Macroeconomic Impacts of Net Zero Pathway for Turkey

In this paper we are analyzing the impacts of reaching to net zero by 2053 on Turkey’s economy. We use a CGE model that is calibrated to 2018 Social Accounting Matrix of Turkey. Our scenarios incorporate the results of sectoral analysis from Turkey Country Climate and Development Reports published by the World Bank (2022). We take the results of land use change, energy, transport, and buildings sectors and translate them into shocks in the CGE model. Our results suggest that high levels of electrification of buildings and transport are likely to pose challenges for the net zero pathway of Turkey, although the energy efficiency gains thanks to the mitigation policies are likely to compensate the adverse effects of increasing electricity prices in the short to medium term. Hence Turkey needs to revise the energy sector policies to increase the production capacity of renewables further to ease the transition to a net zero economy. Mitigation policies are progressive in the sense that they do not harm poorer households as much as richer households but still the lower income groups would need to be compensated especially in the early years of the transition. Increase in government revenues thanks to a carbon tax and removing subsidies on fossil fuels would create enough fiscal space for social protection programs required for a just transition. Last, a well-managed transition to a net zero economy offers significant growth benefits for Turkey.