This evolution led to changes in the role of actors and mechanisms to finance sustainable development. Shaping financial policies and systems to meet the financing needs of sustainable development requires a clear mapping of current financial flows, key actors and instruments. The UN Intergovernmental Committee of Experts on Sustainable Development Financing has conducted significant analyses and proposed options on an effective sustainable development financing strategy to facilitate the mobilization of resources and their effective use in achieving sustainable development objectives. As illustrated in Figure 4 prepared by the Committee, sustainable development financing comes from two main sources: public and private, which can be further divided into domestic and international flows. Furthermore, financing decisions, whether public or private, are influenced by national policy frameworks and the international financial landscape; financing institutions (actors) and the design and development of instruments. Thus, in each category of finance, funding decision is dispersed among multiple actors with different types of instruments (UN, 2014). In that regard, meeting financing needs for sustainable development requires developing a concerted approach that ensures the interplay of different types of financing flows while increasing their effectiveness, coordinated efforts between those multiple actors and the synchronized mobilization of various financing instruments to maximize their impacts. It is also critical that these financing streams should complement–but not substitute for–each other. While public finance is necessary to increase equity through poverty reduction and provide public goods and services, private finance should be an important driver for transforming the market to a greener and more inclusive one by fostering environmental and social change. 25 Figure 4. Funding flows for sustainable development * The size of boxes does not represent financing volumes/importance. ** There can be cases where international public finance also directly supports the implementation of international objectives. *** Sovereign wealth funds handle public money, but are managed like private investors. Source: UN, 2014 All four types of finance, public and private, domestic and international, have increased since the beginning of the 2000s, with domestic finance representing by far the greatest share of financing sources for sustainable development in most countries. From the environmental point of view, the public sector has always dominated investments in conservation. A survey on a limited number of public institutions shows public investment in the production of sustainable food and fiber, habitat conservation, and water quality and quantity and tracked the public capital committed to conservation at USD31.7 billion from 2009-2015 –this figure is a major underestimation as it was based on the responses of only 6 public organizations (Ecosystem Marketplace, 2016). Historically, many policy actions – such as fiscal measures (taxes and subsidies), environmental regulations, and emissions trading schemes – were undertaken to address negative environmental externalities, such as waste disposal and water and air pollution. These actions have been critical to improving the environment, but remained insufficient for mobilizing private capital for green investment in many countries. 26 Over the past decade, the agenda of many private sector corporations has shifted from objectives for maximizing profits to strategies that promote innovative technologies and a more efficient use of natural resources (ODI/DIE/ECDPM, 2011). As a result, the role of the private sector in green financing has increased dramatically. The total committed private capital was tracked at USD8 billion3 during the period 2009-2015, primarily in the area of sustainable food and fiber production (Ecosystem Marketplace, 2016). In addition to direct investments, innovative mechanisms such as payments for environmental services (PES) have been successfully implemented in the areas of water and biodiversity conservation. Furthermore, financial markets have recently emerged to address natural resource challenges. Examples include voluntary commitments and principles, better risk assessment methodologies and innovative financial products such as green bonds and green infrastructure investment vehicles (UNEP, 2016). The green bond market has grown from about USD4 billion in 2010 to no less than USD50 billion in 2016 (European Commission, 2016a; CBI, 2015). The next sections present a typology of market-based instruments, and their applications in the OECD countries. 3.2Economic Instruments to Support SDG12 There is no universally accepted classification that captures the wide range of instruments used to support SDG12 (and, when possible, to finance green investments). Different organizations provide different classifications, usually focusing on a sub-set of instruments. In 1998, the World Bank developed a policy matrix that captured traditional instruments to: use markets (subsidy reduction, environmental taxes, user fees, deposit-refund systems and targeted subsidies); create markets (property rights/decentralization, tradable permits/rights, international offset systems); use environmental regulations (standards, bans, permits, and quotas), and engage the public (public participation and information disclosure) (World Bank, 1998). Other classifications focus only on instruments related to financial markets: through equity (indices, mutual funds, and exchange traded funds); fixed-income (green bonds) and alternative asset classes (real estate funds and infrastructure funds) (EDHEC, 2010). Annex 2 provides more details on financial vehicles for green investing. Finally, OECD (2013) classifies the instruments into taxes; charges; tradable permit systems; deposit refund systems; environmentally motivated subsidies; and voluntary approaches. Drawing on the above publications, and particularly on the OECD work, this chapter focuses on economic instruments, particularly market-based instruments, both traditional and newly developed. Table 3 provides a summary overview of the most common and some emerging instruments relevant for supporting SDG 12. It is not intended as a comprehensive inventory of all existing instruments. A certain degree of overlapping exists among some measures, e.g. measures to phase out environmentally harmful subsidies may cover taxes; private sector initiatives may use PES or green bonds. 3 Based on responses provided by 98 private organizations that reported making conservation commitments, out of a total of 128 organizations responding to the survey. The investors reported committing USD6.5 billion towards sustainable food and fiber production across all years (2004-2015), which is nearly 4 times as much as the capital reported in the categories of habitat conservation, water quality, and quantity. Organizations headquartered in North America supplied nearly two thirds of all responses; the bulk of the remaining responses were from Europe, and a few were from Africa, Asia and Latin America (Ecosystem Marketplace, 2016). 27 Table 3. Economic instruments relevant for supporting SDG12 Instrument Description Examples SDG12 themes covered by the examples Traditional instruments Taxes Compulsory, unrequited4 payments Water tax Efficient use of natural to government levied on tax bases (Netherlands) resources (water tax, with a proven, specific negative Pesticide tax natural resources tax) impact on the environment. (Denmark, Sweden) Management of Plastic tax chemicals and all (Denmark, Ireland, wastes (pesticide tax, US District of plastic tax) Columbia) Natural resource tax (Latvia, Finland) Gravel tax (Sweden) Carbon tax on fuel (Mauritius) Charges Compulsory requited payments to the Water charge Efficient use of natural government that are levied in (Cyprus) resources (water proportion to the services provided. Effluent charge charge) The main difference between taxes (Germany, France) Reduction of waste and fees/charges is the type of Tree protection generation (effluent beneficiary: fees are paid for charges (Austria, charge) government services directed at a Lithuania) specific beneficiary, while taxes are used to raise revenue to fund general (or specific) government expenditures. Tradable permit Market-based instruments that EU emission trading Reduction of waste systems provide allowance or permission to scheme (EU generation (emission engage in an activity. The permits are countries) trading on waste) often used to allocate pollution rights, CO2 emissions, and they can be issued under a waste (UK) trading system. Deposit refund A combination of a product charge Containers Reduction of waste schemes (the deposit) and a subsidy for (Germany, Denmark, generation (all recycling or proper disposal (the US) examples) refund), generally with the objective Batteries (US) of discouraging illegal or improper Electronics (EU disposal. These can be either countries) voluntary or mandated by Tires (US) government legislation. Motor oil (Canada) Environmentally Measures that directly or indirectly Subsidies on Rationalization of motivated reduce the use of something that has a renewables inefficient fossil fuel subsidies proven, specific negative impact on (Argentina, Chile) subsidies (subsidies on the environment. Reduction of energy renewables) tax exemption Reduction of waste (Germany) generation (levy on Levy on waste (UK, waste) Italy) Other instruments Debt for nature Cancellation of (part of the) external Air pollution, waste, Reduction of waste swaps debt of a country in exchange for the biodiversity generation debtor’s government commitment to (Poland) Efficient use of natural mobilize domestic resources towards Biodiversity resources environmental projects. (Madagascar) 4 Benefits provided by the government to taxpayers are normally not in proportion to their payments. 28 Forestry (Peru) Financial Debt securities issued to raise capital Renewable energy Rationalization of markets (e.g. specifically to support climate-related (France, Germany, inefficient fossil fuel green bonds) or environmental projects. Italy, US) subsidies Payments for Payments for environmental services Water supply Efficient use of natural environmental are conditional payments to (France) resources services (PES) landholders who have agreed to take Sustainable certain actions to manage their land agricultural to provide an ecological service. production (EU agricultural policy) Private sector Initiatives that increase natural Forests (direct Efficient use of natural initiatives (e.g. resource conservation. investment, Sweden) resources direct investments) Source: Valsecchi et al. (2011) for environmentally harmful subsidies; OECD (2007) for debt for nature swaps; World Bank/PPIAF (2016) for green bonds; Ecosystem Marketplace (2016) for private sector initiatives; OECD (2013) for the rest. 3.3Application of Economic Instruments in OECD Countries This section demonstrates the application of economic instruments to support SDG12. It should be noted that some of them (e.g. taxes, charges, PES) can be direct means for green financing, if the generated revenues are used for funding investments that provide environmental benefits. Others can support SCP by creating signals that change the behavior of consumers or producers, without directly financing green investments. For example, tradable permit systems can create an incentive for the private sector to incorporate pollution abatement into production or consumption decisions, and to innovate in a way to continually search for the least costly method of abatement5. In many cases, European countries such as Germany, Denmark, and the Netherlands have been chosen as case studies, due to their advanced environmental protection policies. Whenever known, the paragraphs below describe the success (or failure) achieved by implementing these instruments. The examples are drawn based on a review of several studies, such as OECD (2013), ECORYS (2011), Parry (2011), RFF (2011), IEEP (2012), OECD (2007), WWF (2002), European Commission (2016a) and Ecosystem Marketplace (2016). Traditional instruments Taxes and charges. Environmentally related taxes usually increase the costs of a polluting product or activity, which tends to discourage its production or consumption. Tax bases usually cover energy products, transport (equipment and services), pollution (emissions to air and water, as well as waste management), and natural resources (management of water, land, soil, forests, biodiversity, etc.). Energy related taxes generate most of the revenue, while the amounts raised on other environmentally related tax-bases (waste, measured air or water pollution, hazardous chemicals, etc.) are modest. Denmark, Turkey and the Netherlands are the three OECD countries that raise the most revenue from environmental taxes (in terms of % of GDP, Figure 5). In addition, Denmark and the Netherlands offer good examples of broad tax bases, which provide not only an increase in revenues, but also a more sustainable exploitation of natural resources. In Turkey, increasing the rate of the fuel consumption tax over time in order to generate funds for the budget (and not for SCP related objectives) has resulted in an increase in the share of environmental taxes in total tax receipts. Environmental 5 https://www.epa.gov/environmental-economics/economic-incentives 29 benefits from public finance reforms would be small when price elasticities are low because while tax receipts increase, the consumption of the environmentally harmful product or the resultant environmentally harmful practice does not decrease much. Data on charges is generally not as good as for taxes, partly because charges are collected primarily by local governments. Box 2 provides some examples of environmental taxes and charges applied in the OECD countries. Figure 5. Environmentally related taxes (% of GDP, 2011) Source: OECD (2013) Box 2. Examples of environmental taxes and charges in the OECD Water tax. To reduce water usage, the Netherlands introduced a groundwater tax in 1995, and a tap water tax in 2000. The ground water tax is levied on the extraction of ground water – the extracting parties mainly being water companies and industry. The tap water tax is levied on the delivery of tap water (the quantity delivered to the consumer) and paid by the domestic water supply companies. As a result, total drinking water use declined, with water consumption from businesses reducing at a faster rate, between 2% and 12% of initial consumption. Pesticide tax. Denmark and Sweden adopted national action plans to reduce pesticide use through education, increased control, and a pesticide tax. In Denmark, the pesticide tax (which increased from 37% of the wholesale tax in 1996 to 54% in 1998) had no impact on pesticide use because retailers cut the prices to counteract the tax increase. In Sweden, concerted efforts to reduce pesticide use (pesticide tax, training farmers, ban on harmful pesticides, integrated pest management) resulted in a 60% reduction of active substance pesticide use. It is believed that the price signal from the tax is relatively weak, and that the greatest share of benefits is due to other efforts related to the reduction of pesticide use (e.g. training). Plastic bag tax. The Irish Plastic Bag Levy was introduced in 2002. It is charged on each plastic bag provided by retailers, and levied at the point of sale, with retailers collecting it on behalf of the tax office. The levy is part of a wider policy on waste and packaging that complies with EU standards. It was introduced at EUR0.15 per bag in 2002, and increased to EUR0.22 per bag in 2007. The levy had a dramatic initial impact, decreasing bag use by approximately 90% overnight. However bag usage began increasing again over time, but then dropped after the levy increased, only to increase again. The levy has been successful from an anti-litter point of view, reducing bags from an estimated 5% of all recorded litter in 2000 to less than 0.3% in 2009, and the scheme has proved popular with consumers. In the United States (District of Columbia), businesses that sell food or alcohol 30 in 2010 introduced a tax of 5 cents for each disposable or plastic carryout bag 6 . The tax has reduced bag consumption considerably; in addition, part of the tax revenue is channelled to the Anacostia River Clean Up and Protection Fund, designed to remove trash from the Anacostia River. Effluent charges. Within the framework of the Effluent Charges Act, Germany introduced effluent charges in a few states in 1981, and then extended them to the entire country. According to the Act, charges must be paid whenever treated wastewater is discharged into a body of water. The average wastewater charge increased from EUR2.18 per m3 in 2001 to EUR2.36 per m3 in 2010. These charges have had positive impacts by inducing a high level of compliance to the best available technology standards. However, since these charges intersect with other standards (e.g. BAT standards of the Federal Water Act), it is not possible to assess the independent effects that effluent charges have on the environment. There have been other environmental taxes/charges implemented in the EU –such as tree protection charges in Austria and Lithuania, tax on the extraction of gravel in Sweden, carbon tax on fuel in Mauritius, and other natural resource taxes, for example in Latvia (i.e. on water, waste, mineral resources) and Finland (i.e. on mining extraction, fishing, forest management). Source: ECORYS (2011); Parry (2011). Tradable permits. Tradable emission permits are major pollution control instruments addressing air pollution, particularly in the EU and USA. The SO2 emission-trading scheme established in the US under the Acid Rain Program of the Clean Air Act (Clean Air Act Amendments 1990) was among the first comprehensive and successful scheme. Another example is the European Union Emission Trading Scheme (EU-ETS), which operates in 31 countries, and covers 45% of the EU’s GHG emissions. The experience with emission trading systems has been largely positive: For example, within the EU-ETS, emissions have already fallen by 5% compared to the 2013 levels (European Commission, 2017b). Australia has used nutrient trading at sewage treatment plants (UNEP 2004). In addition, several European countries have recently introduced domestic emissions trading systems. For example, the United Kingdom uses domestic tradable emission systems to address CO2 emissions (separately from the EU-wide scheme) and disposal of biodegradable waste. These systems are applied in combination with environmentally related taxes addressing the same environmental problem. This reflects a widespread tendency in environmental policy to rely on a mix of instruments, rather than employing market mechanisms alone (OECD, 2008). Deposit-refund systems. Deposit-refunds are currently used for several products, such as beverage containers, lead-acid batteries, motor oil, tires, hazardous materials, and electronics. Box 3 outlines examples of such systems. Generally speaking, they have yielded positive effects for the environment by reducing material loss and potential environmental damage; however, they do not prevent such damage entirely, and the effectiveness of these approaches in directing consumers towards more sustainable behavior is difficult to quantify (ECORYS, 2011). Box 3. Examples of deposit refund-schemes Containers. Oregon passed the first bottle bill, or container deposit law, in the United States, in 1971. The law imposed a deposit on all beer and soft drink containers which would be refunded upon the containers’ return for recycling. As of mid-2011, ten states and eight Canadian provinces had some kind of bottle bill. Germany and Denmark introduced container-deposit schemes (for aluminum, paper, glass, etc.) in 2002-2003, which resulted in increased recycling and a significant decline in waste disposal. 6 https://taxfoundation.org/dc-charge-plastic-bags-tax-not-fee/ 31 Batteries. Forty-four states in the United States have some kind of deposit-refund program for lead acid batteries. Many states used model legislation developed by the Battery Council International (BCI), which recommends that retailers charge a USD10 fee (deposit) on all batteries sold, with the fee waived or returned if the customer brings back a used battery for recycling within 30 –45 days of purchase. As the lead in batteries is valuable, 86 percent of batteries were recycled even without the deposit refund system. Widespread adoption of the deposit-refund approach increased the recycling rate for lead-acid batteries to 97 percent. Electronics. The recycling of electronic products, such as computers, televisions, cell phones, and other items that make up a growing fraction of the waste stream, is difficult and costly. The approach that many European countries hve adopted to address the problem is product take back, or what has come to be known as extended producer responsibility. These programs mandate that manufacturers take back products from consumers at the end of the product’s life, and ensure that a specific fraction of the material contained in the products is recycled. Other deposit-refund systems relate to the disposal of (1) tires: the United States applies fees on tire purchases, which typically range from USD0.50 to USD2 for passenger vehicle tires, and from USD3 to USD5 for heavy truck tires. These deposits are not generally refunded to consumers; instead the revenues collected are used to subsidize scrap tire processors or sales of products made from scrap tires. (2) motor oil: Canada has a national used motor oil recycling program that relies on a fee paid by all wholesale suppliers of motor oil, oil filters, and containers. The collected fee revenues are used to pay a return incentive to collectors and processors who deliver used oil to government-approved processing facilities. Source: RFF (2011) and ECORYS (2011) Environmentally motivated subsidies. There is no universally accepted definition of this term. For example, OECD (2006) relates it to its motive of inducing environmentally friendly actions (OECD, 2006). Relevant examples include the EU’s common agricultural policy, which provides farmers income support conditional to their adopting environmentally sustainable farming methods (European Commission, 2016b) and subsidies for the production of renewable energy, as a way to reduce the consumption of fossil fuels. Such subsidies can take on many forms, including: biofuels used for road transport and biomass (e.g. grants, government loans at preferential rates, loan guarantees); technologies that produce electricity from renewable energy (e.g. subsidy of production costs; regulations that a certain proportion of electricity in a service area be provided by renewable energy; and feed-in tariffs7). Several emerging countries have also introduced feed-in tariffs renewable portfolio standards, or tradable certificates to support the expansion of renewable energy-based electricity, including Argentina, Brazil, Chile, China, India, the Philippines and Turkey (IEA/OPEC/OECD/World Bank, 2010). Other definitions relate this term with measures that reduce the use of something that has a proven, specific negative impact on the environment (OECD, 2013). In this light, such measures are mostly linked to phasing out harmful environmental subsidies (EHS) (e.g. subsidizing water for irrigation which stimulates inefficient use of water; higher taxation of diesel vs. petrol which generates higher emissions; reduced value added tax (VAT) for energy use leads to increased emissions and inefficient use of fossil fuels). The need to reform ineffective or harmful public subsidies has long been recognized, and the EU has a long-standing commitment to phasing out EHS. Box 4 presents some examples of successful EHS reforms (some of which overlap with fiscal measures). Overall, progress in EHS reform remains slow, as seen in the limited reporting by Member States on plans to identify and phase out EHS as part of their National Reform Programs (IEEP, 2012). 7 Prices paid to generators of electricity that are higher than those paid to plants running on fossil fuels. 32 Box 4. Examples of phasing out EHS Elimination of reduced excise tax rate for diesel used in agricultural machinery. The Netherlands applies two distinct excise tax rates to diesel fuel. Diesel used as a propellant for motor vehicles using public roads (‘white’ diesel) is taxed at a rate of EUR0.43 per litre while diesel used for other purposes (‘red’ diesel) is charged at EUR0.26 per litre. Starting in 2013, this distinction disappeared, with all diesel being taxed at the ‘white’ (higher) rate. Reduction of energy tax exemptions for companies. In 2011 the energy tax refund granted to German companies was reduced from 95% to 90% (peak equalization scheme) and from 40% to 25% (for all companies). In 2012 a number of conditions were introduced on organizations applying for the tax reduction including: the requirement for major enterprises to introduce an energy management system; for small- and medium-sized enterprises to use energy audits; and for the manufacturing sector as a whole to increase its energy efficiency by 1.3% in 2013-2015 and 1.35% in 2016. Aggregates levy and landfill tax on construction and demolition waste. An aggregate levy was introduced in 2002 in the UK to compensate for environmental externalities, reduce demand for primary aggregates, encourage more efficient use of aggregates and maximize the use of alternatives such as recycled construction, demolition waste, and secondary materials. Together with the landfill tax, which had been introduced in 1996, it seeks to address the adverse impacts of the use of aggregates over their whole lifecycle, thus addressing the previous implicit subsidy of non-internalization of externalities. Pay-as-you-throw (PAYT) schemes. In Italy, PAYT schemes charge households based on the actual amount of waste generated, thus encouraging them to take steps to reduce their waste and improve separation of the waste generated. The introduction of these schemes in certain municipalities in Italy led to a significant increase in the amount of selective waste collection (i.e. waste sorted by households at home). Source: IEEP (2012) Other instruments This section describes some less used market instruments (e.g. debt-for-nature swaps) as well as emerging mechanisms (e.g. green bonds, direct private investments and payments for environmental services) that were successful in different countries. Debt-for-nature swaps, also called “debt for environment swaps,� can be used to finance green projects. They are defined as the cancellation of (part of) the external debt of a country in exchange for the debtor’s government commitment to mobilize domestic resources towards environmental projects (OECD, 2007). It has been used to finance conservation (“green�, e.g. preservation of biodiversity) or environmental protection (“brown�, e.g. pollution abatement) projects, or the development of environmentally related infrastructure. Box 5 illustrates successful applications of these instruments. Box 5. Examples of debt for nature swaps Debt for nature swaps can generate significant resources. To date, the largest environmental swap involving conversion of bilateral debt has been concluded in Poland. The Polish “EcoFund� was established in 1992, following Poland’s debt relief agreement with the “Paris Club� of western creditor nations. Due to a timely initiative by the Polish Government, this agreement included an option for creditor countries to make bilateral agreements with Poland for the conversion of up to 10% of debt for environmental protection purposes. Although other “debt-for-environment� swaps had been concluded elsewhere, EcoFund was the first fully-fledged institution established in Central and Eastern Europe for the purposes of managing debt-for-environment swap proceeds. By 2010, the total contribution to EcoFund was approximately USD474 million, the highest value of debt-for-nature swap funds to be managed by any single institution. The EcoFund provided grant support for 33 projects addressing trans-boundary air pollution (11 projects); pollution and eutrophication of the Baltic Sea (26 projects); climate change (74 projects); biological diversity (60projects); and waste management and the reclamation of contaminated soil. Other examples include the France-Madagascar debt swap, to finance conservation of the unique biodiversity in Madagascar in 2008 (USD20 million8) and the 2002 US-Peru swap, with the goal of building long-term forest conservation and sustainable forestry initiatives in Peru during the timeframe 2002-2018 (USD14 million9). Sources: OECD/Phare (1998); OECD (2007); WWF (2002). Green bonds. Financial markets – through the banking sector, capital markets and equity markets – can play an innovative role in financing sustainable SCP. Among the existing instruments, green bonds have increasingly been used to meet natural resource challenges and opportunities. Issuers can be multilateral development banks (e.g. World Bank, IFC, European Investment Bank, etc.), cities or states, utilities, other banks, and the private sector. The market is particularly strong in the US (the largest green bond issuing country), China, and EU countries, particularly Norway, France, the Netherlands, Germany, and the UK (European Commission, 2016a). Table 4 provides a few applications of these instruments. Table 4. Use of green bonds to conserve the environment Country Key sectors Examples Bulgaria Energy efficiency, renewable energy and Varna's municipality issued municipal bonds municipal solid waste through for financing the modernization of the city’s non-labelled climate-aligned bonds. street lighting system. France Renewable energy (wind, solar, ENGIE issued a green bond worth EUR2.5 bn. Photo-voltaics (PV), hydro and biomass), to finance its renewable energy projects such as energy efficiency (especially wind farms and hydroelectric plants as well as municipalities), low carbon transport and energy efficiency projects with smart metering. infrastructure, small share allocated to biodiversity, agriculture and forestry. Germany Renewable energy (especially the wind KfW issued a green bond worth EUR1.5 bn. sector), energy efficiency (buildings), used for projects from the KfW loan program water management. “Renewable Energies – Standard� to finance wind power and photo- voltaic plants. Italy Renewable energy and climate mitigation SunPower issued the first climate- related projects like district heating, GHG project bond to finance the construction of two reduction, projects aiming to increase PV facilities in Italy. clean water and sustainable waste management. UK Renewable energy (wind), energy Transport for London, a UK government effi-ciency, low carbon transport owned corporation, issued a £400 million green (railways), waste management. bond to finance green railway projects. US Renewable energy (solar and wind), The State of Massachusetts issued the first energy efficiency (buildings), water labeled municipal green bond to fund a range of management, transport, environment environmental projects including public building (protection and habitat restoration) energy efficiency improvements, habitat restoration and water quality improvements. Source: European Commission (2016a); Ecosystem Marketplace (2016). Payments for environmental services (PES). Vittel (Nestlé Waters) responded to the 8 http://www.worldwildlife.org/press-releases/monumental-debt-for-nature-swap-provides-20-million-to-protect-biodiversity-i n-madagascar-wwf-announces 9 http://www.ecologyandsociety.org/vol16/iss3/art13/ 34 contamination of groundwater with agricultural nitrates by compensating farmers for cutting their nitrogen use – and, crucially, supporting them as they converted to more sustainable agriculture practices. A variety of domestic water companies, hydroelectric power producers, irrigated commercial farms, and other private sector water users are paying to conserve the watersheds from which they obtain their water, either directly or by through agreements with the national PES program (as in Costa Rica and Mexico). Some tourism operators in Kenya and Tanzania are paying local populations to safeguard the migration corridors of wildlife that comes into their nature reserves. Some incentives provided by EU agricultural policy could also be considered a type of PES to stimulate sustainable agricultural production. Private sector initiatives that promote a more sustainable use of natural resources have also increased in the past decade, e.g. through direct investments in land acquisition, private-public participation and more. For example, IKEA Group has started investing in its own forest assets as part of a strategic goal to ensure a stable supply of sustainably produced forest products and a defined financial return. To date, the company has purchased about 100,000 hectares of forest (in Romania, Bulgaria, and the Baltics), which provide part of their current forest product supply, and plans to expand its forest ownership even more. In addition, IKEA has invested more than USD2 billion in renewable energy generation and is producing more than 70% of its total energy consumption (Ecosystem Marketplace, 2016). 3.4Possible Implications for Turkey This chapter provided a brief overview of economic instruments to sustain SDG 12, and their implementation in several OECD countries. As the examples cited above account for only a small share of market-based instruments implemented, they are not necessarily representative for the level of success in the OECD countries. The success of implementing a certain mechanism depends on many factors (e.g. type of mechanism chosen, design, existence of regulations, consumer behavior, etc.); there is no “one size fits all� recipe for the success of such measures. Bearing in mind these limitations, and drawing upon a review of market-based instruments carried out by ECORYS (2011), the paragraphs below present some insights into how these instruments can be effectively used by other countries, such as Turkey.  Consider a broad range of market-based instruments. In most OECD countries, taxes – particularly on energy and transport – are the most commonly used instruments for environmental protection. However, Denmark and the Netherlands provide successful examples of applying taxes on a much broader range of environmental issues (e.g. on water, plastic, pesticides) and of using other market-based instruments (e.g., container-deposit schemes, etc.) to protect the environment and increase government revenues. In addition, the success of new instruments (e.g. green bonds for using renewable energy, PES for increased water quality) provides good opportunities for replicating the use of such instruments in other countries (CBI, 2015).  Include market-based instruments as part of a “full package.� Market-based instruments should work in tandem with legislative, institutional, and other instruments, to improve their effectiveness and chance of success. For example, the success in the Swedish pesticides sector points to the high importance of education and awareness-raising campaigns among farmers in achieving environmental gains, much more than the pesticides tax itself (Box 2).  Carefully design the instrument to increase the chance of success. Designing an 35 instrument can be a complex task and should consider: (i) Rates set at a level that stimulates change (e.g. taxes, trading permits, environmentally motivated subsidies, PES). If the rates are set too low, their impacts are limited, or nonexistent. They need to be tailored to the context, taking relative prices and incomes into account. For example, PES must at least cover the difference between the net returns that landholders would receive from the environmentally-beneficial land use compared to those of their most profitable alternative (environmentally damaging) land use (Pagiola et al., 2008); effluent charges should be set in accordance with the level of damage per unit discharged. (ii) Regular review of the level of these instruments. The case study in Ireland showed that although plastic bag use decreased immediately after the introduction of plastic bag taxes, it later began to increase again. This illustrates that an instrument’s impact can erode over time. Regularly updating these measures can help reduce this erosion effects. (iii)Consideration of a long-term perspective. For instruments expected to operate on a long-term basis, timeline considerations are important. For example, for PES, it is necessary to institute annual payments conditional on the adoption of sustainable practices (Wünder, et al., 2008). (iv) Adoption of an effective system of monitoring and evaluation. It is essential to monitor and evaluate the impacts of the adopted instruments in order to ensure their success, and especially to draw attention to the bottlenecks that can be encountered throughout the implementation of these instruments. 36 IV. Economic Instruments to Support SCP-related Activities in Turkey: A Situation Analysis To promote sustainable development including SCP, Turkey has adopted a range of economic or market-based instruments such as taxes, charges, feed-in tariffs, subsidies, as well as regulatory instruments like standards, limits, prohibition, permits, and licenses. These aim to or have effect to enforce, finance or incentivize SCP practices. This chapter presents an overview of policies and measures by the government as well as practices by Turkey’s private sector which would encourage SCP, thus facilitating the fulfilment of SDG 12. These consist of actions aimed at promoting resource and energy efficiency as well as the reduction of waste and pollution by making such practices financially more attractive than their alternatives. Due to the study’s time and resource limitations, this chapter mainly focuses on reviews, including a literature review of economic instruments, particularly economic instruments and their applications to supporting SCP in Turkey. The review starts with an overview of the economic instruments for promoting SCP, then documents policy instruments and measures introduced by relevant national development plans and programs. 4.1 An Overview of Economic Instruments for Supporting SCP in Turkey Economy-wide policies, particularly macroeconomic stability and confidence in the institutional framework, exert an important influence over investment decisions and support sustainability in general as they allow investors to take a long-term view. Specific economic instruments contribute to SCP by making economically preferable practices (from an SCP point of view) more attractive than their alternatives. While some economic instruments generate additional savings which may be invested in areas supportive of SCP, others may not raise additional funds but redirect existing funds to such areas through economic inducements. Naturally, some instruments work through both channels. This section reviews such instruments as used in Turkey. They are comprised of policies and measures implemented directly by the state, such as taxes and subsidies, as well as inducements such as preferential credits provided through the market for SCP supportive actions by the private sector. The direct actions of the State, such as through procurement policies or operational innovations, have not been included. As an example in this regard, the government claims to save 117,000 trees yearly through the use of electronic tax returns.10 Municipalities also have numerous projects focused on sustainability. The Nilüfer municipality, for example, has embarked upon a carbon-free village project providing an example of a municipality’s work at the village level to help the fight against climate change.11 Taxes and Charges In Turkey, the only tax based on environmental considerations appears to be the Environment Cleaning Tax. However, the tax is not based on the waste generated but rather on the amount of water used in households. As there is no benefit from producing less waste, taxpayers feel little incentive to be clean. The Fuel Consumption Tax, Motor Vehicles Tax, and Vehicle Purchase Tax could also be considered environment-related taxes if they had been designed with such an aim, but instead their principal purpose seems to be revenue generation. For the fuel consumption tax, success in fiscal terms 10 https://ebeyanname.gib.gov.tr/tanitim/ebeyanname.html 11 http://www.faalenerjidergisi.com/haber-detayi.php?uid=298 37 may mean harm regarding sustainability. Higher taxes for cars with larger engines have the dual purpose of generating more revenue and providing an incentive for fuel economy. However, lower taxes are paid on older cars which usually have poor fuel economy and pollute more. Turkey also introduced a tax waiver arrangement to encourage phasing out old vehicles. When vehicles 20 years or older are taken out of use and de-registered, any surcharge on their old unpaid taxes and fines is waived. A tax system for cars based on their CO2 emissions would help the environment, but hurt the poorer segments of the society who own older cars. A scenario analyses of a potential carbon tax indicate that it would generate considerable revenues, have divergent impacts on different sectors, influence the electricity generation mix and affect import dependence (Baybek 2016a, 2016b 2016c; Yeldan and Voyvoda 2015). Revenue recycling and a revenue-neutral tax design can offset negative effects such as unemployment in some sectors, and thus help increase its political acceptability. Sweden, Denmark, Germany, The Netherlands, Norway and the UK have experimented with fiscally neutral environmental tax reforms (World Bank, 2015). In Turkey, electricity generation merits priority attention as large increases in emissions are expected from this sector in the near future. A considerable amount of greenhouse gas mitigation is possible by switching from domestic lignite to less carbon intensive fuels, but this can exacerbate import dependency by promoting imported coal and natural gas. Charges are important economic measures aimed at rationalizing the use of resources. Water pricing in the agriculture sector is, perhaps, the most critical issue in terms of increasing water efficiency. The current scheme with little concern for measuring the actual volume of water use does not consider social and environmental externalities and consequently the water price for irrigation does not reflect the full cost water (OECD, 2010). With respect to domestic and industrial water pricing, different practices exist across the country. Each municipality determines water tariffs based on subscriber type and the volume consumed. In some cities like İstanbul, İzmir, Gaziantep and Bursa, municipalities apply increasing block tariffs (graduated pricing) to charge differently for different groups of subscribers and to ensure water saving through this price differentiation (Muslu, A., 2015). Turkey’s EU candidacy brings a new dimension to the water pricing issue with key economic principles like polluter pays and cost-effectiveness introduced by the EU Water Framework Directive. Since the opening of the Environment Chapter of the negotiations in 2009, Turkey has made progress towards compliance with relevant EU Directives by developing regulations, standards, action plans as well as modifications in institutional arrangements. The country has been putting efforts on incorporating economic incentives into water resources management which will pave the way for moving its pricing mechanisms for both agriculture and domestic/industrial water use toward full cost recovery and polluter pays principles. One of the issues to keep in mind with the application of these instruments is that in oligopolistic industries the cost of the charge may be passed to the weakest element of the processing chain in terms of market power, thus reducing the charge’s effectiveness on the environmental objective sought. In Malaysia, it was observed that around 50 per cent of the cost generated by an affluent charge in the palm oil industry was passed on to the farmers. Nevertheless, the adverse impact on the incomes of processors and especially farmers has been mitigated through the use of the by-products/wastes from mills as fertilizers, animal feed, biogas, etc. This provided additional income to processors and a sort of a subsidy to farmers as by-product fertilizers were sold to them at a cheaper price (UNCTAD 1995). 38 Naturally, charges are useful instruments for modifying many aspects of lifestyles following SCP principles. For example, traffic bottlenecks, which generate considerable waste and misery, can be managed by congestion charges and other economic measures aimed at increasing the costs of driving in cities. Although these are not used in Turkey, an investigation into the applicability of a congestion pricing scheme in the Eminönü District of Istanbul concluded that such an application could decrease road traffic by 15-40% and increase the mean traffic speed by approximately 15-25 km/h (Yüksel et. al. 2010). The whole fiscal policy and public finances of Turkey can be reviewed in terms of their general impact on equity and economic efficiency, and their specific impact on SCP. Although, for example, the draft income tax law of 2013, which further became the basis of the current revision, starts its preamble by referring to sustainable development, the contents of the Law do not have much to offer in this respect. There is room for introducing SCP supportive elements to the income tax system, for example favourably accounting for SCP related expenses in tax deductions. For this to be done effectively, in fact for any reform of the tax system towards environmental priorities and SCP, the tax authorities and the environmental experts need to work hand in hand, and some tax authorities should be better aware of environmental impacts of fiscal measures. Subsidies and Support In Turkey, the top three sectors around which government subsidies and incentives are centered are energy efficiency, renewable energy and agriculture. Subsidies can have harmful or beneficial impacts on sustainable consumption and production. They may work through investment decisions, input mixes or consumption choices. Some subsidies can be considered as measures to correct market failures, for example those promoting the utilization of energy efficient appliances. Small and medium enterprises (SMEs) are the principal targets of subsidies to help adopt sustainable practices. The Small and Medium Sized Industry Development Organization (KOSGEB) supplies information regarding the subsidies and support provided to SMEs, which include payment for services obtained from officially authorized energy efficiency consultancy firms. Many SMEs, however, are unable to fully benefit from the available support due to their ignorance and lack of experience. On energy efficiency, the GoT, through the DG of Renewable Energy, is promoting energy efficiency in the industry through two specific support programs: 1) Support of Efficiency Improvement Projects, 2) Support of Voluntary Agreements. While both programs have positive impacts, there is also a need to strengthen the implementation and monitoring frameworks of these programs to scale-up investments in the SMEs. Furthermore, additional analytical studies should be conducted in order to analyze existing and emerging market and capacity barriers as well as the political and regulatory gaps in the field of energy efficiency. Technical skills to apply energy saving methodologies also need to be developed for these programs to succeed fully. Box 6 presents these programs’ details and the other examples of support programs in the field of energy efficiency. Box 6. Examples of energy efficiency support programs in Turkey Support of Efficiency Improvement Projects: Businesses engaged in the production of goods where electricity consumption exceeds 1000 TOE, except the ones engaging in electricity generation, and all kind of businesses engaged in the production of goods are eligible to receive this grant. The maximum amount granted to each project is 1 million TL, of which the payback period should be less than 2 years. Source: www.eie.gov.tr 39 Support of Voluntary Agreements: Companies that commit to reducing their energy intensity by a minimum average of 10% over three years can enter into an agreement with DG of Renewable Energy and 20% of the company’s energy cost will be covered up to a limit of 200,000 TL. Source: www.eie.gov.tr KOSGEB Energy Efficiency Support Programme for SMEs: Includes support activities like energy audit services, consultations for energy efficiency improvement projects and energy manager training programs that SMEs get from authorized energy efficiency companies; 50%-60% of the cost of these services is covered by KOSGEB as long as the maximum limits are not exceeded. Source: www.kosgeb.gov.tr. GoT is also taking important steps to promote energy efficient products, particularly in home appliances, equipment and lighting. For example, energy standards and labelling programs for household appliances have been operating in Turkey since 2010. Further, Turkey transposed the EU Regulation on Eco-design for Energy-related Products and Regulations on the Indication of Labelling and Standard Product Information of the Consumption of Energy and Other Resources by Products in 2010 and 2011 respectively. Ten product-related energy labels and 16 eco-design communiqués for implementation were adopted through these regulations. As for renewable energy, starting in 2005 with the enactment of the Law on Utilization of Renewable Energy Resources, significant progress has been achieved in renewable energy, with the government’s provision of financial incentives in some production sectors. For example, the Law introduces feed-in tariffs (FiTs) for electricity generated from renewable sources for ten years. With the amendment made to this Law in 2010, a differentiated FiTs scheme based on resource type (for hydro & wind 7.3 US cents/KWh, for geothermal 10.5 US cents/KWh, for biomass, solar PV and concentrated solar power 13.3 US cents/KWh) and premiums for local equipment (Domestic Manufacturing Bonus) were made available for investors. In addition to this, the Ministry of Economy offers further incentives for renewable energy investments within the General Investment Incentive Scheme, which allows investors to be exempted from VAT and custom duty (Acar, Kitson, and Bridle, 2015). In addition to this, Renewable Energy Resources Support Mechanism (YEKDEM) has been regulated to encourage investments in renewable energy. Within the frame of the support mechanism, retail companies assigned by the Energy Market Regulation Authority (EMRA) are required to purchase the produced electricity from manufacturers who are subject to this mechanism on tariffs regulated by the legislation; the electricity manufacturer cannot sell any produced electricity to other companies under the open market conditions. YEKDEM consists of feed-in tariffs (valid until 2020) for electricity manufacturing license holders and unlicensed electricity manufacturers producing electricity from renewables and other opportunities for renewable energy. 12 . Also, DG of Renewable Energy has recently announced the “Draft Regulation on Renewable Energy Resource Areas� known as YEKA with an aim to identify the feasible areas for the wind and solar power generation. The Draft Regulation provides the rules and procedures on the determination of potential YEKAs; feasibility and infrastructure studies with respect to YEKAs; publication of YEKAs; pre-requisites and procedures for applicants wishing to invest in these YEKAs; competition procedures where multiple applications exist for a YEKA and the requirements that the investors should comply with during the preliminary license as well as the license generation stages. Renewable energy based power plants on the YEKAs can benefit from all incentives provided for the renewable energy based power plants. However, recent amendments made in Electricity Market Law provide additional incentives for the power plants to be constructed in YEKAs (Ergün et all, 2016). 12 http://www.epdk.gov.tr/tr/Dokumanlar/Elektrik/Yekdem 40 Despite its huge potential in renewables (highest for geothermal in Europe and one of the highest for wind and solar photovoltaic) and the existing support mechanisms provided by the GoT, the share of renewables in Turkey’s total electricity generation still remains lower than the potential and the need. The YEKA tender concluded on August 3, 2017 is a significant development in this regard. With plants to be established in 5 regions of Turkey, an average of 1.5 million tons of carbon emissions is expected to be avoided annually.13 In order to push this further, barriers and challenges in relation to incentive mechanisms including any informational challenges in economic and technical terms should be assessed and necessary policy responses should be developed for the utilization of renewable resources. According to TUSIAD, it is critically important for the emergence of a predictable investment environment that the subsidies system and other regulations be sustained over the long term. There is a significant dominance of hydroelectricity generation among the renewables in Turkey. In 2015, hydropower had a 25.6% share of Turkey’s total electricity generation while the non-hydraulic resources accounted only for 6.5% (TurkStat,2015). Hydropower development in Turkey has been accompanied by considerable negative environmental impacts and has caused irreversible loss of high value natural areas and freshwater ecosystems. In order to minimize these negative environmental impacts, more efforts need to be made to improve the investment environment, including regulatory framework, for renewable energy and diversify the energy supply mix in an environmentally sustainable way. Turkey has favourable practical experience in implementing financial instruments for the sustainable use of natural resources, particularly in the agriculture sector. Main types of financial instruments are government incentives, subsidies, soft credits and grants provided by relevant Ministries, banks and agricultural cooperatives. Two programs are remarkable in terms of putting environmental sustainability concerns into practice in the agriculture sector. First, ÇATAK (Environmentally Based Agricultural Land Protection Scheme) is specifically designed for environmental purposes in agriculture. The aim of the scheme is to reduce the adverse effects of agricultural practices on the environment, to prevent erosion, to sustain renewable natural resources, to protect the natural cover and quality of soil and water in vulnerable areas. And second, the recently announced “National Agricultural Model,� a new basin-scale support model, aims to plan and increase production while protecting natural resources and implementing an efficient and rational agricultural support policy based on agricultural basins. 941 micro catchments and 19 crops were identified, and support payments in those areas will be differentiated according to climate, topography, water availability and soil conditions. With the new model, transformation of the current support system to land based support represents an important political change (MoFAL, 2016). Furthermore, the GoT is planning to review allowances allocated for agricultural support with the objectives of increasing efficiency, and value-added and necessary regulations will be introduced. (MoD, 2017). Finally, with the highest share of water use in Turkey being in agriculture, increasing irrigation efficiency is a priority for the Turkish Government. Subsidies and interest free credits to farmers for water-saving irrigation technologies are available through the Ministry of Agriculture and state-owned Ziraat Bank. Simple changes in planting techniques my lead to important environmental gains. For example in Brazil, changing from perpendicular to contour planting systems on steep slopes for coffee and cocoa, and planting grass between trees, reduced soil losses significantly. This technique was subsequently made a requirement for receiving credit (May 1993). Water pricing was shown to have an important impact on the amount of water used (and wasted) for washing coffee (Segura, B.O., Reynolds J. 1993). 13 http://www.dw.com/tr/dev-ihaleyi-alman-siemens-kazand%C4%B1/a-39950358 41 An important aspect of SCP in agriculture and food, including for participation in global markets, is compatibility with “good agricultural practices.� Although such voluntary standards vary between different countries and different private operators, universality is provided by GLOBALGAP (UNCTAD 2007). Turkey implements “iyi tarım� (good agriculture�) principles in accordance with GLOBALGAP and in 2008, Good Agricultural Practices were included within the scope of supports provided for plant production. As a result of these government supports, the number of farmers applying good agricultural practices has increased dramatically from 651 farmers in 2007 to 55,609 farmers in 2016 (MoFAL, 2017). Assistance, particularly to small producers, for better understanding the standards and applying the necessary practices for compatibility with the official requirements and other sophisticated private market exigencies would help SDG 12 from both the production and consumption sides. The same observations hold for organic production as well. This covers not only food but also other agricultural products such as fibres and processed items. Reliability of certification is of critical importance. National or regional action plans for organic food and farming have been developed in most EU member states and various developing countries. They normally include targets for adoption and a combination of specific measures, including direct income support through the agro-environment/rural development programs; marketing and processing support; certification support; producer information initiatives (research, training and advice); consumer education; and infrastructure support. The main market incentive comes from higher prices for organic products, with demand being mostly spurred by health concerns. An important means of promoting organic production is to eliminate existing disincentives for organics, such as distorting subsidies for chemical fertilizers. Regulations in importing countries are increasingly demanding that organic products be produced with organic seeds, but their availability in the formal market is not assured (UNCTAD 2007a). “Traditional� seeds, which are more readily available, do not generally qualify for organic certification. Besides organic, various types of labelling, including sustainable production from forests and fisheries are also relevant for achieving SDG 12 in the country and improving opportunities for participation in global value chains. Regarding food, SDG 12 emphasizes the reduction of food waste. A study on the waste of bread (Oral 2015) revealed it to be caused principally by ignorance: production beyond what will be sold, purchases beyond needs, unsuitable conditions where bread is stored and ignorance about uses for stale bread. Nevertheless, assisted by an awareness-building campaign, Turkey reduced its bread waste by 18 per cent in 2013.14 The Turkish Foundation to End Waste campaigns for the reduction of all kinds of wasteful practices, from bread and water to electricity. Unlike agriculture and energy sectors, government incentives for cleaner production, eco-efficiency and waste reduction are quite limited and not even comparable to those in the EU, in terms of variety and amount (MoEF-TTGV, 2010). Although there are some steps taken towards promoting cleaner production, past and ongoing efforts are mostly project based and because of this Turkey is still lacking effective financial instruments developed for cleaner production, eco-efficiency and closing material loops. The Eco-Efficiency (Cleaner Production) Programme developed by the United Nations Industrial Development Organization (UNIDO) in cooperation with the Technology Development Foundation of Turkey (TTGV) and the Ministry of Industry in 2008, is an important step towards transforming Turkish industrial enterprises into a more climate-friendly system with the use 14 http://www.ikibin50dergisi.org/201/turkiye-ekmek-israfini-2013-yilinda-yuzde-18-azaltti.html 42 of cleaner production and eco-efficiency applications. One of the Program’s outcomes was the establishment of the National Eco-Efficiency (Cleaner Production) Centre for Turkey, which is currently being run by TTGV15. In addition to this, TTGV also supports the R&D and commercialization phases of product and/or process development practices carried out in four priority areas—agriculture, education, healthcare and environment—in an integrated way under its Support for Advanced Technology Projects Program. Within the scope of the program, projects on products and processes that can improve resource/energy efficiency, technologies related to renewable energy, technologies intended for smart energy distribution, technologies for adaptation to climate change, identification and prevention of natural disasters, recycling and utilization of wastes and other environmental technologies are eligible for TTGV support in upper and lower limits of $3 million and $250,000 respectively. Industrial corporations and software companies can benefit from the Program in which 50% of the support is provided by TTGV16. General support to Turkey’s tourism sector includes tax reductions, access to special funds, permission to employ foreigners and land allocations. Incentives are higher to rural tourism. There is no accreditation for eco-tourism, but a “green star� label to climate-conscious operations is accorded by the Ministry of Culture and Tourism. The Ministry of Culture and Tourism, UNDP and a private company ran a joint program (from 2013-2015) to support small-scale sustainable tourism operations. Various villages have recently declared themselves as “ecological villages,� sometimes with the assistance of civil society organizations, hoping the designation will attract visitors. There is a lack of guidelines as well as impact analyses, which also leads to informational challenges regarding the generation of interest in such schemes both by potential localities and funding sources. Particularly relevant to SDG 12 are various types of “alternative tourism� such as eco-tourism and rural tourism, the latter of which figures among the priorities of Turkey’s Tourism Strategic Action Plan 2023. In spite of its great potential, alternative tourism is not yet sufficiently professional and widespread. Regional Development Agencies provide limited financial support to various operations relevant to SDG 12, including alternative tourism. Official standards and accreditation, however, which would work through the market, and could generate higher demand and revenues for the operators, are also called for. It is noteworthy that although there is no accreditation for eco-tourism, a “green star� (Yeşil Yıldız) label is accorded to climate conscious operations by the Ministry of Culture and Tourism, enabling these enterprises to obtain electricity at favorable rates. Examples obtainable from the various blogs of the Global Sustainable Tourism Council, for example regarding Thailand’s experience, could provide ideas for implementing market-based instruments for sustainable tourism in Turkey. Italy’s experience with the Cinque Terra Card, which provides access to many sites and transportation, and whose revenues are used to protect traıls, marine and national parks, is another example.17 There are no speci�c educational or support programs dedicated to green entrepreneurship which could act as an enticement to potential beneficiaries. This also limits the interest and demand for such programs. Endeavor Entrepreneurship is a network for entrepreneurs, with an emphasis on sustainable development, providing mentoring services to promising entrepreneurs fulfilling the network’s requirements. 15 www.ecoefficiency-tr.org 16 www.ttgv.org.tr 17 https://www.gstcouncil.org 43 Within the Turquality program expenses incurred for adaptation to environmental, quality, health regulations can be covered. On the negative side, subsidies in Turkey, particularly those given to coal production are found to be the most important barrier for reducing carbon emissions. Moreover, higher investment support is offered for coal and petroleum than for power stations using green fuels. There are a multitude of subsidies used in the fuels sector. Unlike other fuels, coal is currently not subject to special consumption taxes, and yearly coal consumption subsidies have been estimated at 730 million USD (Acar, Kitson, and Bridle, 2015). Box 7 summarizes the existing incentives to Turkey’s coal industry in more detail. Removal of coal subsidies may negatively impact the employment in coal mining areas. This could require some compensation, and policy makers are reluctant to implement any measure that would seem to increase costs and impede competitiveness. High transaction costs due to the typically small size of renewable energy projects compared with large fossil-fuel-based projects also act as a disincentive to investment in the renewable energy sector. Another financial instrument for forcing firms to repair inevitable harm during certain production processes such as mining is performance bonds, where bonds are posted by industries to finance clean up or rehabilitation expenditures, with refunds for improved efficiency. These have been particularly helpful in South Africa in financing mine closure expenditures in the coal mining industry (Raimondo in UNCTAD and UNEP 1999). They have also been used in Costa Rica and Sarawak in Malaysia (World Bank 2005) and in Thailand (Seenprachawong 2001), and proposed for gold mining in Turkey (Arda 1995). Box 7. Coal subsidies in Turkey The three main challenges Turkey faces in its electricity market are meeting the growing demand for electricity, improving energy security, and ensuring that electricity prices remain affordable. To overcome these challenges, GoT aims to increase the supply of electricity through a considerable investment in coal-fired generation (Acar, Kitson, and Bridle, 2015). Utilization of all possible domestic resources in energy production is deemed a priority for the GoT, including not only renewables but also all domestic lignite and hard coal. The Strategic Plan 2015-2019 of the Ministry of Energy and Natural Resources attaches great importance to the coal sector with the objective of increasing the use of domestic coal to 60 billion kWh by 2019, which was 32.9 billion kWh in 2013 for electricity generation (MoENR, 2014). The Domestic Resource Based Energy Production Programme of the 10 th Development Plan reiterates this same objective. In addition to the 25 coal-fired power plants in use and three new ones under construction, more than 70 new coal-fired power plants are in the pipeline (in planning, licensing/pre-licensing, EIA stage or officially announced but not documented). If all of these projects are realized, the emissions from these new plants are estimated to consist of about 400 million tons of GHG annually, which is almost as hig h as Turkey’s current total annual emissions (IPC, 2016). With the aim of supporting continued development of indigenous reserves in Turkey, a large part of coal subsidies are directed to production. The GoT provides a considerable amount of incentives to both the lignite and hard coal mining industries. In addition to the production subsidies, the government offers various investment incentives for coal-fired power plants including investment guarantees to coal power plants for up to 15-20 years of their life operation; guaranteed prices; the purchase of electricity for certain periods of time offered to lignite-fired power generation investments; and rehabilitation support for hard coal mines and coal power stations. More importantly, coal-fired power plants are considered “priority investments� within the New Investment Incentive System introduced in 2012, and as a part of this new system coal exploration, production and investments are receiving elevated incentives. Under the General Investment Incentive Plan, which is a component of the New Investment Incentive Scheme, all electricity generating facilities using domestic coal are entitled to VAT and customs duty exemption (IEA, 2016). It is important to note that these incentives are complemented by exemptions from environmental regulations. To put it in another way, Turkey’s coal industry also benefits from the underpricing of externalities in relation to health and 44 environmental damages. In addition to these producer subsidies, there are also consumer subsidies for coal. The Ministry of Family and Social Policies has been distributing coal to poor families, accounting for over 2 million households since 2003, with a minimum amount of 500 kilograms of coal per household. When all measurable coal incentives in Turkey are taken into account, the amount of incentive per kWh is calculated as approximately 0.02 USD including coal distribution to poor families ( Acar, Kitson, and Bridle, 2015). Credits Apart from direct action and investments by the government, the banking system in Turkey provides credits financing SCP related activities. Even banks that do not adhere to international initiatives such as the Global Compact take part in directing funds to SCP activities. While these funds are generally used for energy related activities, they could also help in overcoming some more general market failures such as shortage of long term credits. Capital and equity markets or venture funds and institutional investors, however, are not yet particularly in favor of SCP related investments in Turkey. Among the plethora of financing instruments, credits on favourable terms are widely used as a means of green financing in Turkey. The favourable terms include not only low rates but also exemptions from certain taxes and long repayment periods. Some of these credits fall under large programs such as the Turkish Mid-size Sustainable Energy Financing Facility (MidSEFF) and the Turkish Sustainable Energy Financing Facility (TurSEFF). MidSEFF, launched by the European Bank for Reconstruction and Development (EBRD) with the support from the European Investment Bank (EIB) and EU, provides a total of EUR one billion in loans through seven Turkish banks (Akbank, Denizbank, Finansbank, Garanti, Isbank, Vakifbank, Yapikredi) for on-lending to private sector borrowers, for financing mid-size investments in renewable energy, waste-to-energy and industrial energy efficiency. Likewise, TurSEFF, developed by EBRD, is a credit line designed for industrial and commercial SMEs to be used on their energy efficiency and renewable energy investments. Clean Technology Fund (CTF) also provided concessional funding to the TurSEFF program. In 2009, Turkey was among the first countries to receive CTF resources and the government of Turkey has worked closely with the European Bank for Reconstruction and Development (EBRD), members of the World Bank Group (IBRD, IFC), and key Turkish stakeholders, to design an investment plan that taps US$250 million from the CTF for a range of innovative, high-impact energy sector projects. More details on the CTF Investment Plan for Turkey is presented in Box 8. Box 8. Shaping clean energy in Turkey through the Clean Technology Fund (CTF) The Clean Technology Fund (CTF) Investment Plan for Turkey is the cornerstone of Turkey’s investment strategy for climate change and sustainable development. The Plan makes major contributions to three critical Government of Turkey development objectives: (1) Enhancing energy security – by improving energy efficiency as well as generating energy from locally available renewable resources (2) Supporting a clean energy transition – by focusing on meeting energy needs in an environmentally sustainable manner and thereby reducing greenhouse gas emissions; and (3) Increasing private sector involvement – in the development and financing of clean energy and energy efficiency investments – with credit intermediated through Turkish banks (CIF, 2012). The implementation of Phase I of the CTF Investment Plan has been highly successful in Turkey. Fifteen projects/programs are being implemented with CTF support in the field of geothermal development, residential energy efficiency, renewable energy and energy efficiency with a total funding of US$449 million. (www.climateinvestmentfunds.org) Among the programs and projects co-funded by CTF, four are remarkable in terms of their scope, outcomes and partnership models: The Private Sector Renewable Energy and Energy Efficiency Project, Renewable Energy 45 Integration Project (REIP), Renewable Energy Integration Technical Assistance Project (REITAP) and Turkey Private Sector Sustainable Energy Finance Facility (TurSEFF). The Private Sector Renewable Energy and Energy Efficiency Project , implemented by the World Bank, accomplished its objectives of accelerating the development of small hydro and wind powered plants, and pioneering large industrial-scale energy efficiency. Sub-loans through the Industrial Development Bank of Turkey (TSKB) and Development Bank of Turkey (TKB) pioneered transactions in small hydro, wind energy generation and energy efficiency investments in large industrial manufacturing. Overall, the US$100 million in CTF financing leveraged US$1.53 billion, and TKB and TSKB were able to attract an additional US$1 billion for renewable energy and energy efficiency from other international financiers. The project has financed 52 renewable energy projects with substantial new RE capacities of about 944MW and 30 large-scale demand side energy-efficiency projects which are estimated to have contributed to a reduction in GHG emissions of 3 million tons per year, 150% of the original target. Renewable Energy Integration Project (REIP), implemented by the World Bank, aims to assist Turkey in meeting its increased power demand by integrating large scale renewable energy generation to the grid and strengthening the transmission system. Further, the global environmental objective is to lower greenhouse gas emissions from fossil fuel-based power through greater integration of renewable energy generation in Turkey. The project is developing transmission infrastructure to support wind power plants, smart-grid investments to improve operation and management, and install submarine power cables to interconnect wind energy locations with other parts of Turkey. 12 out of 19 large contracts are being implemented under the project, and others are at tendering stage. They, as a whole, are expected to provide nearly 300 million tonnes reductions in CO2 emissions till 2030. Renewable Energy Integration Technical Assistance Project (REITAP), implemented by the World Bank, aims to enhance capacity for generation planning, transmission planning, and grid management in Turkey in anticipation of increased share of renewable energy in the generation mix. Turkey Private Sector Sustainable Energy Finance Facility (TurSEFF) Provides funds to industrial and commercial small- and medium-sized enterprises to be used for their energy efficiency and renewable energy investments. Credit lines are provided to eligible commercial banks by EBRD for on-lending to private sector borrowers for energy efficiency and small-scale renewable energy investments. The program’s participating banks are Denizbank, İş Bankası, Vakıfbank and Yapı Kredi. TurSEFF has been active since 2010 and 874 investment projects have been financed since the program began; they are expected to provide up to 1982 ktons reductions in CO2 emissions annually. TurSEFF also has a comprehensive technical assistance package. (Source: www.turseff.org.) The International Finance Corporation (IFC) and French Development Agency (AFD) also cooperate with Turkish banks to provide credits at favourable conditions, particularly for energy efficiency and, in the case of IFC, for green construction through green mortgage credits. Some banks advertise green loans that go beyond their MidSEFF and TurSEFF agreements. These include favourable loans for energy efficient houses, environment-friendly cars, waste management, sustainable tourism and organic agriculture. The voluntary Sustainability Guidelines for the banking sector spearheaded by the Banks Association of Turkey and prepared by a working group on the Role of the Financial Sector in Sustainable Growth, is being applied by some banks which have established sustainability departments and reported on their sustainability results. Embedding sustainable banking principles in the sector will be crucial for dealing responsibly with large infrastructure and PPP projects relevant to SCP. Apart from access to subsidized credits, green bonds were floated in 2016 to obtain funds on favourable terms. The construction and operation of a new hospital in Elazığ, was financed by a certified "green and social bond." A 20-year Multilateral Investment Guarantee Agency (MIGA) guarantee, along with a liquidity facility provided by the EBRD, has led Moody's to assign an investment grade rating of Baa2 to the bond, surpassing Turkey's sovereign rating at the time. In May 2016 TSKB Turkey’s 46 first privately-owned development and investment bank, became one of the first emerging market institutions to issue a green/sustainable bond, the demand for which was more than thirteen times the amount offered. This offer won the Socially Responsible Investing (SRI) Bond award (EMEA Green/SRI Bond Deal of the Year) for 2016 from International Financing Review. This was followed in March 2017 by the issuance of US$300m in subordinated tier 2 sustainable notes. Projects to be targeted by TSKB span across sectors such as renewable energy, energy efficiency, healthcare, education, ports, and electricity transmission. This performance has not been replicated by others, including large state owned banks. Lack of trained personnel in sustainability issues may have been a reason for this aversion. Carbon markets Turkey has played a prominent role in the global voluntary carbon market. It is the largest seller of voluntary carbon credits in Europe. Transactions during the period 2007 – 2015, were around 35 million tons of CO2 valued at over US$ 200 million. This is equivalent to approximately 70 per cent of the 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 tons of CO2. This made Turkey the fourth largest supplier of voluntary carbon offsets globally after the United States, India and Indonesia. 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 voluntary carbon offsets. The majority of Turkey’s voluntary carbon transactions were derived from sales of Verified Emission Reductions (VERs) generated by wind, hydro, and landfill methane projects. As of April 2016, Turkey had 235 registered projects. In 2014, Chile became the first South American country to pass carbon tax legislation, targeting emissions from the nation’s large thermal power plants, which contribute about 55 percent of the country’s total GHG emissions. On January 1, 2015, South Korea’s cap-and-trade program went into effect, officially joining the European emissions-trading system and Chinese pilot emissions-trading programs as one of the largest carbon markets in the world (WRI 2015). Preparations for the establishment of the national carbon market have been underway in Turkey for several years. EBRD’s Carbon Market Development Support Programme assists in the development of the Turkish Carbon Market, promoting the participation of Turkish banks and companies in carbon markets in Turkey and abroad. The Climate Stars program is designed to support companies in different sectors towards carbon neutrality. MidSEFF support in this context includes carbon asset development and monetization of the generated carbon credits. Turkey also joined the Partnership for Market Readiness (PMR) initiative in April 2011 which provides support to prepare and implement climate change mitigation policies, including carbon pricing instruments, in order to scale up GHG mitigation to countries. Turkey is one of the 19 implementing country participants within the global PMR program. The PMR Turkey Project, coordinated by the Ministry of Environment and Urbanization and supported by the World Bank, aims to pioneer activities on implementation of legislation on monitoring, reporting and verification, and conducting studies on applicability of carbon pricing instruments in Turkey, including potentially an Emission Trading Scheme pilot in the coming years. More specifically, PMR Turkey was set to analytically analyze the suitability and applicability of market-based emission reduction policy instruments, such as emissions trading schemes, carbon tax in detail, in addition to 47 white and green energy certificates, scaled-up crediting mechanism, result-based finance in Turkey (www.pmrturkey.org). The international business community is also seeing the value of a carbon tax. More than 1,000 businesses joined 74 countries and 23 sub-national jurisdictions at the 2014 U.N. Climate Summit to vocalize support for putting a price on carbon, including powerhouses like Nestlé, Unilever and Nokia. They made clear that pricing carbon is not only good for the climate, but also good for business, as it is among the most efficient and cost-effective ways to reduce emissions (WRI 2015). The Turkish Industry and Business Association (TUSIAD) believes that the nascent carbon trading system should be implemented in conjunction with a neutral carbon tax where any additional burden is compensated by allowances in other areas and energy efficiency enhancing policies. It also emphasizes informational challenges and proposes implementation only after sufficient data on sectoral carbon emissions are available and firms gain sufficient experience in monitoring, reporting and verification. Apart from design issues requiring well trained personnel in related areas, according to TUSIAD, most important among deficiencies and threats that impede the development of the ETS in Turkey are the insufficient depth of Turkey’s financial markets and deficiencies in its auditing and monitoring systems (TUSİAD, 2016). There have been several studies on the legal aspects of carbon trading in Turkey, undertaken within a UNDP project Capacity Building for Climate Change Management in Turkey. Their conclusions include, for example, that activities around carbon certificates should be exempt from value added tax, whether transactions are carried out internationally or domestically, and that it is necessary for the administrative power needed for carbon markets to operate harmoniously and seamlessly (Korkusuz n.d.; Atar 2010). Traditionally, China has been better at using administrative measures instead of market-based measures to meet its carbon emissions reduction goals. But China launched its first pilot emission trading program this past June. This development is potentially a major marker in the country’s efforts to reduce greenhouse gas (GHG) emissions. The Shenzhen Emissions Trading Scheme (ETS) program will cover some 635 industrial companies from 26 industries. This is the first of seven proposed pilot GHG cap-and-trade schemes in China, which the country has been developing since 2011. Shenzhen has set up an ambitious target for its ETS compared to existing national or local commitments. The 635 companies will be given a roughly 100 million metric ton CO2 emission allowance for free over the next three years. If the companies emit only their allotted amount, this would be equal to a 32 percent reduction in terms of GDP emission intensity (WRI 2013). Economic instruments which support SCP practices in Turkey are summarized in Table 5. Table 5 Summary of available economic instruments supporting SCP practices in Turkey Instrument Application in Turkey SDG12 Themes Covered Traditional Instruments Taxes  Environment Cleaning Tax  Sustainable management and efficient use of  Fuel Consumption Tax natural resources  Motor Vehicles Tax  Environmentally sound management of  Vehicle Purchase Tax chemicals and all wastes Charges/Fees  Groundwater abstraction fees  Sustainable management and efficient use of  Water tariffs/pricing for agriculture, urban natural resources and industrial use (“area-crop based�  Environmentally sound management of 48 charging system and volumetric pricing in chemicals and all wastes agriculture), Increasing block tariff  Reduce waste generation through prevention, (graduated pricing for domestic and reduction, recycling and reuse industrial subscribers)  Wastewater discharge fees  Waste management fees (regular and hazardous)  Hunting, reed-cutting, peat extraction fees in protected areas  Fees to visit national parks  Fishing license fees Tradable permit  Voluntary Carbon Market  Reduction of waste generation (emission systems trading) Deposit refund  Residual oil  Reduce waste generation through prevention, schemes  Batteries reduction, recycling and reuse  Plastics  Awareness for sustainable development and  Tires lifestyles  Electronic equipment Credits/Loans  Interest free credits for water saving  Sustainable management and efficient use of irrigation equipment natural resources  Credits with low rates and tax exemptions  Reduce waste generation through prevention, for energy efficient houses, organic reduction, recycling and reuse agriculture, water-saving irrigation  Awareness for sustainable development and systems, hybrid cars by private banks lifestyles  MidSEFF- The Turkish Mid-size  Rationalization of inefficient fossil fuel Sustainable Energy Financing Facility subsidies credits for renewable energy, waste-to-energy and industrial energy efficiency investments  TurSEFF- Turkish Sustainable Energy Financing Facility credits for energy efficiency and renewable energy investments of SMEs  Green mortgage credits provided by private banks  Private bank loans for energy efficient houses, environment-friendly cars, waste management, sustainable tourism and organic agriculture Environmentally  Area-based incentives (Organic farming,  Sustainable management and efficient use of motivated Good Agricultural Practices, Soil analysis natural resources subsidies/incentives support)  Rationalization of inefficient fossil fuel  Biological and Biotechnological subsidies (subsidies on renewables) Combatting incentives  Strengthening scientific and technological  Environmentally Based Agricultural-Land capacity to move towards more sustainable Protection Scheme (ÇATAK) patterns of consumption and production  National Agricultural Model, basin-scale  Promoting sustainable tourism support scheme  Feed-in tariffs (FiTs) scheme for renewable energy investments  Other incentives for renewable energy (YEKDEM, YEKAs, Domestic Manufacturing Bonus, VAT exemptions)  Support of Efficiency Improvement Projects by Ministry of Energy 49  Volunteer Agreement Support for Energy Efficiency by Ministry of Energy  Energy Efficiency Support Program for SMEs by KOSGEB  Incentives and support programs for eco-tourism Other Instruments Green bonds  Green bond issued by TSKB  Rationalization of inefficient fossil fuel subsidies Sectoral  Banks Association of Turkey  Sustainable management and efficient use of sustainability natural resources guidelines  Reduce waste generation through prevention, reduction, recycling and reuse  Awareness for sustainable development and lifestyles Sectoral and  e.g. IMSAD (Association of Turkish  Sustainable management and efficient use of company Construction Material Producers) natural resources sustainability  Awareness for sustainable development and reports lifestyles Labels  Good agriculture, organic agriculture,  Sustainable management and efficient use of green star (hotels) natural resources  Awareness for sustainable development and lifestyles  Promoting sustainable tourism 4.2 Review of the Policy Applications in Existing National Plans and Programs in Support of SCP The concept of environmental sustainability has a long history in Turkish development policy. Since the 5th National Development Plan of 1985-1989, the sustainable use and management of natural resources and some themes of SCP have been mainstreamed within the national policies. Unlike the previous ones, the current 10th NDP, covering the period of 2014-2018, has been prepared with a “sustainable development� focus. The Plan targets are defined under four main axes: 1) Qualified people, strong society; 2) Innovative production, high and stable growth; 3) Livable places, sustainable environment; 4) International cooperation for development. Objectives and policies in the context of increasing the social and economic benefits of environment-friendly approaches, enhancing the quality of urban and rural life in a sustainable way, reducing disparities between regions, land and water resources management, and protection of the environment are placed under “Livable Places, Sustainable Environment� section of the Plan. In addition, the 10th NDP is comprised of 25 Primary Transformation Programs (PTP) in line with the Plan objectives. The aim of these programs is to lessen primary structural problems, contribute to the transformation process and enable coordination among institutions (MoD, 2014). Although an evaluation of the 17 SDGs that places them in four groups according to their apparent priority for Turkey puts SDG12 among those with the lowest score, this does not mean that Turkey is successful with regards to this goal. This reflects the fact that until ensuring sustainable economic growth and improving the wellbeing of the society, human resources decision makers continue to consider “environment� as a “luxury good� for the development agenda (Bayazıt and Önsal 2017). Nevertheless, looking at SDG 12 and the relevant policies within the 10th NDP, it can be concluded that policy objectives are considerably consistent between Goal 12 and the Plan. The Plan has placed much emphasis 50 on sustainable consumption and production patterns, and defines several targets to promote environmentally friendly practices in production and services such as renewable energy, eco-efficiency and cleaner production technologies. Further, the Plan underlines the need for improving financial sources for environmental investments, using these sources efficiently and supporting environmentally friendly methods and technologies. It is also aims to ensure green growth by exploiting the potential of environmentally friendly approaches in terms of new job opportunities, income sources, product and technology development in areas like energy, industry, agriculture, transport, construction, services and urbanization. In addition to these, PTPs for Reducing Import Dependency, Energy Efficiency, Domestic Resource Based Energy Production, Enhancing Efficiency of Water Use in Agriculture, Rationalization of Public Expenditures and Enhancing Productivity in Manufacturing have put forward several policies related to key themes of SCP and set some actions for the development of new financial mechanisms, particularly for the energy and agriculture sectors. To a lesser extent, Turkey’s Medium Term Program (MTP) covering the period from 2017-2019, includes some objectives to support environmentally friendly practices in the manufacturing industry and agriculture, that emphasize energy efficiency and underline the importance of green growth (MoD, 2016b). In the same way, several sector specific action plans and strategies highlight the importance of developing financing tools for SCP, but lacking a proposal of concrete actions. For example, the National Recycling Strategy and Action Plan mentions the desirability of economic measures such as subsidies for investment in recycling plants and criticizes the fact that there is no real requirement to use “environment cleaning� taxes for cleaning the environment, however it does not specifically propose any economic measures. In addition, the Industry Strategy Document repeatedly emphasizes respect for the environment and the sustainable use of resources, identifies the related weaknesses and opportunities in a SWOT analysis and specifies areas where training should be intensified, such as carbon trading, but falls short of proposing any specific economic measures. Similarly, the National Eco-Efficiency Programme for 2014-2017 prioritizes provision of financial instruments for industrial enterprises as one of the main axes of the Program in which food manufacturing, textiles, chemicals and chemical products, non-metallic mineral products, basic metals and motor vehicles, trailers and semi-trailers are listed as a priority manufacturing sub-sector based on their potential for eco-efficiency and cleaner production. However, the Program fails to introduce concrete actions on any financial instruments. Likewise, both the SME Strategy and Action Plan for 2015-2018, and the Productivity Strategy and Action Plan for 2015-2018, put forward some activities with regard to the promotion of industrial symbiosis and closing material loops without defining explicit economic measures. Over the past decade, Turkey has been rethinking how its power is generated and consumed. In spite of the current support provided to coal, combatting climate change through the development of clean energy and increasing energy efficiency are considered to be strategic benefits for Turkey, and efforts have been put towards developing economic measures to reduce GHG emissions and increase energy efficiency. For instance, the National Climate Change Action Plan (NCCAP) sets clear objectives for both the mitigation and adaptation aspects of climate change, and includes some economic measures. The Cross Cutting Issues Section of NCCAP refers to market based mechanisms as a means of achieving the purpose of “Optimum usage of emission trading mechanisms that contribute to cost effective limitation of greenhouse gas emissions,� (MoEU, 2012). Similarly, the Energy Efficiency Strategy Paper (EESP) includes specific actions for the establishment of a carbon market mechanism for the purpose of creating financing opportunities for GHG emission mitigation (MoENR, 51 2011). As another example, the İstanbul International Financial Center Strategy and Action Plan aims to establish the carbon market and commence the trading of carbon and GHG emissions. Finally, the National Energy Efficiency Action Plan (NEEAP), which is planned to be adopted in July 2017, is an important roadmap for Turkey to support sustainable energy development and to achieve the 2023 energy efficiency targets in the scope of the EU Accession negotiations. The NEEAP also aims to overcome barriers in the regulatory framework, and in the investment environment for energy and resource efficiency in Turkey. Table 6 summarizes policies related to the promotion and financing of SCP within the main plans, programs and strategies. Activities by civil society organizations may play a significant complementary role which contributes to achieving SCP objectives. Professional organizations can be important sources of information on sustainability issues and policies, although they are mostly concerned with topics specifically related to their occupational concerns. For example, although it is concerned with technical matters, the website of a network of environmental engineers occasionally covers topics related to economic policies and tools. 18 There are also consultancy firms specialized in environmental issues 19 or more precisely on the support provided by the state, and how to benefit from it.20 Petrol Sinai Derneği (PETDER) – society of petroleum industries has a sizeable part of its annual report for 2015 allocated to the management of waste oils.21 Apart from providing ideas, practical examples of SCP can be identified as social entrepreneurship. An interesting project, entitled “çöpmadam� (waste lady) looks for new uses for waste materials and addresses the issue of women’s unemployment as well as the importance of proper recycling and re-using of waste. A report on green entrepreneurship22 written with the technical support of Türkiye Teknoloji Geliştirme Vakfı (Technology Development Foundation of Turkey) reviews the ecosystem for developing green entrepreneurship and provides suggestions after analysing the situation in several sectors – energy, waste management, agriculture and animal husbandry, housing, electrical appliances, eco-tourism and environmental and energy consultancy. A support network for entrepreneurs, with an emphasis on sustainable development, is Endeavor Etkin Girişimci Destekleme Derneği, 23 which provides mentoring services to promising entrepreneurs fulfilling the requirements of the network. Within the Turquality program 24 support is provided for expenses incurred for various objectives, including for adaptating to environmental, quality, and health regulations. There are some civil society organizations25 active on the subject of sustainable consumption, working mostly on the provision of information including on consumer rights and 18 http://www.cevremuhendisleri.net/ 19 Such as www.cevredanismanlik.gen.tr 20 http://www.disticaretyonetimi.com/tesvikler-hibeler-ve-2015-yeni-ve-butun-devlet-tesvik-ve-hibe-egitimi 21 http://www.petder.org.tr/wp-content/uploads/2016/09/sektor-raporu2015.pdf 22 Ferda Ulutaş, Emrah Alkaya, Green Entrepreneurship in Turkey Regional Activity Centre for Cleaner Production Report, May 2012 http://www.ideaport.org.tr/uploads/read/file/green-entrepreneurship-in-turkey-23.pdf 23 http://endeavor.org.tr/endeavor-global 24 www.turquality.com 25 Tüketici veÇevre Eğitim Vakfı www.tukcev.org.tr, Sürdürülebilir Üretim ve Tüketim Derneği (SÜT-D) http://www.sut-d.org/ Çevre Kuruluşları Dayanışma Derneği www.cekud.org.tr 52 consciousness building on the environmental impact of consumption. Sürdürülebilir Kalkınma Derneği is a civil society organization of mainly big business has various issue based working groups; one of them is on sustainable consumption. 26 The March 2017 issue of Anahtar (Key), a journal of MoSIT is on sustainable consumption.27 26 http://www.skdturkiye.org/surdurulebilirtuketim-54 27 By Dr. Esna Betül BUĞDAY https://anahtar.sanayi.gov.tr/tr/Archive/2017/Mart 53 Table 6. Policies related to promotion and financing of SCP within the main plans, strategies, programs Theme Objectives/Targets on Promoting SCP Specific Objectives on Financing SCP 10th Development Plan  Practices such as recycling and recovery in the industry will be given importance. (para 665)  Through efficient solid waste management, waste reduction, separation at sources, collection, transportation, recycle and disposal stages will be improved as a whole in technical and financial aspects; raising awareness and improving institutional capacity will be assigned priority. Usage of recycled materials in production processes will be encouraged. (para 982) Waste & Recycling  Environmental sensitivity and life quality will be improved with practices such as waste and emission reductions, energy, No specific objective water and resource efficiency, recycling, prevention of noise and visual pollution, usage of environment friendly material in line with sustainable cities approach. (para 1034) PTP for Reducing Import Dependency  Taking health, environment and energy issues into consideration, efficiently increasing the economic benefits of recyclable/recoverable and collectable-separable wastes.  Supporting initiatives for scrap collection, separation and processing centers. PTP on Energy Efficiency  Disseminating electricity generation from waste heat in industry, creating market for waste heat energy sales, taking measures to encourage establishment of cogeneration and micro generation facilities to spread these applications. Medium-Term Programme (2017-2019)  Wastes, eligible for recycling and waste collecting/sorting will be considered within health, environment and energy perspectives, and be recovered for the economy. (para 110) Theme Objectives/Targets on Promoting SCP Specific Objectives on Financing SCP 10th Development Plan PTP on Energy Efficiency  A balanced resource diversification on the basis of primary  Developing sustainable financial mechanisms for financing of energy efficiency energy resources and differentiation of origin countries will be studies and projects. ensured, share of domestic and renewable energy resources in  Enabling and dissemination of financial incentives that are currently being 54 the production system will be raised to the maximum extent. implemented. (para 787)  Taking additional financial measures to encourage energy efficiency investments,  Energy Efficiency Strategy will be applied in an effective developing mechanisms to benefit from the financial opportunities in this field in a manner and efficient use of energy in all sectors will be particular discipline. ensured. Rehabilitation works of the thermal and hydro-electric  Improving the support mechanisms for SMEs on energy efficiency training, studies Climate & Energy power plants that are envisaged to remain at public ownership and consultancy services. will be completed; the ratio of loss and illegal use of electricity  Disseminating energy efficiency investments in public buildings by various financing will be reduced to the minimum level. (para 794) methods, including energy performance contract (EPS), borrowing a model that PTP on Domestic Resource Based Energy Production allows debt repayment with savings obtained after a project’s implementation.  Investing rapidly on the water potential that is not yet utilized to generate electricity when the projects meet the feasibility Medium-Term Program (2017-2019) and environmental criteria.  Tax policy will be an effective instrument in increasing production and employment,  Determining exact potential of wind, solar, biomass and reducing regional disparities, curbing current account deficits, attracting foreign geothermal resources for electricity generation, and in this investments, increasing energy efficiency and supporting R&D, innovation and regard, accelerating geothermal exploration activities. design. (para 141)  Monitoring and evaluation of investment realizations for increasing the electricity generation from non-hydraulic National Climate Change Strategy (2010-2023) renewable resources.  Existing financial resources available for mitigating and adapting to climate change  Mobilizing the current potential for utilization of biomass, will be reassessed, and efficient use of these resources shall be ensured in the light of geothermal and solar resources for primary energy supply. priorities.  Monitoring blending applications of bioethanol and biodiesel  Bilateral and multilateral international cooperation initiatives shall be developed in fuels with gasoline and diesel fuels in terms of food safety, order to benefit more from international funds. environmental impacts and development of capacity of  New funding resources will be explored in order to transfer and develop green facilities. practices, good agricultural practices and climate friendly technologies. PTP on Energy Efficiency  Greater access to the financial resources needed to carry out mitigation and adaptation  Gathering energy efficiency works in an administratively and activities shall be pursued. financially strong single body which is structured to perform  Necessary infrastructure will be established for voluntary domestic carbon markets, studies in horizontal sectors, and ensuring integration of which provide financial assistance for reduction of GHG emissions. The voluntary policies and implementations designed for different sectors. carbon markets will be established in a manner that stimulates technology transfer and  Establishing a mechanism for statistics, dissemination, and research and development activities. measurement-evaluation and monitoring in the energy  Transition to low carbon economy will be accelerated by ensuring support for efficiency field. technology renewal, emission control, climate-friendly technology production, clean  Replacing low efficient AC electric motors, which consume product design and cleaner production technologies. more than 70 percent of the electricity used in industry, with  GHG emission reduction and control and adaptation projects shall be prioritized in high-efficient ones. public investment programming.  Developing projects to benefit from the waste heat generated  Innovative and sustainable additional financing resources shall be created to support by existing coal-fired thermal power plants for local district the efforts for mitigating and adapting to climate change. heating and agricultural activities. 55 National Climate Change Action Plan (2011-2023) National Climate Change Action Plan (2011-2023)  Carrying out negotiations for Turkey’s participation in the new mechanisms in the  Identifying key sectors for the carbon markets, identifying the most advantageous way (as host country) after 2012, exploring opportunities for greenhouse gas emission reduction potential in these sectors. bilateral cooperation agreements with countries.  Making legislative arrangements to enable public institutions a  Developing the NAMA portfolio for Turkey that will be benefiting from carbon regulatory and supervisory role in the emission trading system. markets.  Developing the existing structure and building new structures to enable carbon assets to be traded with maximum economic value and have their values increased.  Beginning infrastructure development for the establishment of the National Emission Trading System.  Providing support to stakeholders necessary to identify, develop, market and manage carbon projects. Energy Efficiency Strategy Paper  Strategic Priority 07: To strengthen institutional capacities and collaborations, to increase use of state-of-the-art technology and awareness activities, and to develop financial mechanisms except for public financial institutions.  In the context of creating sustainable financing mechanisms for energy efficiency and renewable energy projects besides existing public support, activities for the establishment of carbon trading and carbon market infrastructure shall be completed within eighteen (18) months as of the publication date of the document. Theme Objectives/Targets on Promoting SCP Specific Objectives on Financing SCP 10th Development Plan 10th Development Plan  Within the scope of an environmentally-friendly and  Agricultural supports will be arranged according to the social purposes and production responsible tourism approach, sustainable tourism practices focus on the basis of agricultural basins and parcels. Furthermore, environment, plant, will be enhanced and the socio-cultural and environmental animal and human health will be taken into account on support policies and the drawbacks of tourism will be reduced. (para 877) effectiveness of supports will be assessed through monitoring. Compliance between  Value of natural resources and ecosystem services will be the crop pattern and water potential will be considered in designing agricultural calculated and will be considered in policy making and support programs, importance will be assigned to certified production methods. In implementation processes. (para 1037) addition, agricultural insurance schemes will be expanded by broadening their current  Practices towards improving environmental consciousness, scope (para 761) especially protection of nature and support of sustainable  Support instruments based on production and income will be developed for villages consumption, will be promoted. (para 1038) located in and around forests in particular, for those located in and around  Detection, protection, sustainable usage, development and preservation areas such as national parks and for those mountainous areas, aiming at monitoring of biodiversity that is important for agriculture, reducing development problems resulting from their disadvantageous locations. (para Sustainable Use of forest, food and pharmaceutical industry will be ensured. (para 1023) Natural Resources 1039)  Sustainable utilization of all of the national water potential according to requirements,  Measures will be taken to protect high quality agricultural and charging of its use on a tariff basis will be ensured. (para 1051) 56 lands and forest, particularly for special protected nature areas.  For sustainability of irrigation from groundwater resources, policy alternatives such as Desertification and erosion combatting efforts will be quantity restrictions and variable pricing will be developed. (para 1055) improved; preventive measures will be intensified after PTP for Enhancing Efficiency of Water Use in Agriculture monitoring the environmental and social impacts of  Considering regional water constraints and environmental protections in the design of agricultural activities on agricultural land resources. (para support policies. 1053)  Pricing of water considering regional constraints and enforcement of these prices. PTP for Enhancing Efficiency of Water Use in Agriculture  Monitoring water pollution caused by agricultural activities, assessment of the  Dissemination of water saving modern irrigation techniques in monitoring results and considering pollution prevention criteria in support provision. current and new construction of small irrigation systems. PTP for Rationalization of Public Expenditures  Accelerating land consolidation in irrigated areas and  Combining legislation and implementations related to agricultural supports and increasing effectiveness in water distribution. reorganizing these supports considering the needs of related sectors and parties which  Supporting development of drought resistant plant types. have interaction with these supports.  Enforcing new water saving policies in agriculture on basis of  Establishing a support system which ensures food safety, sustainable use of natural water basins. resources and the formation of an organized and highly competitive structure in the  Limiting and registering use of underground water in irrigation. agriculture sector.  Percentage of irrigated land on which water saving modern Medium-Term Program (2017-2019) irrigation techniques are used, among total irrigated land that  Allowances allocated for agriculture support will be reviewed with the objectives of are developed via DSİ investments, is targeted to increase from increasing efficiency and value-added, and hence necessary regulations will be 20% to 25% during the Plan period. Increasing percentage of introduced.(para 127) irrigation performed by DSİ from 62% to 68%, and irrigation  In public investments, including PPP projects, education, health, drinking water and efficiency from 42% to 50%, during the Plan period. wastewater, science-technology, transportation and irrigation sectors will be given  Increasing the water saving modern irrigation systems in use priority.(para 137) by 10% per annum.  Decreasing use of groundwater by 5% during the Plan period. Theme Objectives/Targets on Promoting SCP Specific Objectives on Financing SCP 10th Development Plan 10th Development Plan Resource efficiency/  In all sectors, especially in the energy and manufacturing  In order to support sustainable production and consumption, environment friendly Clean Production/ industries, R&D activities towards producing clean products will be encouraged for public procurement. (para 1036) Industry oriented technologies and green products with high value added Strategies enabling the efficient use of natural resources and prevention National Climate Change Strategy (2010-2023) of environmental degradation will be supported. (para 631)  Clean technology investments will be supported, taking into consideration the best  Environment friendly practices in production and services such practices of public-private sector partnerships. as renewable energy, eco-efficiency and cleaner production  Incentive mechanisms will be introduced to promote cleaner production, technologies will be supported and the developing and climate-friendly and innovative technologies, and effective operation of inspection branding of new environmentally friendly products will be and enforcement mechanisms will be ensured. encouraged. (para 1035)  Various incentive mechanisms shall be developed and implemented in order to ensure  Green growth opportunities on areas such as energy, industry, technology transfer. 57 agriculture, transportation, construction, services and  Innovative financing options and innovation capacity shall be developed, R&D urbanization will be evaluated, and new business areas, R&D activities for climate-friendly technologies will be promoted and cleaner production and innovation that provides environment sensitive economic technologies will be encouraged, taking into account our current technology and growth will be supported. (para 1041) development levels. PTP for Enhancing Productivity in Manufacturing  Ensuring more efficient usage of non-energy inputs in production processes. Medium-Term Program (2017-2019)  An industrial production structure transformation which is private sector-led, open, competitive, innovative, high value added, R&D based and environmentally-sensitive will be accelerated. To achieve this, qualified employment infrastructure will be created, entrepreneurial capacity will be strengthened, operability of commercialization and branding processes will be improved, health industry and value-added sectors in urbanization and urban renewal will be supported. (para 76)  Green growth will be supported by taking the opportunities regarding new business areas, revenue sources, product developments and technological advancements provided by environmentally friendly approaches. (para 109) 58 V. Areas for Improvement and Policy Recommendations As discussed in last chapter, as Turkey makes progress in promoting sustainable development and implementing MDGs and SDGs there are increasing policy applications for green financing. Results after reviewing Turkey’s green financing practices, including what has been included in national programs, do not show much divergence from the global trends presented in Chapter 3. However, tangible policies and measures remain insufficient and there is room for improvement. This chapter discusses areas for improvement and provides recommendations for developing a national framework and instruments for SDGs, particularly SDG 12. 5.1 Areas for Improvement National framework Before going to specific market-based instruments and their applications, there are, as discussed in previous chapters, areas of concern in the national policy framework for financing SCP in Turkey. Currently, no comprehensive framework or strategy has been developed for financial mechanisms to promote SCP. Green financing is not yet clearly and consistently defined and elaborated upon in existing national strategies, policies, and action plans. Moreover, neither the plans nor the strategies provide clear insights on economic incentives and financial tools to be developed for the successful implementation of SCP. They also fall short on analyzing the shortcomings and impacts of available instruments and defining new mechanisms. Consequently, it is not easy for investors, companies and banks to identify opportunities for green financing. This is particularly true around applying policy instruments to SCP. Therefore, it is necessary for Turkey to deepen its understanding of green financing mechanisms, including the roles of the public and private sector, financial intermediates, and instruments in this domain, adopt a policy framework and guidance and effectively mobilize and use both public and private SCP funding by implementing various economic instruments to incentivize stakeholders. At the sectoral level, Turkey’s on-going sectoral policies often lack synergy and sometimes contradict each other. One particular concern is a lack of coherence between different sectoral strategies and policies pursuing SCP. An example is the existence of financial assistance given to coal mining and favourable incentives provided for coal-fired power plants. Similarly, some sector-specific regulations and financial incentives related to tourism and mining may not be fully consistent with each other and so create adverse impacts on some areas with high natural value and undermine Turkey’s efforts in promoting environmental sustainability. The coherence between Turkey’s climate change policies and SCP deserves special attention. To be more specific, sustainable consumption and production can play a role in addressing climate change, and many climate change policies are, in fact, shaping sustainable production and consumption policies. Therefore, to implement SDG12 effectively, Turkey should seek synergy in adopting policies for SDG 12 and SDG 13 (climate actions). Experience learning and public-private platforms Turkey has been actively learning from other countries in sustainable development, especially 59 from the experience of EU and OECD countries. It also emphasizes private sector participation in the consumption and production area. At the national level, good examples exist of experience sharing and partnership through sustainable finance working groups or multi-stakeholder platforms organized by different players such as the World Business Council on Sustainable Development Turkey (known as SKD Turkey), Global Compact Turkey and the Banks Association of Turkey (TBB) as well as the Sustainability Platform chaired by Borsa İstanbul. However, the representation of working groups remains limited, particularly from the banking sector (SKD Turkey, 2014). It is crucial to create a national platform or coalition with the participation of high level government agencies and business champions as well as players from different segments of the finance sector (banks, investors, insurers) to discuss the existing barriers and gaps on green financing and to mobilize new financing opportunities and mechanisms for ensuring SCP. Green financing mechanisms can be further developed through PPP. Monitoring and evaluation Turkey has been one of the leading countries to implement MDGs and has been actively developing its sustainable development indicators systems and environmental and natural capital accounts. After the adoption of SDGs led by TurkStat, the country has formed working groups including one dedicated to the monitoring of SDGs, and developed the 2017-2021 Statistical Program, which features SDG indicators and a road map. According to the initial assessment of the work for SDGs indicators, quite a number of them lack available data or facing missing or incomplete data. A lot of work remains to be done by TurkStat and/or line ministries or agencies responsible for sectoral or thematic development issues in order to improve the data availability and complete the SDG indicators. Developing a set of green finance indicators, and improving data availability to monitor and evaluate their impacts, are equally important. For instance, in a recent report prepared by the G20 Green Finance Study Group (G20,2016), the G20 and country authorities highlighted the need for promoting an initiative to work on green finance indicators and to consider the economic and broader impacts of green finance for analysis. The Study also underlines the need to create a link between green finance data, which is still very variable and often lacks common metrics, and environmental data. A key component of quality evaluation of SDG implementation in terms of its outcomes and impacts is life-cycle analysis and the valuation of its full economic benefits and costs. Environmental externalities of production and consumption activities, and economic values and accounts of natural resources exploited and utilized, are rarely incorporated in the current evaluation practices, and should be taken into account as much as possible. Beyond the above issues, the next critical one is how to line up, prioritize and use different economic instruments – taxes, fees, credits, subsidies, and other innovative financing means – to finance sustainable development, particularly SCP. Despite some applications of these instruments, improvement of the efficacy of existing applications and the adoption of new and possibly more innovative instruments are necessary, and discussed below. Turkey’s policies towards achieving sustainable production and consumption patterns should, in principle, be aligned with those of the European Union as the country’s desire is to join the EU. Thus, development of economic instruments prevalent in the EU should be on Turkey’s 60 agenda. Although Turkey has made efforts to have its environmental legislation, including the regulations for environmental tariffs, fees, and charges, comply with the EU acquis, the effectiveness of its application of these instruments and enforcement of current regulations needs to be strengthened. Taxes, charges and fees As discussed previously, taxes and charges have a direct impact on production and consumption decisions and tax revenues can contribute to green financing if they are earmarked and used for that purpose. But this is seldom the case in Turkey. To design environmental taxes, polluter or user pays principles should first be adopted in order to shift the tax burden from “good� activities to “bad� ones such as emissions and provide the correct incentives. However, unlike many EU member states, Turkey has not started to effectively reform its taxes according to these principles, and little incentive is provided to producers and/or consumers to reduce waste generation and discharge. For example, taxes on fuel, despite contributing to improving efficiency to some extent, may not have efficiency as their main purpose. Furthermore, the requisite scientific and institutional framework does not exist for a more targeted use of efficiency as a goal in the fiscal system. EU and other international experience could be useful for guiding Turkey in introducing environmental sustainability concerns into the tax system and adopting effective policy instruments for SCP. Environment-related taxes such as energy taxes and motor vehicle taxes are commonly used in Turkey. As shown in Figure 5 of Chapter 3, their revenue, as a proportion of GDP, is strikingly higher than all other countries. Although increasing these taxes is generally proposed on the basis of environmental management, the high revenue implies that these taxes in Turkey are revenue-oriented and would be less desirable on the grounds of equity and efficacy. It can be argued that the use of revenues from such indirect taxes should be aligned with SCP objectives or these taxes should be reduced in favour of direct taxation on emissions. Natural resource taxes, charges or prices in Turkey have room for improvement too. Water tax and/or water pricing is a critical issue for Turkey, given its increasing population and demand for water as well as water resources’ vulnerability to climate change. In addition, the quality of surface and groundwater resources is becoming an important concern for Turkey as many of its river systems are facing water pollution problems, particularly river basins located in the western part of the country, due to intensive industrial activities, high urban population and non-point pollution caused by agricultural production. It may not be easy, however, to take far reaching actions owing to social and economic considerations (Bayazıt and Önsal 2017). Following the EU Water Framework Directive, Turkey needs to implement cost recovery and polluter/user pays principles in pricing mechanisms to adopt an effective water pricing or taxation system and set the right price in order to protect its water resources and improve the efficiency of agricultural, industrial and domestic uses of water. The same cost-recovery and polluter-pay principles should be applied to charges, pollution levies, landfill tipping fees, and disposal charges of hazardous and other solid wastes. It is important that the incidence of the cost caused by the charges falls upon the part of the processing chain where the environmental harm that is sought to be mitigated is created. As applied in many developed countries, these instruments should generate enough incentive 61 for polluters to reduce pollution emissions and stop water bodies from becoming severely polluted. Therefore, Turkey should strengthen the enforcement of these instruments and install additional efforts to assess and improve the effectiveness of current effluent charges with regards to incentivization, affordability, and cost recovery. For solid waste management, pay as you throw schemes and volume-based fees or charges should be gradually introduced in order to create an explicit incentive for waste recycling. Tradable waste permits and modern waste management systems, as in the UK and other developed countries, should gradually be introduced as the level of public awareness and participation increases. Legislation regarding the use of recycled material should be reviewed in the light of EU practices. In Turkey, the informal sector in waste collection and recycling needs to be carefully taken into account. Subsidies, credits and other forms of financial support Subsidies, support schemes, and favorable credits have been used quite extensively in Turkey. They may be a positive factor from an SCP perspective, for instance in promoting energy efficiency and developing renewable energy, and thus function as a source of green financing, or vice versa, generating effects harmful to SCP. Subsidies, tax exemption, favourable credits and other support measures provided to activities undesirable from a sustainability point of view will certainly create wrong incentives and worsen market failures. One area where worldwide trends and the Turkish government’s priorities clash strongly is in the use of coal, particularly low quality domestic coal, and the associated economic policy instruments. About 80 per cent of Turkey’s energy is based on imports, including nearly all of its oil and gas, which represents a significant financial burden at around 60% of the foreign trade deficit (IEA, 2016). Reducing import dependency and improving energy security are urgent, and have been reflected as a main national strategic objective. As discussed in Chapter 4, support to domestic coal mining in Turkey includes tax exemptions and low interest credits for prospecting and also for low-quality highly polluting coal. In the short and medium term, phasing out these subsidies and reforming the incentive mechanism seems a challenge in Turkey politically, given its drive for reducing its reliance on imported energy and the considerable amount of jobs created around the coal industry. Turkey may eventually face increased environmental and health costs due to the high negative impacts and externalities associated with coal production and use. To build a sustainable energy and climate future for the country, coal subsidies should be scrutinized within the perspective of phasing out of harmful subsidies in parallel with the increasing use of renewable energy. As in many countries, the banks are the principal conduit for green finance to activities particularly in support of SCP. Considerable funds can be generated through the capital and equity markets and potential funding can be forthcoming from investment funds, pension funds and venture capital. In Turkey, private banks provide favorable financial supports to industries to produce energy efficient products or to improve their energy utilization, both energy efficiency and renewable energy. As introduced earlier, improving energy efficiency, particularly in SMEs, is already a key priority for the GoT, as its benefits and huge potential are already recognized. However, some market barriers exist for scaling up financing for energy efficiency investments, particularly in SMEs, such as limited experience of Turkish banks in assessing energy efficiency 62 opportunities and project benefits; high transaction costs for small energy efficiency investments; financing constraints due to high collateral requirements; and limited institutional capacity to identify and prepare bankable energy efficiency projects (World Bank, 2013). To this end, overcoming these barriers with necessary incentive adjustments and collective efforts to increase institutional capacities is critical to make energy efficiency investments favorable for SMEs. Favourable credit terms through the banking system are also useful practices in this regard. The government should use its national development programs to scale up and mainstream financial support for energy efficiency. Specific indications about financing mechanisms for SMEs and economic instruments in general, rather than simple intentions and exhortations, should be included in national programs and strategies. The effectiveness of support to SMEs, including soft-loan schemes, grants, and improved access to financial markets, should be analyzed and improved. On renewable energy production and consumption, well targeted support could reduce the relative attractiveness of coal and contribute to improving sustainability. So far there is a significant dominance of hydroelectricity generation among the renewables in Turkey. Moreover, due to poor implementation of environmental regulations, hydropower development in Turkey is often accompanied by undesirable environmental impacts, and has resulted in irreversible loss of high value natural areas and river ecosystems. Therefore, government policies supporting renewable energy, especially financial tools, should lean more toward “sustainable� hydropower development and the utilization of non-hydraulic resources. On the consumption side, as mentioned in the previous chapter, although GoT has put remarkable efforts into transforming the market towards energy efficient products, particularly in home appliances, through harmonizing related EU Directives and public awareness raising programs, yet, there is no tax advantages provided to consumers to incentivize them to buy energy efficient appliances. Nevertheless, the country can do better and more by improving its regulatory and financial instruments. In that regard, tax policy, regulatory instruments, incentives and subsidies should be reviewed, and revisions should be put in place, to achieve a market transformation towards not only energy-efficient appliances but also other environmentally preferable and cleaner products and for the reduction of waste. The provision of credits on favourable terms for investments and activities benefitting the environment is quite prevalent in Turkey. Funds from international, multilateral and bilateral resources contribute effectively to these arrangements through partnerships with local banks. A call can be made to extend both the volume and coverage of such partnerships which, in effect, are also supplying global public goods. Embedding sustainable banking principles in the financial sector will help improve the capacity of banks in Turkey to deal with investment projects with better environmental sustainability performance. Apart from programs such as TurSeff and MidSeff, some private banks provide favourable credit and loans with exemptions from certain taxes and such charges as the tax on bank and insurance transactions, as well as delays in repayment and low rates for green housing, organic agriculture, water-saving irrigation systems, hybrid cars, energy efficiency. Still, there is considerable scope to expand the coverage and scale of favourable credits and make them more effective. Potential new instruments 63 While taxes and subsidies remain the main instruments, a new generation of innovative market based tools such as green bonds are emerging as a means for financing sustainable production in Turkey. As mentioned in Chapter 4, Türkiye Sınai Kalkınma Bankası (TSKB) issued Turkey’s first green bonds. Yet, the main concern around green bonds, in Turkey and elsewhere, is the lack of standards or definitions – a grey area that allows for some flexibility, but also the potential for exploitation. The danger is that this tool might be abused, especially around “complementary� tax exemptions. So, in order to prevent “greenwashing� and develop a credible green bond market, some form of standardization is required for green bond definitions and requirements. Globally, the most widely accepted standards are the Green Bond Principles of International Capital Market Association (ICMA), and the Climate Bonds Initiative’s (CBI) standards. Adapting and diligently applying such universal frameworks and standards would help boost market confidence and create the pipeline for green bond deals to flow – both in Turkey and globally. In terms of adopting new financing instruments for better implementing SCP, Turkey should analyze international experiences in the light of its national circumstances and expand the range of policy applications. As implemented in other countries, payments for environmental services (PES) can be a promising avenue for companies to account voluntarily or otherwise, for the total costs of their activities. For example, New York City ensured its supply of clean drinking water by paying landowners to protect land surrounding a watershed. In the process, the city avoided building costly drinking water treatment plants and additional infrastructure to meet water quality standards. The city has committed approximately $1.5 billion (averaging $167 million per year) to protect the ecosystem, whereas a new water filtration plant would have cost at least $6 billion to build and another $250 million per year to maintain (WRI 2011). As this is an area which is almost unknown in Turkey, it could be useful to share successful international examples with Turkish policy makers and businesses and look for pilot projects. Projects relevant to sustainability are undertaken within corporate social responsibility (CSR) programs, such as banks planting a tree for each loan given, or turning over some of the award points gained on credit cards to an environmental organization. These are laudable initiatives and should be supported, but they cannot be a substitute for internalizing environmental costs or payments for unaccounted environmental services. It would be useful to create a list of environmental services that may merit compensation, such as preservation of wetlands or specific natural resources. Environmentally conscious firms can then make payments to maintain these services and compensate, at least indirectly, for the environmental costs they generate. There is a need, however, to identify, quantify and monetize the environmental services to be paid for and the harm for which the compensation will be made. Considerable work is called for in Turkey in this regard. The use of performance bonds, which can provide an important contribution to the rehabilitation of degraded lands caused by mining operations and various other environmental destruction examples, should be considered and the necessary administrative and legal infrastructure. While Turkey seems fairly advanced in using international voluntary carbon markets, establishment of a domestic carbon pricing instrument or market is much more demanding and its development requires a systematic longer term effort. As mentioned in Chapter 4, in 2011, Turkey adopted a National Climate Change Action Plan setting clear objectives for mitigation and adaptation activities, and specifically identifies market-based as a key tool to mitigate carbon emissions. In April 2012, Turkey adopted a Measurement, Reporting and Verification (MRV) Regulation modelled after the MRV framework of the EU ETS. The 64 regulation mandates about 800 installations, or roughly 50 percent of Turkey’s annual GHG emissions. The PMR Project provides critical support to this process through 1) piloting the implementation of the MRV regulation in key sectors; 2) a series of analytical and modelling studies to explore market-based options, including a domestic ETS and other instruments, leading to a policy options report for the consideration of the Government; and 3) extensive stakeholder engagement to raise public awareness, provides training, and builds knowledge and capacity within the government and private sector. The outcomes of the World Bank supported PMR Project will provide useful insights which should be taken into account in the future and build necessary analytical and technical capacities. The policy recommendation emerging from the PMR Projects should be operationalized. Learning from the systems mentioned in Chapter 3 that are working successfully would also help. A good technical basis for tradable permits will also contribute to expanding the market. The PMR Project would also help analyse possible carbon quota allocation methods which would be the basis of the carbon price, how the allocation will be managed, and how the price will be determined. Keeping sectoral divergences in mind, and ensuring company participation, are necessary for the system’s success. It is also important that the participating firms have MRV experience gained through the implementation of the MRV regulation. As the situation differs in each country, some instruments which are currently used in other nations may be less relevant for Turkey: for example, debt for nature swaps because Turkey is neither a big debtor nor a big creditor. However, new instruments may be worth investigating for future consideration. 5.2 Policy Recommendations As pointed out above, supporting SCP requires mobilizing financial resources from both the public and private sectors, developing and implementing effective economic instruments, ensuring policy coherence between different sectors, renouncing the policies that are causing serious environmental impacts, and eliminating the underlying factors causing unsustainable consumption and production behavior. The following is a set of recommendations the Turkish Government should consider in its endeavor to support and implement SDG 12. 1. Developing a National SCP Program. Turkey should initiate a process of developing a National SCP Program. Such a program should provide a long-term vision for financing and implementing SDG 12, specify the roles of the public and private sector, identify priority areas and actions, and install a comprehensive set of economic and financial policy instruments with predictable, consistent, and reliable results. The development of the national SCP program requires stock-taking and analysis of the existing policy instruments, gaps, and future needs in the sectors strongly relevant to resource utilization and pollution management related to SCP, and quantification of the demand for public and private investments needed to achieve SDG12 targets. The government then needs to quantify the investment gaps, assess implementation challenges and risks, and develop a roadmap or action plan for financing and implementing SCP. 2. Improving coherence and integration of sectoral policies for SCP. It is necessary that Turkey carry out in-depth analysis to better understand the relationships – 65 including tensions and possible contradictions – among sectoral policies and identifies and scrutinizes the inconsistencies between different strategies, policies, and action plans. In that respect, Turkey should conduct a comprehensive review of its SCP-related sectoral, macro-economic and fiscal policy portfolio; assess economic and environmental impacts of the policies, and understand how macro-economic, sectoral policies and fiscal policies in non-environmental domains shape up and influence the patterns of consumption and production. Furthermore, implementing SDG 12 requires strong coordination among various ministries, and more integrated management of information systems, databases and the analytical base. These will eventually help identify, eliminate or revise conflicting policy objectives and mainstream SCP goals and macro-economic, fiscal, and sectoral development strategies, policies and programs. 3. Seeking synergy between economic instruments and the policy response to climate change. Given the link between climate change and SCP, Turkey should reconsider its national climate change policies to foster the effective implementation of SDG12. To this end, setting up an ambitious quantitative GHG emissions reduction target and developing a mechanism for the monitoring and tracking of progress with adequate allocation of financial resources and provision of necessary economic instruments is vital. On the way to developing and implementing such a policy framework, existing economic instruments should be reviewed, particularly in the energy and industrial sectors with the largest share of GHG emissions. Further, existing barriers and bottlenecks in the field of renewable energy and energy efficiency should be carefully analyzed, and favorable incentives should be provided to expand those investments. 4. Sharing experience and learning through strengthened international cooperation and public-private dialogue and partnership. Turkey should continue to learn from developed counties that have a longer history of installing and using green financing mechanisms and have accumulated knowledge and experience in green financing for SCP. Public-private partnership (PPP) is critical to SCP. Turkey should develop a national dialogue on green financing and strengthen and expand the PPP in terms of knowledge sharing and learning and the implementation of SCP practices. A national platform for the dialogue and participation of the public and private sector could be useful to exchange and learn from experiences and build the capacity of players involved. PPP in the banking sector and capital markets would be one step for Turkey to finance SDG 12. 5. Monitoring and evaluating SCP financing. Monitoring and evaluation are important to the success of SDG financing and implementation. Turkey should continue to develop and consolidate its SDG indicators. A set of SCP-specific indicators covering resource utilization and environmental management should be adopted and monitored on an annual basis. Development and verification of SCP-related information and data should be strengthened. Natural capital accounts should be further developed and adopted as a monitoring and evaluating tool to support decision making on SCP activities. Meanwhile, assessing the value of ecosystem services and incorporating it into the SCP process would help investors, producers and consumers make environmentally sound choices in their SCP activities, and ensure the long-term sustainability of SCP resource use. 66 6. Setting the right incentives by adopting appropriate economic instruments. In the context of SCP, Turkey should improve the design and application of environment-related economic measures and MBIs in order to bring about enough incentives and necessary behavioral changes to consumers and producers. In this context, Turkey should carefully analyze the economic, social and environmental impacts (externalities) of existing coal subsidies. From a purely economic point of view, increasing the use of domestic coal is an option for reducing dependence on imported carbon fuels, but the environmental impacts call for a serious consideration of the eventual phasing out of these subsidies. 7. Introducing innovative instruments for supporting SCP. Beyond traditional MBIs, international experience as well as some experiments in Turkey have demonstrated a range of new and innovative instruments that can support the effective implementation of SDG12, such as green loans, green bonds, green infrastructure funds, carbon market, tradable permits, PES, and debt for nature swap. Turkey should continue to study and experiment with them within its country context and find the best situation for introducing them. In addition, voluntary-based measures for green finance also deserve special attention. Together with international organizations and private sector initiatives, Turkey should explore ways to put voluntary-based programs in place to spur producers and consumers to improve their daily practices towards SCP. Furthermore, Turkey needs to consider deepening the role of the financial sector in financing SCP-related activities. The government should seek ways, including legislation, to induce the players of the financial sector, such as capital markets and equity markets as well as pension funds and the insurance sector, to provide finance, especially long term finance, to SCP projects. The government should also take measures to facilitate the flow of information from innovative projects to investors. 8. Investing in public education to support SCP. Environmentally-friendly products and services require the availability of new skills for their production and maintenance, meaning that new business models would be high on the agenda, with new specialists to implement SCP. To this end, Turkey should develop its SCP policies hand-in-hand with technical and vocational education policies to train new specialists who have knowledge on cleaner, resource-efficient and low-carbon production technologies and the capacity to implement sustainable production methods in different sectors. Similarly, on the consumption side, it’s critical to understand that individuals have the power to shape the market by being aware of the amount of resources used in the production processes and turning to more sustainable alternatives. For this reason, Turkey should develop a mechanism for the promotion of sustainable lifestyles and support sustainable consumption choices through public education. Successful design and implementation of policies and measures specifically in support of SCP also require people trained in areas related to sustainability issues. 67 VI. Concluding Remarks Turkey is committed to implementing SDGs. Regarding sustainable production and consumption as specified under SDG 12, both consumers and producers are increasingly more aware. There are policies and instruments in various national and sectoral strategies or programs which relate to SCP. 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Ensure sustainable consumption and production patterns Targets Indicators 12.1 Implement the 10-Year Framework of 12.1.1 Number of countries with sustainable Programmes on Sustainable Consumption consumption and production (SCP) national action and Production Patterns, all countries plans or SCP mainstreamed as a priority or a target taking action, with developed countries into national policies taking the lead, taking into account the development and capabilities of developing countries 12.2 By 2030, achieve the sustainable 12.2.1 Material footprint, material footprint per management and efficient use of natural capita, and material footprint per GDP resources 12.2.2 Domestic material consumption, domestic material consumption per capita, and domestic material consumption per GDP 12.3 By 2030, halve per capita global food 12.3.1 Global food loss index waste at the retail and consumer levels and reduce food losses along production and supply chains, including post-harvest losses 12.4 By 2020, achieve the environmentally 12.4.1 Number of parties to international sound management of chemicals and all multilateral environmental agreements on wastes throughout their life cycle, in hazardous waste, and other chemicals that meet accordance with agreed international their commitments and obligations in transmitting frameworks, and significantly reduce their information as required by each relevant release to air, water and soil in order to agreement minimize their adverse impacts on human 12.4.2 Hazardous waste generated per capita and health and the environment proportion of hazardous waste treated, by type of treatment 12.5 By 2030, substantially reduce waste 12.5.1 National recycling rate, tons of material generation through prevention, reduction, recycled recycling and reuse 12.6 Encourage companies, especially 12.6.1 Number of companies publishing large and transnational companies, to sustainability reports adopt sustainable practices and to integrate sustainability information into their reporting cycle 12.7 Promote public procurement practices 12.7.1 Number of countries implementing that are sustainable, in accordance with sustainable public procurement policies and action national policies and priorities plans 12.8 By 2030, ensure that people 12.8.1 Extent to which (i) global citizenship everywhere have the relevant information education and (ii) education for sustainable and awareness for sustainable development development (including climate change education) and lifestyles in harmony with nature are mainstreamed in (a) national education policies; (b) curricula; (c) teacher education; and (d) student assessment 76 12.a Support developing countries to 12.a.1 Amount of support to developing countries strengthen their scientific and on research and development for sustainable technological capacity to move towards consumption and production and environmentally more sustainable patterns of consumption sound technologies and production 12.b Develop and implement tools to 12.b.1 Number of sustainable tourism strategies or monitor sustainable development impacts policies and implemented action plans with agreed for sustainable tourism that creates jobs monitoring and evaluation tools and promotes local culture and products 12.c Rationalize inefficient fossil-fuel 12.c.1 Amount of fossil-fuel subsidies per unit of subsidies that encourage wasteful GDP (production and consumption) and as a consumption by removing market proportion of total national expenditure on fossil distortions, in accordance with national fuels circumstances, including by restructuring taxation and phasing out those harmful subsidies, where they exist, to reflect their environmental impacts, taking fully into account the specific needs and conditions of developing countries and minimizing the possible adverse impacts on their development in a manner that protects the poor and the affected communities 77 Annex 2. An Overview of Financial Vehicles for Green Investing Source: EDHEC (2010) 78