Türkiye
Türkiye’s proven reserves of fossil-fuel resources are modest, though the country produces lignite and smaller amounts of hard coal. Domestic coal production satisfies, however, only about 41% of total national supply with Türkiye importing 58% in 2021. Yet, owing to its strategic location between Europe, the Caspian region, and the Middle East, Türkiye remains an important international energy-transit route. The country relies on imports to meet at least 70% of its total energy supply (TES).
Following the enactment of the 2001 Electricity Law, Türkiye unbundled its state-owned enterprises into different business activities such as generation, transmission, distribution, and retail sales. As a result, private-sector investment in power generation has increased significantly since 2003. As a part of the 2001 Electricity Law, the Energy Market Regulatory Authority (EMRA) was set up as an independent regulatory authority to issue licences, approve tariffs, solve disputes, and apply penalties in the electricity, natural-gas, petroleum, and LPG markets.
The Turkish Government also passed a Natural Gas Market Law in 2001 with the objective of establishing a competitive natural-gas market. Although the law was supposed to unbundle the state-owned Petroleum Pipeline Company (BOTAS), the firm remains a major player in the natural-gas market, importing 85.2% of all the natural gas (including LNG) consumed in 2018. Gas from the Russian Federation (hereafter “Russia”) flows to Türkiye via the Russia-Türkiye Bluestream and Russia-Türkiye West gas pipelines. Additionally, the construction of the TurkStream pipeline (replacing the South Stream Transport Project) was completed towards the end of 2019 with first gas deliveries recorded in January 2020. Meanwhile, gas from Azerbaijan enters Türkiye through the Baku-Tbilisi-Erzurum pipeline. June 2018 saw the launch into operation of the Trans-Anatolian Gas Pipeline (TANAP) connecting the European gas market to Shah Deniz-2 gas field. Likewise, as a result of its exploration activities in the Black Sea, Türkiye’s state oil company (TPAO) found 135 billion cubic metres of gas at the Amasra-1 offshore well in June 2021, in addition to its 405 billion cubic metres of gas recovered at the Tuna-1 well in the Sakarya field in late 2020.
Oil prices in Türkiye have been set by the market since 2005. Wholesale prices for gas and electricity are cost-based but retail prices remain regulated through the Energy Market Regulatory Authority (EMRA)-approved uniform national retail tariff. The tariff is therefore not reflective of cost differences between various distribution regions. While the cost-based gas prices were gradually introduced to power plants and industry in 2018 and 2019 respectively and subsidies withdrawn to a large extent, subsidies for residential gas supply have however continuously increased.
Retail electricity prices remained fixed between 2002 and 2007 despite rising generation costs. Starting in 2008, prices have then been adjusted quarterly to take into account input prices, inflation, and exchange rates. Cost-based pricing is being introduced gradually, starting with consumers exceeding 50 GWh/year of consumption in 2018, with this ceiling reduced to 1 GWh/year with effect as of July 2022. For consumers below this limit, subsidised pricing still applies although at a decreasing margin.
Prices for gasoline and diesel fuel in Türkiye are among the highest in the world owing to high excise taxes on fuel. Excise taxes are identical for both commercial and non-commercial users.
Although Türkiye has made significant strides in reforming its energy sector since 2001, measures supporting the consumption and production of fossil fuels have become more numerous. Notable support focuses on reducing import dependency in coal, oil, and gas through measures such as waivers of value added tax (VAT), support to investment locations, interest and insurance premiums paid by employers, and tax reductions.
The Strategic Plan 2019-2023 continues support for domestic coal as seen in earlier strategic plans, targeting a domestic coal capacity of up to 14.7 GW by the end of the planning period.
In line with the Strategic Plan, the 2017 National Energy and Mining Policy framework rests on three pillars: security of supply, use of domestic resources, and establishment of foreseeable markets. On the domestic resources front, a higher rate of utilisation of domestic coal resources through cutting-edge technologies and an active exploration policy regarding oil and natural gas resources were highlighted. The mining sector is also targeted in the new strategy, where the Directorate General for Mining is restructured to alleviate the bureaucracy for mining investments.
The Electricity Market Capacity Mechanism was designed and initiated in 2018 to be operated by the Türkiye Electric Transmission Corporation (TEİAŞ) under the Ministry of Energy and Natural Resources, in order to establish sufficient capacity including the reserve capacity required for supply security in the electricity market and for long-term system security. Capacity payments are extended to only eligible power plants to provide support for meeting their operational costs and by design it targets fossil sources where around 90% of the payments are received by the natural gas and thermal plants since its initiation.
Aid to the state-owned Turkish Hard Coal Enterprise (TTK) compensates the company for the high costs of its production. Coal is widely used as heating fuel by poorer households in Türkiye and Turkish Coal Enterprises (TKI) have been supplying coal in-kind to households since 2003 as part of a government measure for supporting the poor. The financial cost of this measure has increased substantially lately with surging energy demand in Türkiye and the widening reach of the programme.
In the aftermath of the COVID-19 pandemic, several measures and initiatives were announced or implemented in the country. Based on the critical role that national oil and natural gas production plays in the country’s energy landscape, share payments (State share payments) and filling deadlines were extended with due dates for licence liabilities (for drilling, etc.) also postponed by six months. For electricity generation, previous design of capacity mechanism excluded imported coal and natural gas thermal plants that are older than 13 years. Due to the pandemic, reduced demand and volatile exchange rates have hurt the financial state of Turkish electricity producers and in order to partially compensate for these losses, the Energy Market Regulatory Authority has released a draft regulation that expands the capacity mechanism for these plants. There were also measures announced to target household consumers. Due to the COVID-19 pandemic, Ministry of Energy and Natural resources would cover the financial costs resulting from the fines and interests due to the postponement of accrued electricity or natural gas bills, up to a maximum of one year.
As a response to the soaring energy prices and following the cancellation of tenders of the Electricity Generation Company to purchase electricity from power plants through the end of 2025, Türkiye introduced a six-month resource-based price cap mechanism. With effect from April 2022, the Energy Market Regulation Agency determined differentiated maximum settlement prices for imported coal and natural gas versus lignite and renewable energy power plants. The regulation intends to use funds raised through this mechanism, in the form of windfall tax, to support higher-cost power plants (whose marginal cost exceeds the day ahead market [DAM] price). Further, as of 2022 the Government also started providing natural gas consumption support for the vulnerable households to meet their heating needs, as an extension to social support program which also included electricity consumption support for eligible households, which was initiated in 2019. During the energy market crisis, Türkiye expanded its support for electricity consumption by readjusting electricity tariffs for low-consumption households by increasing the monthly limit from 150 kWh to 240 kWh in addition to lowering the VAT on electricity used in residences and agricultural irrigation from 18% to 8%.
The Ministry of Energy and Natural Resources announced its National Energy Plan in December 2022, which envisions an additional 3.2 GW domestic coal and 10 GW combined natural gas capacity until 2035. Thus, further budgetary and tax expenditures may be expected for the realization of these capacities in the coming years.
The fiscal cost of support measures for fossil fuels in Türkiye was estimated at TRY 38.51 billion in 2022 (Table 1). Eighty-six per cent (86%) was directed at end user beneficiaries, as opposed to 13% directed to firms. Support was mainly given out in the form of tax expenditures (TRY 30.44 billion) accounting for 79% of the total fiscal cost of support measures. Direct transfers amounted to TRY 8.07 billion.
The fiscal cost of support measures for fossil fuels has increased by 95% since 2017. Since last year, tax expenditures have increased by 80%, from TRY 16.80 billion to TRY 30.44 billion and direct transfers increased by 34%, from TRY 6.28 billion to TRY 8.07 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.