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Potential effects of the EU’s carbon border adjustment mechanism on the Turkish economy

Author

Listed:
  • Sevil Acar

    (Boğaziçi University)

  • Ahmet Atıl Aşıcı

    (Istanbul Technical University)

  • A. Erinç Yeldan

    (Kadir Has University)

Abstract

In December 2019, the EU announced the European Green Deal (EGD) to create a climate-neutral continent by 2050. Accordingly, the EU Emission Trading System (ETS) will be revised to maintain economic growth against possible losses in competitiveness, leading to “carbon leakage.” Carbon border adjustment (CBA) is one of the mechanisms proposed to tackle the carbon leakage problem. In this paper, we provide a first-order estimate of the potential impacts of a possible CBA across production sectors and build a dynamic, multi-sectoral applied general equilibrium (AGE) model to study the overall macroeconomic impact of the EGD on the Turkish economy. Then, we extend our analysis to document the potential benefits of a more active climate policy. The model is in the Walrasian tradition wherein aggregate supply and demand actions are simulated with the interplay of relative prices to bring equilibrium in the markets for goods, for labor, and for foreign exchange. Constructed around 24 production sectors, the model accommodates flexible, multi-level functional forms to link production activities with gaseous emissions, a government entity to maintain taxation, and public expenditures, as well as administration of environmental policy instruments, all within an open-economy macroeconomic environment. Our results suggest that the potential adverse impact of the CBA on the Turkish economy would range between 2.7 and 3.6% loss of the GDP by 2030 over the business-as-(un)usual base path. We also document that under an alternative scenario through which Turkey is modeled as an active agent in the international climate policy arena embedding decarbonization into her official macroeconomic policy agenda, she can achieve a superior pathway for national income and a reduced carbon burden.

Suggested Citation

  • Sevil Acar & Ahmet Atıl Aşıcı & A. Erinç Yeldan, 2022. "Potential effects of the EU’s carbon border adjustment mechanism on the Turkish economy," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(6), pages 8162-8194, June.
  • Handle: RePEc:spr:endesu:v:24:y:2022:i:6:d:10.1007_s10668-021-01779-1
    DOI: 10.1007/s10668-021-01779-1
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    References listed on IDEAS

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    1. Neuhoff,Karsten, 2011. "Climate Policy after Copenhagen," Cambridge Books, Cambridge University Press, number 9781107008939, January.
    2. Helm, Carsten & Schmidt, Robert C., 2015. "Climate cooperation with technology investments and border carbon adjustment," European Economic Review, Elsevier, vol. 75(C), pages 112-130.
    3. Kat, Bora & Paltsev, Sergey & Yuan, Mei, 2018. "Turkish energy sector development and the Paris Agreement goals: A CGE model assessment," Energy Policy, Elsevier, vol. 122(C), pages 84-96.
    4. Acar, Sevil & Yeldan, A. Erinc, 2016. "Environmental impacts of coal subsidies in Turkey: A general equilibrium analysis," Energy Policy, Elsevier, vol. 90(C), pages 1-15.
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    More about this item

    Keywords

    European green deal; Carbon border adjustment; Turkey; Input–output methodology; Applied general equilibrium;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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