Reducing greenhouse gas emissions is essential in order to keep global warming at normal levels. Countries including Türkiye that account for almost all of the global greenhouse gas emissions have set net zero emissions targets for the mid-21st century. However, achieving these targets without developing new emissions mitigation tools seems difficult. Therefore, the most rational solution is to develop a greenhouse gas emissions reduction strategy based on carbon pricing. The aim of this study is to reveal the most effective and efficient greenhouse gas emissions reduction strategy for Türkiye. To achieve this, the article first evaluates Türkiye’s national emissions targets and the likelihood of achieving them. Next, the study evaluates carbon pricing options and discusses the most suitable option for Türkiye. The study then lists other reduction tools that will increase the public acceptability of carbon pricing and contribute to Türkiye’s emissions mitigation policy. The most popular of these is a tax or credit (bonuses) system. Adding regulations to tax laws (taxing the bad or bonusing the good) will encourage all behavioral efforts at reducing carbon emissions. The study’s conclusion section makes a general evaluation and develops concrete suggestions for Türkiye.

Although per capita carbon emissions in Türkiye are below the Organization for Economic Co-operation and Development (OECD) average, Türkiye continues to be one of the countries with the largest source of emissions in absolute terms. Türkiye currently ranks 18th in terms of countries that emit the most emissions in the world. According to its updated nationally determined contributions (NDCs), Türkiye has committed itself to reducing greenhouse gas emissions by 41% of the reference levels in 2030. However, the International Monetary Fund’s (IMF) predictions are that this updated ambitious target will be difficult to achieve. In this case, Türkiye needs to adopt a number of new measures in addition to existing emissions mitigation tools. The most appropriate approach for this is to switch to carbon pricing. Carbon pricing is considered the most rational emissions reduction tool in terms of environmental effectiveness and economic efficiency. Carbon pricing continues to be an important source of income that countries can allocate for general purposes. Despite high inflation, financial pressures, and energy crises around the world, pricing revenues have reached a record level of $95 billion US dollars. Even in these difficult economic times, countries appear to be prioritizing carbon pricing policies to reduce emissions (especially high-income countries). This is a very remarkable source of income for countries such as Türkiye, whose informal economy is quite high (30% on average). Carbon pricing also has a number of important external benefits, including reducing deaths from local air pollution and reducing traffic congestion and accidents. In Türkiye, which has an exposure rate to local air pollution of 99.9%, carbon pricing will greatly contribute to the reduction of deaths caused by local air pollution.

Carbon pricing must meet four key criteria. A carbon price must first cover all emissions sources. Secondly, the income generated should be used prudently. Thirdly, pricing should be scaled according to the damage caused to the environment. Fourthly, having pricing be stable/predictable is extremely important. A carbon tax naturally meets most of these basic criteria. However, the main problem in carbon tax implementation is that tax rates can be set very low due to various concerns. Additionally, the rates of carbon taxes are generally fixed and do not change suddenly. However, significant reforms were made in carbon tax rates, especially in 2018. In this context, some countries have started to develop variable tariffs that adjust the rate of carbon tax according to emissions targets. The Emissions Trading System (ETS) poses a more serious problem in terms of pricing. For example, ETS prices in the European Union (EU), the world’s largest carbon market, fluctuated significantly between 2006-2013. Such price volatility puts clean or renewable energy (REN) technology investments at risk. The most effective solution for this is to include price stabilization mechanisms in ETS prices, such as applying a price floor or ceiling.

A carbon tax is a more suitable option for Türkiye. A carbon tax that would also cover other fossil fuels would be easy to incorporate and implement into the existing fuel tax system. A fuel tax has been applied in Türkiye for years, and the legal infrastructure for the carbon tax already exists. Therefore, no need exists for any separate carbon tax administration. Carbon pricing in Türkiye would also reduce the extent to which Türkiye’s emissions-intensive trade-exposed industries (EITEs) are affected by the EU Carbon Border Adjustment Mechanism (CBAM). The fact that the EU, which accounts for 34% of Türkiye’s imports and 42% of its exports, will begin to impose a carbon tax on its border will affect Türkiye in the long term. The most appropriate solution to reduce this negative impact is the introduction of an equivalent border regulation mechanism. Türkiye should introduce a Carbon Border Adjustment Mechanism (CBAM) similar to the EU’s. Although administratively simpler, other solutions involve more legal difficulties and, above all, give up all revenue.

For carbon pricing to be successful, it must be supported by other emissions mitigation tools. Although these tools are not as effective as carbon pricing, they may be more publicly accepted because they are not reflected in energy prices. The share of renewable energy (REN) in Türkiye’s energy production is still low. Significant incentives are given to coal, which is one of the largest emissions sources. In order for Türkiye to achieve its net zero emissions target, the subsidies given to coal production must be gradually reduced, and renewable energy (REN) production must be further encouraged. Türkiye still uses a very low percentage of its solar and wind potential. In addition, the high percentage of hydro energy makes Türkiye very sensitive to energy risks. Although Türkiye’s most ideal solution for achieving its goals in the energy sector is carbon pricing, when considering the likelihood that this will be socially unacceptable, another alternative solution is to include bonuses in the energy tax system that will reduce emissions rates without increasing energy prices. 

Additional measures are needed to reduce the emissions from transportation vehicles in Türkiye. Special excise taxes, which include the main tax applied to new vehicle purchases in Türkiye, partially encourage the purchase of electric and hybrid vehicles. Despite this, the prices for low-emissions electric and hybrid vehicles are still higher than internal combustion engine vehicles. On the other hand, the annual use tax (motor vehicle tax), which is the second tax applied to vehicles, creates an incentive for the long-term use of older vehicles with higher emissions. A vehicle purchase tax system in which motor vehicle purchasing decisions are based on carbon emissions has not been implemented in Türkiye. In contrast, some of the Group of Twenty (G20) countries and EU countries have rearranged their motor vehicle purchase tax systems according to emissions. The most appropriate solution for Türkiye is to develop a similar emissions-based taxation system. Another effective solution is to charge a congestion fee during rush hour traffic. This will also provide important external benefits, such as reducing traffic accidents caused by congestion, shortening vehicle driving distances and reducing demand. Emissions from air transportation are also increasing rapidly in Türkiye. The most effective solution for this is a national aviation tax. Türkiye has an important goal of decarbonizing all new buildings by 2030 and all existing buildings by 2050. However, building renovations often encounter certain obstacles. In this case, the best solution for increasing building renewal rates is to include a bonuses system in the property tax law based on buildings’ energy performance. In the face of the inadequacy of global efforts at reducing carbon emissions, reducing methane emissions in the short term has become more important. One of the most effective solutions for this is methane taxation. Such a tax can also be implemented in the mining, agriculture and forestry, and waste sectors, which are the main sources of methane emissions. In Türkiye, a solid waste tax (per garbage bag) based on the waste in buildings will both encourage recycling and reduce methane emissions in landfills. Fuel taxes in Türkiye are not designed to take emissions into account. The basic principle in fuel taxes should be that tax rates must be determined to reflect environmental damage. Fuel prices in Türkiye are quite high on a global scale due to its very high special consumption taxes. However, because the tax focuses only on certain types of road fuel, it serves the purpose of generating revenue rather than reducing emissions. Türkiye still has a 98% dependence on oil for vehicle fuel. In this case, the most appropriate solution would be to switch to a system based on carbon pricing when taxing vehicle fuels.

As a result, Türkiye has yet to have a carbon pricing policy. The carbon trading mechanism (ETS) is permitted by the Environmental Law. The Draft Law on Climate Change states that an ETS will be established. However, a carbon tax is a more suitable option for Türkiye. A national carbon tax, starting from the average price envisaged by the Paris Agreement and gradually rising to emissions targets, would align Türkiye’s medium- and long-term emissions targets. The predictions of the World Bank (WB) and IMF are also in line with this. Because the infrastructure already exists for the carbon tax, implementing it will not create a completely new obligation or additional burden. The carbon tax could cover all sources of pollution (especially road transport, which is a major source of emissions) and thus be more effective in combating emissions. Meanwhile, ETS is much more costly in administrative terms and generally covers large emitters. Still, its most attractive aspect is that it provides certainty in reaching emissions targets. For this purpose, ETS can be applied in the energy and industry sectors, and the carbon tax can be applied in the building and transportation sectors using a mixed system. Such a situation would require the harmonization of permits and trading/tax rate levels. Revenue from carbon pricing should be used primarily for reducing employment taxes and targeted subsidies for low-income households. Part of the revenue can also be allocated to promote renewable energy (REN) resources. With carbon pricing, carbon adjustment at the border will be required to maintain the competitiveness of Türkiye’s EITE industries. In order to increase the social acceptance of carbon pricing, it must be supported by other mitigation measures. Because carbon pricing will raise the prices of fossil fuels, it probably needs to be supported by other mitigation tools that have much higher public acceptance. What stands out among these is an emission-based tax and subsidy system. This can be implemented in almost all sectors. This system, which imposes additional taxes on emissions that occur above the average emissions rates and which provides tax reductions or subsidies for emissions that are below the average emissions rates, needs to be integrated into existing tax laws.