Turkey’s economic competitiveness

JUSTIN DARGIN

Growing energy intensity rates are a threat to Turkey’s economic performance. Due to soaring energy consumption rates, Turkey has been attempting to rein in high energy intensity rates in a bid to stanch waste and reduce overall energy demand. In that vein, Prime Minister Recep Tayyip Erdoğan designated 2008 as the “Energy Efficiency” year. Turkish authorities determined that lowering energy intensity was one of the most successful - and inexpensive - methods to lower relative energy consumption over the long term. While energy efficiency cannot replace necessary infrastructure or required new natural gas supply, it is still a crucial component in creating a viable solution.

The Turkish strategy is to reduce energy demand by each person by 15 percent until 2020 by encouraging more efficient energy use in the transportation, industrial and residential sectors. The need for this strategy is apparent, as Turkey wastes approximately a fifth of its electricity during power transmission, and in terms of energy usage per GDP, it ranks near the bottom of European countries. Turkey, as with other countries experiencing rapid economic growth, has surging energy intensity rates. In the 1980s, Turkish power consumption was 750 kWh/capita and per capita GDP was $2,100. Both doubled in the 1990s, and then increased even more in the 2000s whereby per capita GDP reached approximately $6,350 and electricity consumption reached 2,300 kWh.

However, it is the industrial sector that bears the brunt of the rising intensity rates. Turkish energy intensity in the industrial sector is quite high; it is higher than the global average, as well as double the OECD average and approximately four times higher than Japan’s average energy intensity. Nonetheless, if Turkey had not increased its share of natural gas in the energy mix to approximately 50 percent of power generation, while coal decreased, Turkey’s energy intensity rates would be much higher. On the supply side, thermal power plant efficiency has significantly increased significantly, from approximately 34 percent in 1998 to 43 percent in 2009. This energy efficiency increase is due to the increased share of gas combined cycles in thermal electricity production, such that in 2009, it represented 28 percent of thermal capacity. The fuel switchover also enhanced gains in CO2 reductions.

The U.S. case is instructive for the benefits of increased consumption of natural gas in the industrial sector. In 2009, due to the large amount of natural gas entering the market, there was a notable transition from coal fired power generation to natural gas, resulting in enormous energy efficiency gains and declines in carbon emissions (and related pollution) as well. In 2009, U.S. energy intensity fell by 2.4 percent.

Increasing energy efficiency in the industrial sector is an economic imperative for Turkey to remain competitive in the global economy and sustain its economic growth. While over most of the last half century the amount of primary energy required to produce each unit of global manufacturing output has declined, in Turkey these energy intensity rates have been increasing in the industrial sector. To a certain degree, the energy efficiency issues that Turkey is facing are similar to rapidly industrializing countries, such as China, India and most of the GCC countries. While in the U.S. and the U.K., the energy intensity rate is 40 percent lower today than it was in 1980, across the MENA region, it has more than doubled.

The residential sector is another area where energy efficiency gains would be compounded. Across Turkey, residential peak demand is increasing because of increased use of heating and cooling appliances which reflects the rise in per capita GDP. Overall, energy intensity rate increases have been somewhat reduced by the much more rapid growth in the services industry as opposed to the energy intensive industrial sector. However, the reduction in energy demand has only been relative as absolute energy consumption has been increasing along with economic expansion. Due to economic growth and increased consumer wealth, Turkey is on course for a dramatic increase in energy consumption. Turkey has the ability to avoid locking itself into an unsustainable energy framework by focusing on a comprehensive energy efficiency strategy and increasing its natural gas import to buttress its economic growth. These two policy options, focusing on demand management from both the supply and demand side, and then diversifying its energy supply to embrace more natural gas, possibly from LNG import, would incorporate long term sustainability in the Turkish economy.

Justin Dargin, School of Geography and the Environment, University of Oxford