Energy Economy, Energy Policy, and Energy/Carbon Taxes of Turkey

Abstract

Turkey's strategic location makes it a natural “energy bridge” between major oil-producing areas. The sharp growth of the energy sector has been accompanied by institutional reforms. One of the most important developments has been liberalization of all energy sectors, including electricity production and distribution, to private capital both national and foreign. Economic analysis of the potential effects of energy and carbon taxes yields important conclusions bearing on policy choices. States have played a leading role in protecting the environment by reducing emissions of greenhouse gasses (GHGs). State emissions are significant on a global scale. Broad-based carbon/energy taxes are among the most promising and important of the emerging tools for promoting reductions in carbon dioxide emissions. Carbon taxes can play an important role in a strategy to control carbon dioxide emissions while raising revenue. To limit international emissions of GHGs, the authorities introduced carbon taxes. Relative to traditional state energy taxes such as motor fuel taxes, carbon taxes offer several advantages: the broader base allows a specified revenue need to be met with a lower rate; the carbon tax promotes environmental quality, adding to its policy benefits and political appeal; the tax burden is broadly distributed over the commercial, residential, and industrial sectors; and the tax causes less economic distortion than other energy taxes. Conventional financing of major infrastructure projects would only increase the amount of foreign credit, thus Turkey has conceived other options for financing projects.