Technical Assistance for Developed Analytical Basis for ...Inventories and ETS Registries (2015)..... 21 Figure 20. Sectoral Emissions for EU ETS Sectors in Turkey (2015) ..... 22

i

National Programme for Turkey 2013 –

Instrument for Pre-Accession Assistance

Technical Assistance for

Developed Analytical Basis for Formulating

Strategies and Actions towards

Low Carbon Development

Project Identification No:EuropeAid/136032/IH/SER/TR

Contract No: TR2013/0327.05.01-01/001

Activity 2.1 EU Emission Trading System Directive

Preliminary Regulatory Impact Assessment (Pre-RIA)

Ankara 2018

ii

Project Title: Technical Assistance for Developed Analytical Basis for Formulating Strategies and Actions

Towards Low Carbon Development

Service Contract No: TR2013/0327.05.01-01/001

Project ID No: EuropeAid/136032/IH/SER/TR

Project Value: € 3,865,010.00

Commencement Date: 29 May 2017

End Date / Duration: 29 May 2020 / 36 Months

Contracting Authority: Central Finance and Contracts Unit (CFCU), Ankara, Turkey

Contract Manager: Hacer BİLGE

Address: T.C. Başbakanlık Hazine Müsteşarlığı, E-Blok No:36 İnönü Bulvarı 06510 Emek/Ankara / TURKEY

Telephone: + 90 312 295 49 00

Fax: + 90 312286 70 72

E-mail: [email protected]

Beneficiary: Ministry of Environment and Urbanization Turkey

Address: Mustafa Kemal Mahallesi Eskişehir Devlet Yolu (Dumlupınar Bulvarı) 9. km. No: 278 Çankaya / Ankara

Telephone: + 90 312 410 10 00

Fax: + 90 312 474 03 35

Consultant: Hulla & Co Human Dynamics KG

Project Director: Rade Glomazic

Address: Kralja Milana 34, 1st Floor, 11000 Belgrade, Serbia

Telephone: + 381 11 785 06 30

Fax: + 381 11 264 30 99

E-mail: [email protected]

Project Team Leader: Mykola Raptsun

Address (Project Office): Mustafa Kemal Mahallesi, 2138. Sokak, No:5/3, Çankaya/Ankara

Telephone/Fax: +90 312 219 41 08

E-mail: [email protected]

This document has been produced with the financial assistance of the European Union and the Republic of Turkey.

Disclaimer: The contents of this publication are the sole responsibility of the Consortium led by Hulla & Co Human Dynamics KG and

can in no way to be taken to reflect the views of the European Union nor the Republic of Turkey.

iii

Table of Contents

Table of Contents ....................................................................................................... iii

List of Figures ............................................................................................................. iv

List of Tables .............................................................................................................. vi

List of Maps ............................................................................................................... vii

Abbreviations ........................................................................................................... viii

1. INTRODUCTION ................................................................................................. 1

1.1. Policy Framework ................................................................................................... 2

1.2. Scope and Objectives ............................................................................................. 6

1.3. The EU ETS Experience ......................................................................................... 9

2. OBJCTIVE and METHODOLOGY ..................................................................... 15

2.1. Objective of the Study ........................................................................................... 15

2.2. Methodology ......................................................................................................... 15

2.3. Consultation and Data Collection .......................................................................... 16

3. PROBLEM IDENTIFICATION and EXISTING STATUS .................................... 18

3.1. Problem Identification ........................................................................................... 18

3.2. Current Status in Turkey ....................................................................................... 18

4. POLICY AREAS and OPTIONS ........................................................................ 24

4.1. Policy Areas .......................................................................................................... 24

4.2. Policy Options ....................................................................................................... 24

5. ANNEXES ......................................................................................................... 29

Annex 1: Pre-RIA Preparatory Work ................................................................................ 29

Annex 2: EU Greenhouse Gas Emissions ....................................................................... 29

Annex 3: ETS Data Usage in National Inventory Submissions ........................................ 33

ANNEX 4: Annual UNFCCC and ETS Data Correlation Values ....................................... 34

Annex 5: Excluded Policy Areas ...................................................................................... 34

iv

List of Figures

Figure 1. Development of the EU Greenhouse Gas Emission Reduction Policies and

Related Legislation ..................................................................................................... 3

Figure 2. Development of the EU ETS Legislation in the EU and Turkey .................. 4

Figure 3. Change in Carbon Prices in the EU ETS, 2006-2016 ................................. 5

Figure 4. Sectors covered by the EU ETS and EU ESD ............................................ 7

Figure 5. Ratio of ETS and ESD Emissions to Total Emissions in the EU28 ............. 7

Figure 6. EU ETS Phases .......................................................................................... 9

Figure 7. Sectoral Distribution of EU ETS Businesses ............................................. 11

Figure 8. Sectoral Distribution of EU ETS Emissions ............................................... 11

Figure 9. Number of EU ETS Installations by Category and Sector ......................... 12

Figure 10. Category and Sector of Distribution of EU ETS Emissions ..................... 13

Figure 11. The Number of EU ETS Installations by Category and Country .............. 13

Figure 12. EU ETS Emissions of Installations by Category and Country Distribution of

(2016) ....................................................................................................................... 13

Figure 13. Total and Sectoral Changes in the EU ETS Emissions (Million tonnes CO2)

................................................................................................................................. 14

Figure 14. RIA Process ............................................................................................ 16

Figure 15. GHG Emissions by Sectors in Turkey (2015) .......................................... 19

Figure 16. Electricity Generation by Source in Turkey (2015) .................................. 19

Figure 17. Category Distribution of MRV Businesses in Turkey (2013).................... 20

Figure 18. Category Distribution of Total Emission of MRV Businesses in Turkey

(2013) ....................................................................................................................... 20

Figure 19. Sectoral ETS Emissions of EU ETS Countries* Based on National

Inventories and ETS Registries (2015) ..................................................................... 21

Figure 20. Sectoral Emissions for EU ETS Sectors in Turkey (2015) ...................... 22

Figure 21. Calculated ETS Emissions for Turkey (According to the European National

Greenhouse Gas Inventory and ETS Emissions) (2015) .......................................... 23

Figure 22. Data Indicators Prepared for the EU ETS Data ....................................... 26

Figure 23. Emissions of a Large Business in Turkey (ton CO2) ............................... 27

v

Figure 24. Emission Maximum Limits for the EU ETS .............................................. 36

vi

List of Tables

Table 1. Sectors, Greenhouse Gases and Activities Covered by the ETSD .............. 8

Table 2. Objectives, Limitations and Assumptions of the RIA Study ........................ 15

Table 3. ETS Data Usage in National Inventory Submission ................................... 33

Table 4. UNFCCC and ETS Data Annual Compatibility Values ............................... 34

vii

List of Maps

Map 1. Total number of EU ETS Installations by Country (2016*) ........................... 10

Map 2. Greenhouse Gas Emissions Per Capita in Europe (ton CO2e/year) ............. 30

Map 3. Total Greenhouse Gas Emissions in Europe (ton CO2e/year) ..................... 31

Map 4. Changes in Greenhouse Gas Emissions Per capita Between 1990-2015 in

Europe (%) ............................................................................................................... 32

Map 5. Changes in Total Greenhouse Gas Emissions Between 1990 and 2015 in

Europe, 1990-2015 (%) ............................................................................................ 33

viii

Abbreviations

CDM Clean Development Mechanism

CDP Carbon Disclosure Project

CITL Community Independent Transaction Log

CPI Consumer Price Index

CRF Common Reporting Format

EC European Commission

EEA European Environment Agency

ESD Effort Sharing Decision

ETS Emission Trading System

ETSD Emission Trading System Directive

EU European Union

Eurostat European Statistical Office

EUTL European Union Transaction Log

İSO Istanbul Chamber of Commerce

JI Joint Implementation

KP Kyoto Protocol

LCDP Technical Assistance for Developed Analytical Basis for Formulating

Strategies and Action towards Low Carbon Development Project

LULUCF Land Use, Land Use Change and Forestry

MBB Marmara Municipalities Union

MoEU Ministry of Environment and Urbanization

MRV Monitoring, Reporting and Verification

MSR Market Stability Reserve

NAP National Allocation Plan

NIR National Inventory Report

PA Paris Agreement

PMR Partnership for Market Readiness

ix

Pre-RIA Pre-Regulatory Impact Assessment

REC Regional Environmental Centre

REC

Turkey Regional Environmental Centre Turkey

RIA Regulatory Impact Assessment

SGETHY Greenhouse Gas Emissions Regulation

TBB Turkish Municipalities Union

TOBB Union of Chambers and Commodity Exchanges of Turkey

TURKSTAT Turkish Statistical Institution

UNFCCC United Nations Framework Convention on Climate Change

1

1. INTRODUCTION

This Preliminary Regulatory Impact Assessment (Pre-RIA) Report aims to inform

senior managers of the Ministry of Environment and Urbanization (MoEU) about the

EU Emission Trading System and gather views concerning the challenges and

opportunities identified in terms of the implementation of Directive 2003/87/EC of the

European Council of 13 October 2003 (EU Emission Trading System Directive, ETSD)

in Turkey.

The Pre-RIA provides possible policy areas and options for these identified

challenges. The final RIA Report will look into established policy options in detail

together with their social, environmental and economic dimensions.

This Report is based on a series of meetings, interviews and literature review

conducted in September-December 2017, in order to identify the main reasons related

to the implementation problems of the ETSD and study the cause and effect relations

between the challenges (see Annex 1).

The introduction chapter of the Report will provide a framework concerning the

European Union (EU) greenhouse gas emission reduction commitments and emission

trade. The goal of this chapter is to provide information about the objective and context

of the ETSD and its implementation in EU Member States. The second chapter sets

out the objective and methodology of the Pre-RIA study. The consultation process of

the study together with information concerning data collection and analysis is also

presented. The third chapter is an assessment of the current status in Turkey with

emphasis on the main problems and challenges related to emissions trading in the

country. The fourth chapter explains policy areas and options to be studied for the final

RIA.

The position set forth in this Report belongs to REC Turkey and experts working in this

context and may not reflect the views of the Working Group which also includes the

MoEU.

2

1.1. Policy Framework

The climate and energy policies of the EU are based on various policy and programs

which must be followed by all Member States. These are the 2020 Climate & Energy

Program, 2030 Climate and Energy Framework and 2050 Low Carbon Road Map

documents.

These programs also respond to the EU commitments (the Kyoto Protocol – KP and

Paris Agreement – PA) under the United Nations Framework Convention for Climate

Change (UNFCCC). Greenhouse gas emission reduction targets at EU level are

identified, monitored and reported in relation to these programs. The targets of the EU

climate and energy policies is to reach 8%, 20%, %40 and %80 emission reduction

levels by 2012, 2020, 2030 and 2050 respectively, compared to greenhouse gas

emission levels in 1990.

In order to achieve 2020 and 2030 targets the EU developed two major policy tools

concerning the combatting against climate change. These are the EU Effort Sharing

Decision (ESD) and the EU Emission Trading System Directive (ETSD) (see Figure1).

The EU ESD covers emissions related to most sectors not included in the EU ETS

established by the ETSD. The ESD also defines greenhouse gas emission levels for

sectors not included in the ETS for each Member States at EU level in terms of the

second commitment term of the KP (2013-2020). A 10% reduction target for 2020

based on 2005 levels is set at EU level and Member State contributions to this

reduction is meant to be distributed fairly. The ESD establishes a range for each

Member State annual emission permit based gross domestic product (GDP) per capita

between -20% and +20%. Until 2017 national allocations changed with various

different decisions1. In 2016 an Effort Sharing Regulation (ESR) was designed. This

Regulation is expected to be enforced in 2018, replacing the ESD. The ESR is

designed in response to commitments related to the Paris Agreement under the

UNFCCC and it looks to increase the 2021-2030 targets to 30%. In regard, it is

expected that national emission for ESR sectors will range from 40% to 0%.

Following the ratification of the Kyoto Protocol, the ETSD adopted and entered into

force in 2005. The ETSD designed as a 3-year pilot period for preparation to the first

commitment period of the Kyoto Protocol, that started by 2008. The basic aim of the

Directive is to provide a framework for the EU Emission Trading System (ETS)

designed to establish an economical and cost-effective solution while responding to

the EU’s international commitments.

1 The ESD, published for most sectors not included in the ETS, was renewed in 2013 with the addition of Crotaia to the Union.

3

Figure 1. Development of the EU Greenhouse Gas Emission Reduction Policies and Related

Legislation

Under the ETSD, Member States distribute their national emission allowances

identified by the European Council (EC), in other words their “quota”, to installations

in their own context. At the end of each year emissions and allowances must be

balanced. Installations with less emissions than their allowance are able to generate

extra income by selling their rights to the “market”; while, installations with higher

emissions then their allowance are able to buy extra rights from the “market” to cover

their gap. Thus, installations with fewer emissions are rewarded and the ones with

higher emissions are sanctioned. In addition, pro-active installations that reduce their

emissions before their ETSD responsibilities are given extra allowances, which

encourage reduction measures, in order to prevent unfair situations.

4

Figure 2. Development of the EU ETS Legislation in the EU and Turkey

The Directive was amended 7 times, fundamentally in 2004, 2008 and 2009 (see

Figure 2). The most important changes can be summarized as: monitoring, reporting

and verification requirements for GHG emissions in order to facilitate the

implementation of the ETSD; the first Commission decision for creating a monitoring

and reporting manual in 2004, this decision was repealed in 2007 with new decision;

in 2012, the 2007 decision was repealed and a new Regulation2 was published in 2012

and another Regulation in 2013, concerning monitoring and reporting mechanisms. At

the moment, the 2012 and 2013 Regulations are still in force.

During the two-year pilot of the transition phase for the ETSD in 2005-2008, emission

allowances were distributed to installations free of charge. At the end of the phase, the

carbon price was reduced to 0 €/ton (see Figure 3). The price keeping a low level after

slightly rising following 2013 pushed the EU to take measures, so the Market Stability

Reserve3 (MSR) decision was published in 2015 (see Figure 2).

2 In the EU, Directives are legislative tools which must be transposed by Member States, whereas, transposition of Regulations

are not mandatory.

3 The MSR Decision foresees two measures for regulating the carbon price. As a short term measure, the

Commission postponed the auctioning of 900 million allowances until 2020. The auction volume is reduced by 400

million allowances in 2014, 300 million in 2015 and 200 million in 2016. In the long term a market stability reserve

will start operating in January 2019 and the 900 million allowances that were back-loaded in 2014-2016 will be

transferred to the reserve rather than auctioned in 2019-2020. The reserve will: address the current surplus of

5

Figure 3. Change in Carbon Prices in the EU ETS, 2006-2016

Turkey aims to become a member of the European Union. Thus, the Acquis

Communautaire of the Union must be transposed to national legislation and

harmonized4. While membership negotiations for Turkey is ongoing, once membership

is enforced, Turkey will also need for similar policies, objectives and measures

concerning ESD targets which are mandatory for all Member States.

Turkey, in addition to harmonizing the EU environment and climate acquis, also has

responsibilities under the UNFCCC in terms of climate change reduction policies5.

Together with the MoEU, other central and local government authorities continue to

allowances and improve the system's resilience to major shocks by adjusting the supply of allowances to be

auctioned.

4 The EU environmental acquis consists of many legislative tools concerning many different tools such as directives and

regulations. EU Directives are legislative tools which must be transposed to national legislations of Member States. While they

identify targets for countries, they also provide certain flexibilities as well. On the other hand, EU Regulations are published

related to issues which must be equally implemented in all Member States. Therefore, EU Regulations do not need to be

transposed; they enter into force in all Member States automatically once they are approved. However, candidate countries

may need to transpose EU Regulations previous to their membership. The REACH Regulation concerning chemicals

(EC/1907/2006) is an example of a transposed Regulation for Turkey.

5 Turkey has submitted its intended nationally determined contribution (INDC) to the UNFCCC Secretariat on September 20,

2015, as a result its commitment to article 2 of the Convention.

6

work in relation to the UNFCCC and Kyoto Protocol requirements alongside with

national policies like the National Action Plan for Climate Change.

In regard, the Monitoring of Greenhouse Gas Emissions Regulation was enforced in

2012 (see Figure 2). The By-law aims to transpose the ETSD categories and activities

to Turkey and monitor, report and verify greenhouse gas emissions resulting from

these activities. In 2014 the first by-law was repealed and a new regulation was

published and enforced. This by-law was amended in 2016 and 2017. In order to

facilitate the implementation of the By-law, a Communiqué to Monitor and Report

Greenhouse Gas Emissions was enforced in 2014 and another Communiqué to the

Certification of Institutions to Verify the Reports and Reporting of Greenhouse Gas

Emissions was enforced in 2015, establishing the current legislation for monitoring,

reporting and verification (MRV) (see Figure 2).

1.2. Scope and Objectives

The ETSD covers high emission sectors like aviation, energy and industrial processes

responsible for 40% of the total emissions6 in the EU (see Figure 4). The ESD covers

most sectors not included in the ETS like waste, buildings, agriculture and

transportation which are responsible for 55% of the emissions7.

6 These are average figures.

7

Figure 4. Sectors covered by the EU ETS and EU ESD

Together, the ETS and ESD legislations cover almost all of the total emissions in the

EU28 since 2005. The expansion of the ETS has increased this figure to 98% in 2016,

from the 91% in 2005 (see Figure 5).

Figure 5. Ratio of ETS and ESD Emissions to Total Emissions in the EU28

The ETSD covers not only 28 Member States, but also Iceland, Lichtenstein, and

Norway. Aviation, energy and industrial activity related emissions listed in Annex I and

GHG in Annex II are covered by the Directive. Greenhouse gases (CO2, PFC, N2O),

resulting from activities, are covered by the Directive account for almost 40% of

emissions in the EU. Subsectors and greenhouse gas emitting activities covered by

the Directive are listed in Table 1.

8

Table 1. Sectors, Greenhouse Gases and Activities Covered by the ETSD

Sector Gas Activity

Aviation CO2 Civil aviation

Fuel combustion CO2 Electricity and heat production by fuel combustion

Refinery CO2 Petrol refineries

Iron-steel, coke, metal

ore

CO2 Coke production, metal ore roasting or sintering, pig iron or

steel production

Other metal

(Aluminium included)

CO2 Iron metal production/processing, aluminium production,

non-iron metal production

PFC Aluminium

Cement and lime CO2 Cement, lime production

Other non-metal

minerals

CO2 Glass, ceramic, mineral wool production, plaster/sheetrock

production/processing

Pulp and paper CO2 Pulp, paper, carton production

Chemicals CO2 Acid and charged organic chemical production

N2O Nitric, adipic and glyoxylic acid and glyoxal production

Other CO2 Capturing, removing and storage of greenhouse gases

resulting from activities covered by the Directive

The ETSD was planned as a first “learning” phase in 2005-2008 and a second phase

for 2008-2013. GHGs, sectors and countries, penalties, registry systems and

allocation methods covered by the Directive differ with respect to phases (see Figure

6). The cap on emissions was based on National Allocation Plans (NAPs) prepared by

Member States.

9

Figure 6. EU ETS Phases7

+: country/system/greenhouse gases/sectors added to the scope

The main difference regarding the emission cap between the first two phases after the

2013 period is that there is general EU level limit. This cap is decreased by 1.74%

every year until the beginning of the fourth phase and will decrease by 2.2% every

year during the fourth phase. Hence the emission allowances of countries and

installations will also decrease in regard the ETSD. On the other hand, the auction

ratios of emission allowances for sectors will also decrease compared to the first two

phases. The 2005 GHG emission level reduction targets of sectors covered by the

ETSD was 21% for the third phase (EU 2020 Climate Package), this has been

increased to 43% for the fourth phase (EU 2030 Climate and Energy Package) (see

Figure 6).

1.3. The EU ETS Experience

According to Eurostat 2015 data, Europe’s average GHG emission is 8.75 tonnes

CO2e/year per capita (see EK 2 Map 2). During the same year, GHG emissions per

capita in Turkey were 6.26 tonnes CO2e/year. The per capita greenhouse gas

emission rates for the EU28 decreased by 27% between 1990 and 2015 (see ANNEX

2 Map 4). In the same period, per capita emissions in Turkey increased by 62% and

7 Information concerning the fourth phase has been gathered from the draft document. It has not reached its official final

version yet.

10

with this rate Turkey has the highest increase among the 3 countries that increased

their GHG emissions per capita. The EU28 decreased its total emissions by 22% in

the same period, while Turkey increased by 127% (see ANNEX 2 Map 5). While

Germany is the leading country in terms of total GHG emissions with 926 million

tonnes CO2e; Turkey takes 3rd place with 486 million tonnes8 CO2e (see ANNEX 2

Map 3).

According to the EEA 2016 data, there are 12,495 registered installations in Europe

to the ETS which are responsible for 45% of the CO2, PFC and N2O emissions (1.812

Mt CO2). The distribution of these installations in Europe is provided in Map 1.

Germany with the highest total greenhouse gas emissions has 2,068 businesses

registered to the ETS. These installations constitute 17% of the total number and they

are responsible for 25% of the total ETS emissions. Germany is followed by France

(1.306), Italy (1.220), UK (1.055) and Spain (1.018) in terms of number of installations.

Map 1. Total number of EU ETS Installations by Country (2016*)

Among the 12,495 installations and operators, 818 are aircraft operators and 11,420

are stationary installations from energy and industry sectors (see Figure 7). While 58%

of the installations are from the energy sector, 33% are from industrial processes.

Among the 33% most are related to non-metal mineral processing businesses.

8 Excluding LULUCF, including civil aviation

Total number

of EU ETS

Installations by

Country

(2016*)

11

Figure 7. Sectoral Distribution of EU ETS Businesses

The energy sector installations which are 58% of the total are responsible for 65% of

the total CO2, PFC and N2O emissions. Among the remaining 35%, 3% is from the

aviation sector and the rest is from industrial processing installations (see Figure 8).

Figure 8. Sectoral Distribution of EU ETS Emissions9

Europe classifies installations based on their annual emissions as zero, mini, small,

medium and large;

9 CO2, PFC and N2O

12

i. installations with an annual 0 emission are classified as Zero; ii. 0 to 25 kt CO2 equivalent are classified as Mini; iii. 25 to 50 kt CO2 equivalent are classified as Small; iv. 50 to 500 kt CO2 equivalent are classified as Medium; v. 500 kt CO2 equivalent or more are classified as Large.

Figure 9. Number of EU ETS Installations by Category and Sector

According to this classification, 8% of installations are considered Large and 74% are

Mini and Medium. Among the 74%, 58% are from energy and 34% from industrial

processes. As displayed in Figure 10, Large installations consisting of 8% the total are

responsible for 80% of the emissions. Medium size installations are responsible for

15% of the emissions. The energy sector makes up both the largest number of

installations and highest amount of emissions in each category; while aviation is the

smallest sector (see Figure 9 and Figure 10). installations in the Zero category are

only 2% of the total number.

13

Figure 10. Category and Sector of Distribution of EU ETS Emissions

Distribution of installations according to category in Europe by number and emissions

is provided in Figure 11 and Figure 12. With no exception, as in ETS countries in

general, although Large installations are fewer in number, they are responsible for

almost all of the ETS emissions.

Figure 11. The Number of EU ETS

Installations by Category and Country

Figure 12. EU ETS Emissions of Installations

by Category and Country Distribution of

(2016)

REC Turkey, 2017. Source: EEA

14

The ETSD, from its enforcement in 2005 to 2016, decreased emissions by 8%, from

2.01 billion tonnes CO2e to 1.81 billion tonnes CO2e (see Figure 13). This decrease is

19% in the energy sector, while only 4% in industrial processes. The rapid decrease

in total emissions during the 2008-2009 period is correlated with the economic crisis

of the time. Although the ETS experienced an increase during its first phase in 2005-

2008, as the system slowly strengthened, a regular decrease has been observed.

Figure 13. Total and Sectoral Changes in the EU ETS Emissions (Million tonnes CO2)

15

2. OBJCTIVE and METHODOLOGY

2.1. Objective of the Study

The overall policy objective of an ex-ante RIA is to identify and assess policies that

may be problematic after implementation and thereby provide decision makers

recommendations based on data and analysis in order to facilitate a better economic,

environmental and social harmonization of the regulation.

The main objectives of this RIA study (see Section 1.2 Scope and Objective) is to

support a full harmonization with an effective greenhouse gas reduction strategy in

line with the objectives of the directive.

These objectives established under the below listed operational objectives. In order to

harmonize the by-law in context with identified problem, the below mentioned

objectives, limitations and assumptions should be considered:

Table 2. Objectives, Limitations and Assumptions of the RIA Study

Objectives Limitations Assumptions

1. Harmonization of the Emission Trading

System System

Directive (ETSD) to Turkey

2. Reducing GHG emissions for Turkey

1. Staying in line with the responsibilities of the EU Directive while implementing the by-law

2. Creating the least possible economic, environmental and social costs for the country while transposing legislation for the harmonization

1. GHG emissions of Turkey increasing in line with the Intended Nationally Determined Contribution submitted to the UNFCCC

2. Effective enforcement of the MRV system established by the MoEU

2.2. Methodology

RIA is an evidence-based process used in developing policies and making regulatory

decisions. This process consists of understanding underlying problems of a given

issue, identifying possible options and evaluating these problems in structured

manner. Impact of possible options are systematically analysed and compared. This

approach, while supporting a transparent policy understanding, also allows important

pieces of information to be shared between the government and stakeholders. It is

important to make key decisions based on cost-benefit analysis of the options.

In order to support RIA study with data; and to receive opinions and to collect data for

policy options, following activities will be carried out under the four stages of the

process (see Figure 14):

▪ Literature and international good examples review

▪ Working group meeting

16

▪ Preparation of a Pre-RIA report in order to confirm the validity of the options

▪ Survey amongst stakeholders regarding problems and solutions

▪ Interviews with national and international institutions

▪ National and local consultation meetings

▪ Site visits

Figure 14. RIA Process

The close cooperation of the MoEU and ownership from stakeholders to be achieved

with the active engagement of institutions like TBB, MMU, TOBB and ISO to the

process will facilitate the consultation process of REC Turkey and make it more

effective.

2.3. Consultation and Data Collection

Within the scope of RIA, a comprehensive consultation process will be implemented

in order to inform relevant stakeholders about the Decision, to verify identified

problems and policy areas and especially to collect data. The consultation process is

mainly cover meetings and interviews with public institutions and related sector

representatives mostly from the Ankara and Istanbul provinces. Close cooperation

with the MoEU during the consultation process will provide important benefit and

support effective implementation of the study.

The consultation process consists of the following steps:

▪ Increasing awareness among stakeholders concerning the Decision and RIA

▪ Data and information collection from stakeholders

▪ Assessment of positive and negative impacts of the Directive

17

▪ Economic, environmental and social assessment of policies in order to make

the harmonization more cost effective

▪ Verification of findings by stakeholders

The consultation process will be realised in parallel with desk- studies. The Ankara

and Istanbul provinces for the National Consultation Process and Mersin and Izmir

provinces for the Local Consultation Process have been designed by REC Turkey and

the MoEU together, due to the existence of carbon dense industrial facilities in these

regions. REC Turkey will collect views and recommendations from the stakeholders

through a series of interviews, focus group meetings and a survey.

18

3. PROBLEM IDENTIFICATION and EXISTING STATUS

3.1. Problem Identification

As a result of the Brief Screening10 process, the Working Group identified

harmonization and implementation of the ETSD with the lowest possible

environmental, social and economic cost as the main problem.

The main challenges to be expected during the harmonization and implementation are

listed as follows:

1. Fair Allocation of Emission Allowances

2. Increasing Costs due to Mitigation 3. Transparency 4. Deterioration of Market Competition 5. Auditing, Sanction and Penalties 6. Carbon Leakage

3.2. Current Status in Turkey

This section provides data concerning the current status in Turkey related to the

ETSD.

According to Eurostat 2015 data, total emissions for Turkey is 486.2 million tons

including indirect CO2 emissions and 475.1 million tonnes CO2e excluding indirect

carbon emissions. According to Turkstat data, the energy sector is responsible for 72%

of the 475.1 million tons; while Industrial Process (%13), Agriculture (%12) and Waste

(%4) make the remaining 28% (see Figure 15). 68% of the generated energy is based

on combustion of fossil fuels (see Figure 16).

10

Quick Scanning is the first step of a RIA consisting of a series of Working Group meetings identifying problems and policy

area and options for these problems, literature review and country comparisons.

19

Figure 15. GHG Emissions by Sectors in

Turkey (2015)

Figure 16. Electricity Generation by Source

in Turkey (2015)

The “By-law on Monitoring of Greenhouse Gas Emissions”, dated 17.05.2014 and

numbered 29003 was prepared based on the Greenhouse Gas Monitoring and

Reporting Mechanisms Regulation related to the Directive 2003/87/EC of the

European Council of 13 October 2003. Activities listed in the By-law are in compliance

with the activities listed in Annex I of the ETSD11. Like the EU, following this

Regulation, the Greenhouse Gas Emission Monitoring and Reporting Communiqué

was published in 2014 and the Verification of Greenhouse Gas Emission Reports and

Accreditation of Verifying Institutions Communiqué in 2015. According to the MRV

legislation, annual emissions of installations in Turkey are divided into three

categories.

i. Category A, annual emissions 50 kt CO2 equivalent or less ii. Category B, 50 – 500 kt CO2 equivalent iii. Category C, 500 kt CO2 equivalent or more

In addition, installations with an annual emission equivalent or less than 25 kt/year

CO2 or installations that have not exceeded this amount for 5 years are categorized

as low emission installations.

Installations included in the monitoring system were 577 in 2013 and therefore, Turkey

ranked 9th among the ETSD countries (first 8 countries of the list in same year were

Germany, France, Italy, Spain, England, Poland, Sweden and Finland).

In context of the By-law, category C installations make up 17% of the total (see. Figure

17) and they are responsible for 89% of the total emissions (see Figure 18). Similarly,

category A installations are responsible for 2% of the emissions (see Figure 18) and

11

Excluding aviation, carbon capture and storage

20

make up 56% of the installations. Just like the installations included in the ETSD,

higher amount of installations that have higher number of installations, are responsible

for lesser amount of the emissions.

The total amount of emissions from these installations subject to MRV by-law in 2013

was 256 Mt CO2e and they make up (459 Mt CO2e12) 55.7% of the total greenhouse

GHG in Turkey10.

Figure 17. Category Distribution of MRV

Businesses in Turkey (2013)

Figure 18. Category Distribution of Total

Emission of MRV Businesses in Turkey

(2013)

In context of this study, verified ETS emissions for Turkey were calculated in relation

to the EU ETS emissions and the national GHG inventory submitted under the

UNFCCC. Although there are differences in sectoral definitions between the ETS and

the sectoral categories submitted to the UNFCCC13, the Union Report prepared by the

EEA in 2016, for the UNFCCC, expresses that most Member States use their ETS

data to prepare their national inventories (see Annex 4). This shows that the system

used by countries for national inventories and ETS are more or less the same and

although related data does not provide a complete picture for these countries, it at

least provides an overview.

A comparison of annual data for 2005-2015 between EEA and Eurostat concerning

ETS related sector, with the exemption of aviation, two sectors display a more than

90% similarity (see EK 3). The aviation sector seems to be losing similarity since 2012.

12

This figure is a result of the old calculation method of the Turstat in 2013. According to the new calculation, the figure is

442,2 Mt CO2e.

13 For example, industrial processes activities are included without distinction in the national inventory while only the ones

which have a total thermal input exceeding 20 MW are included in the ETS. Similarly, while fuel combustion emissions are

categorized according to use in the national inventory, this distinction does not exist in the ETS

21

The similarities between national inventory and ETS data for ETSD countries are in

Figure 19.

Figure 19. Sectoral ETS Emissions of EU ETS Countries* Based on National Inventories and

ETS Registries (2015)

This similarity was used for the calculation of verified ETS emissions for Turkey. For

example, for 2013, the verified emissions for the Energy, Industrial Processes and

Aviation sectors submitted to the UNFCCC is expected to be 198,053 kt CO2e and

Energy to be responsible for 65%.

22

Figure 20. Sectoral Emissions for EU ETS Sectors in Turkey (2015)

Looking at the national greenhouse gas inventory for Turkey 2015, the same sectors

are responsible for 56% of total emissions and 66% of this rate is resulted from the by

the energy sector (see Figure 20).

Calculations made with modelling and the data directly taken from the national GHG

inventory for Turkey seem to be quite similar. The ETS emissions for 31 countries

covered by the ETSD and the ETS emissions for Turkey calculated according to the

national GHG inventory are show in Figure 21.

23

Figure 21. Calculated ETS Emissions for Turkey (According to the European National

Greenhouse Gas Inventory and ETS Emissions) (2015)

24

4. POLICY AREAS and OPTIONS

4.1. Policy Areas

There are certain areas Turkey has to make decisions in concerning the harmonization

and implementation of the ETSD. The Working Group considered different options in

terms of harmonizing and implementing the Directive in line with objectives, limitations

and assumptions listed in the previous chapter and identified 4 priority policy areas

(see EK 5). Decisions related to these policy areas will allow Turkey to establish its

own emission trade system and implement it successfully.

The identified policy areas are as follows:

- Policy Area 1: Determination of Sectors and Installations Subject to ETS

- Policy Area 2: Determination of Sanctions - Policy Area 3: Public Access to GHG Data - Policy Area 4: Support to Electricity Generators

4.2. Policy Options

A total of 11 options were evaluated for the above listed 4 policy areas. Each option

will be analysed at related to policy areas in terms of the possible benefit and cost they

may bare and recommendations for optimum options will be provided at the end of the

study.

Policy Area 1: Determination of Sectors and Installations Subject to ETS

During the transposition of the ETSD to national legislation in Turkey, gases, sectors

and therefore installations to be covered by need to be identified. The existing MRV

legislation in Turkey identifies businesses to be included in the MRV. Regarding

compliance to ETS, the existing MRV does not include all the sectors as listed in the

fourth phase of the ETS. Turkey, in addition to the MRV, should cover all sectors in

the ETSD, including aviation (Option 1.1). According to Article 24 of ETSD, countries

may chose to exclude certain high emitters (Option 1.2). According to Article 27,

countries have also right to exclude low emitters as well. The last option could be

excluding these sectors (Option 1.3).

▪ Option 1.0: Current Status (MRV scope)

▪ Option 1.1: Scope of EU ETS (MRV Scope + Aviation + CCS)

▪ Option 1.2: Expanded Scope (Additional Sectors and Activities)

▪ Option 1.3: Reduced Scope (Exclusion of low emitters)

Policy Area 2: Determination of Sanctions

In order for the ETSD to function properly, especially the penalty aspect of the reward

and penalty system that is heart of the system needs to be implemented clearly. In the

25

current situation in Turkey, environmental penalties are issued according to the

Environment Law. The most important problem that penalties may create is that

installations may go bankrupt or they may create carbon leakages. Since the

Environment Law is not compatible with the ETSD, Turkey will need to include penalty

articles to the new legislation.

According to article 16 of the ETSD, operators whom has not surrendered allowances

must be fined 100 € per ton (increased by CIP annually) of the excess amount (3rd

paragraph) and ““publication of the names”” fine that are in breach of requirements to

surrender sufficient allowances (2nd paragraph) is also foreseen (Option 2.1).

Other than above mentioned fines, Member states have a right to add additional

sanctions for non-compliance with the Directive are given to the initiative of each

country. Turkey may also choose to impose additional sanctions (Option 2.2). For

example, Sweden issues fines to operators that do not surrender enough emission

allowances based on their emissions according to the difference between their verified

emissions and surrendered allowances, together with a delay penalty14. On the other

hand, they also issue a 20,000 SEK (around 2,151 €) fine for late, incomplete or

unverified annual emission reports15. In Norway, related authorities are given power

to issue fines according to the Norwegian Pollution Law17.

Options to be evaluated in this regard are as follows:

▪ Option 2.0 Current Status (Environmental Law Provisions)

▪ Option 2.1 Implementation of the penal sanction stated in the Directive

▪ Option 2.2 Additional penal sanctions to the ones in the Directive

Policy Area 3: Free Access to Data

The ETSD Article 16 obliges-publication of the names as one of the non-compliance

penalties which is supposed to create a public pressure on non-complying operators

through exposure. The information in the EU ETS must openly be shared with the

public (see Figure 22). However, this approach is debatable in Turkey.).

14

Environment and Climate Regional Accession Network (ECRAN), Handbook on the Implementation of EU Climate Change

Legislation, 2015-2016

15 Ecofys, Fourth ETS MRAV Compliance Review, 2015

26

Figure 22. Data Indicators Prepared for the EU ETS Data

Source: Sandbag16

This approach is highly important for operators to comply with the legislation and it

also increases effectiveness. For example, during a CEO Perception Study conducted

by REC Turkey in 2016, 92% of the 54 leading companies replying to the survey

believed that climate change was an important aspect in terms of reputation

management for businesses17.

At the moment MRV data in Turkey is not open to public access. However, there are

operators that share their emissions and climate change strategies through

Sustainability Reports. In Turkey, 56% of 54 large companies prepare these Reports19.

16

Sandbag, Climate Campaign CIC, EU ETS Dashboard 0.1, 2016

17 REC Türkiye, İklim Değişikliği CEO Algı Araştırması: Türk İş Dünyası Liderlerinin İklim Değişikliğine Yanıtı, 2016

27

One large company

publishing annual

Sustainability Reports

regularly began providing

emission information for its

operations in Turkey in 2016,

dating back to 2012 (see

Figure 23). According to the

Report, in 2016 emissions

related to the operations in

Turkey decreased by 56%

compared to 2010 and by

37% compared to 2012 (see Figure 23). Indirect emissions also decreased

significantly. This kind of transparent sharing will set examples among businesses in

relation to competiveness. “Setting an example for competitors” is perceived as highly

important by 49 of the 54 large businesses in the private sector in terms of managing

climate change19.

According to the 2017 study of the Carbon Disclosure Project (CDP), businesses

willing to share information increased by 3 folds between 2011 and 2017 (calculated

according to the number of businesses responding to the CDP19). Furthermore, 43 of

the 50 businesses, gave 75-100% complete answers21.

The impact of the global focal issue “transparency” on businesses concerning sharing

their data like emission allowances, verified emissions and purchased allowances in

accordance with the transposition of the EU ETS to national legislation will be

assessed under this policy area.

▪ Option 3.0 Current Status (Not publicly available)

▪ Option 3.1 Data is open to public

Policy Area 4: Support to Electricity Producers

One of the most important challenges of ETS is installations moving their operations

abroad due to legislation in their countries (carbon leak). While generation installations

carry this risk, the same is not valid for electricity production operators. Generating

electricity abroad and bringing it back would be much more costly for them.

18

Arçelik, Sustainability Report, 2016

19 Carbon Disclosure Project (CDP), Climate Change Report 2017 Turkey Edition, 2017

Figure 23. Emissions of a Large Business in Turkey (ton

CO2)

REC Turkey 2017, Source: Sustainability Report. 18

28

The ETSD does not provide the free of allocation to electricity production sector

although it is available to sectors that are exposed to a significant risk of carbon

leakage. However, article 10c of the ETSD, does allow Member States to provide

electricity operators with free of charge allocation if they reduce their emissions

through infrastructure retrofitting and upgrading (Option 4.1). Considering that the

electricity sector is responsible for most of the GHG in Turkey (72%), the option 4.2 is

one of the important solutions to be evaluated by Turkey.

Options to be evaluated in this regard are as follows:

▪ Option 4.0 Current Status (No allocation of free allowances to electricity

generators for infrastructure modernization)

▪ Option 4.2 Allocation of free allowances to electricity generators for

infrastructure modernization

29

5. ANNEXES

Annex 1: Pre-RIA Preparatory Work

Interviews were conducted with national institutions/organisations listed below in order

to share information about the study with relevant stakeholders.

▪ Electricity Producers Association (EÜD)

▪ Ministry of Energy and Natural Resources, Renewable Energy General

Directorate

▪ Ministry of Energy and Natural Resources, Electricity Production Corp. (EÜAŞ)

▪ Partnership for Market Readiness Project (PMR) Turkey team

▪ Turkish Cement Producers Union (TÇMB)

▪ Turkish Steel Producers Association (TÇÜD)

▪ Turkish Union of Chamber and Commodity Exchanges (TOBB)

▪ Turkish Industry and Business Association (TÜSİAD)

In order to make official contact with international institutions listed below, RIA experts

attended the COP23 of the UNFCCC in context of the project.

▪ Centre for Energy and Environmental Policy Research (CEEPR),

Massachusetts Institute of Technology (MIT)

▪ Harvard Environmental Economics Program, Harvard Kennedy School

Annex 2: EU Greenhouse Gas Emissions

Map 2 indicated GHG emissions per capita. Luxembourg has the highest greenhouse

gas emission with 20.75 tonnes CO2e/year. This is followed by Iceland with 15.84

tonnes CO2e/year, Estonia with 13.78 tonnes CO2e/year and Ireland with 13.49 tonnes

CO2e/year. Lichtenstein has the lowest emissions with 5.37 tonnes CO2e/year.

Croatia, Sweden and Latvia follow with 5.65 tonnes CO2e/year, 5.73 tonnes CO2e/year

and 5.87 tonnes CO2e/year respectively.

30

Map 2. Greenhouse Gas Emissions Per Capita in Europe (ton CO2e/year)

The total greenhouse gas emission of Europe is shown on Map 3. Germany by far has

the highest emissions with 926 milli7on tonnes CO2e. This is followed by England,

Turkey and France with 537, 486 and 475 million tonnes CO2e respectively.

Lichtenstein has the lowest per capita emission with 0.2 million tonnes CO2e. Malta

follows with a total emission of 3 million tonnes CO2e. Iceland is the second lowest

emitting country per capita and the third lowest in total emissions with 5 million tonnes

CO2e.

31

Map 3. Total Greenhouse Gas Emissions in Europe (ton CO2e/year)

Map 4 and Map 5 show the GHG reduction performance for European countries since

1990. Although Estonia is one of the four highest per capita emitting countries, their

figures have reduced by 47% during 1990-2015 (see Map 4). Lithuania, Slovakia and

Romania have reduced their per capita emissions by respectively 47%, 46% and 44%

and are among the 7 countries to have reductions more than 40%. Germany and

England who are leading in terms of total emissions are also included in this category

with a reduction of 43% and 42% respectively. Latvia is among the four lowest per

capita emitting countries and they have reduced per capita emissions by 41% during

1990 to 2015 (see Map 4).

As shown on Map 4, Turkey (62%), Portugal (14%) and Iceland (7%) are the only three

countries that increased their per capita emissions. Map 5 displays that these three

countries also increased their total emissions by 127%, 18% and 39% respectively.

Other countries that increased their total GHG emissions Cyprus (44%), Spain (19%),

Ireland (9%), Norway (6%) and Austria (%2) (see Map 5).

32

Map 4. Changes in Greenhouse Gas Emissions Per capita Between 1990-2015 in Europe (%)

The total emissions of the EU28 have decreased by an average of 22%. The most

important contribution to this decrease is made by Lithuania (58%), Latvia (56%),

Estonia (55%) and Romania (52%), who decreased their total greenhouse gas

emissions, by more than 50% (see Map 5).

33

Map 5. Changes in Total Greenhouse Gas Emissions Between 1990 and 2015 in Europe,

1990-2015 (%)

Annex 3: ETS Data Usage in National Inventory Submissions

Table 3. ETS Data Usage in National Inventory Submission

Member State Use of ETS Data

Use of Emission

Use of Activity

Use of Emission

Factor

Use for Quality Control

Austria Used

Belgium Used

Bulgaria Used

Croatia Used

Cyprus Used

Czechia Used

Denmark Used

Estonia Used

France Used

Finland Used

Germany Used

Greece Used

Hungary Used

Ireland Used

Italy Used

Latvia Used

Lithuania Used

Changes in Total

Greenhouse Gas

Emissions Between

1990 and 2015 in

Europe, 1990-2015 (%)

34

Luxemburg Used

Malta Used

Netherlands Used

Poland Used

Portugal Used

Romenia Used

Slovakia Used

Slovenia Used

Spain Used

Sweden Used

United Kingdom Used

ANNEX 4: Annual UNFCCC and ETS Data Correlation Values

Related ETS sector 2005-2015 annual data from the EEA and Eurostat are compared by

year and the correlation (R) and determination (R2) values between them are calculated

(see Table 3).

Table 4. UNFCCC and ETS Data Annual Compatibility Values

Annex 5: Excluded Policy Areas

In scope of the RIA, policy areas necessary for Turkey to harmonize and implement

the EU acquis were reviewed. In other words, transposition of the EU ETS system to

Turkey was examined instead of establishing a new ETS system for Turkey.

Therefore, policy areas and options were selected from areas to be harmonized by

Turkey in context of the Directive.

Policy areas listed below that required for the establishment of an ETS system were

removed from this RIA study since the methodology is explicit in the Directive. These

policy areas will be studied by the PMR project (see EK 6).

Policy Area: Identification of a National Cap

35

The harmonization of the ETSD to national legislation requires an identification of a

cap emissions allowances to be allocated to installations. ETSD sectors must have

allowances. There are different methodologies;

Bottom to top approach: Calculation of a cap for installations by adding the allocated

allowances.

Top to bottom approach: Identification of a cap by the central government and

allocation of allowance accordingly.

Combined approach: While the analysis for the allowances to be allocated to

businesses establishes a hinge for the cap, the identified allowance are also arranged

to comply with reduction targets.

During the 1st and 2nd phases of the EU ETS, Member States informed the EC

concerning their allocated emission allowances through their National Allocation Plans

(NAP) and therefore, the calculation was made with the bottom to top approach.

However, during the 3rd and 4th phases, since the system had developed, the top to

bottom approach was used to set a EU wide cap for industrial installations and Member

States were asked to allocate their permits in line with this cap. Emission reduction for

ETS sectors at the EU level were identified during the 3rd and 4th phases of the cap as

an annual 1.74% and %2.2 respectively (see Figure 24). A fixed cap was set for the

aviation sector (210 MtCO2e/year for the 3rd phase).

36

Figure 24. Emission Maximum Limits for the EU ETS

Policy Area: Free Allocation Method

Instead of requesting payment from ETSD sectors concerning their GHG emissions

as they entered their data in the system to begin with, the EU allocated free emissions

allowances. The objective was to facilitate the transition to the ETS and prevent carbon

leakages.

There were several methods for the identification of free emission allowances to be

given to businesses. During the first phase of the ETSD, free allowances were

allocated based on historical emissions in a reference periods (grandfathering) and in

the second phase, distributions began to be made based on emission intensity at

product level (benchmarking).

For example, during the 2005-2008 periods, Germany declared that it is not eligible

for benchmarking according to its NAP. While Romania did not use benchmarking in

both plan periods (2005-2008 and 2008-2013), Slovenia used grandfathering for its

energy sector for the first 3 years of its 2nd period and used benchmarking during 2011-

2012 with a ratio of 30% and 50% respectively.20

20

Climate Action Network Europe (CAN-E), Dünya Doğayı Koruma Vakfı (WWF), Assessment of Key National Allocation

Plans for phase II of the EU Emissions Trading Scheme, February, 2007

37

Policy Area: Pilot Period

The EU identified the first three years of the ETS as a pilot period (2005-2008) in order

to prevent carbon leakages from ETSD sectors and provide a “transition phase”. Free

emission allocations were high during this pilot phase and since an unexpected

economic crisis was experienced during 2008-2009, the distributed allowances for

installations surplused. The system was reviewed and amended as a result of these

experiences.

Annex 6: PMR Project21

Launched by the World Bank in 2011, the Partnership for Market Readiness (PMR) is

a technical assistance program aiming at supporting developing countries which have

significant importance in the global fight against climate change in their efforts to

reduce greenhouse gas emission, through effective use of market-based instruments.

Capacity building, awareness raising and training activities in respect to the carbon

pricing mechanisms are being carried out in coordination with all relevant stakeholders

throughout the program. Turkey became one of the 17 implementing countries in 2013.

Under the scope of PMR Project, pilot implementation of the MRV Regulation in

installations strengthened the capacity building process of both private and public

institutions, through trainings. This included development and testing of tools and

electronic templates for data collection and emission calculation, and preparation of

monitoring plans and emission reports of installations, in coordination with

international and national experts. The MRV Regulation was implemented in a holistic

manner, as the emission reports were verified under the Project.

Project Components:

I. Implementation of the Regulation on preparation of monitoring plans and emission reports for electricity, cement and refinery sector installations volunteering within the scope of MRV pilot programme

II. Analytical Report 1: Roadmap for the Consideration of Establishment and Operation of a Greenhouse Gas Emissions Trading System in Turkey

III. Analytical Report 2: Assessment of Market Based Emission Reduction Policy Options for Turkey

IV. Analytical Report 3: Modelling Fiscal, Economic and Sectoral Impacts of Carbon Pricing in Turkey

V. Synthesis Report

21

PMR Turkey, 2017, http://pmrturkiye.org/kurumsal/pmrturkiye/

38

Annex 7: Follow Up

▪ Data collection and analysis

▪ Consultation process

• Focus group meetings

• Interviews

• Questionnaire Study

• Reporting of the consultation process

This publication is prepared with financial contribution of the European Union and the

Republic of Turkey. Only the consortium led by the Hulla & Co Human Dynamics KG is

solely responsible for the contents of this publication, and such contents do not reflect

the opinions and the attitude of the European Union nor the Republic of Turkey.