Net Zero 2053: Energy Sector Policies

Executive Summary

The profound and concerning impacts of climate change on societies as well as the planet necessitate a shift toward a low-carbon economy. Within the United Nations Framework Convention on Climate Change (UNFCCC) framework, the Paris Agreement, established in 2015 and operational since 2016, aims to curb climate crisis effects by limiting global temperature rise to well below 2 degrees Celsius above pre-industrial levels, with a focus on achieving 1.5 degrees Celsius (0C). In this regard, many countries, including Türkiye, have committed to achieving a net zero-emission economy by the mid-century. Discussions revolving around climate change underscore the urgency of accelerating the transition of the energy sector, responsible for roughly three quarters of global greenhouse gas emissions. Besides international agreements; regional and global developments play a crucial role in driving forward the progress of global energy transition. The global economies and energy supply chains were significantly impacted by the Covid-19 pandemic, which originated in 2019 and intensified in 2020, and subsequent international measures. The energy crisis, exacerbated by the Russia-Ukraine conflict in 2022, notably heightened primary energy prices and raised concerns over energy supply security, revealing vulnerabilities in fossil fuel-dependent energy systems. With these developments, the urgency of energy transition has gained prominence with the need to ensure energy supply security and energy affordability as well as combating climate change. Energy efficiency, renewable energy and clean electrification stand as the cornerstones of energy transition. In addition to these elements, the driving force of new technologies in achieving a net zero economy is undeniable. In the coming period, the development of innovative technologies will be one of the main factors that will determine the success and speed of this transition. An example is the ongoing efforts for the production of green hydrogen and clean synthetic fuels (e-fuel) to decarbonize the hard-to-abate sectors. Aligning with the global efforts to combat climate change and accelerate energy transition, Türkiye announced the Green Deal Action Plan in July 2021, targeting a shift to a sustainable and circular economy. In October 2021, Türkiye ratified the Paris Agreement and subsequently committed to achieving a net zero-economy by the end of 2053. According to the recent data, Türkiye emitted 564.4 million tons of carbon dioxide equivalent (mt CO2 e) in 2021, marking a 7.7% increase from 2020 and a staggering 157.1% surge compared to 1990 emission levels.1 Notably, the energy sector contributed to 71.3% of the total greenhouse gas emissions and 85.2% of the total carbon dioxide (CO2 ) emissions in 2021, with electricity and heat production accounting for the largest share (40.9%) in carbon emissions. Therefore, it is crucial for Türkiye that the Turkish electricity sector taking the lead in the energy transition by prioritizing decarbonization ahead of other end-use sectors. 1 https://data.tuik.gov.tr/Bulten/Index?p=Sera-Gazi-Emisyon-Istatistikleri-1990-2021-49672 3 Executive Summary Net Zero 2053: Energy Sector Policies Türkiye has made significant strides in decarbonizing its electricity sector over the past two decades, driven by substantial reforms and new regulations. Following the privatization of the electricity sector, private sector investors engaged in electricity production and distribution activities. Alongside these reforms, the declining costs of renewable energy, coupled with technological advancements and offered financial incentives, have spurred heightened interest and investment in renewable energy sources. In turn, the capacity of renewable energy sources in Türkiye has increased rapidly, particularly over the last decade. In the first half of 2023, the share of renewable energy in the installed power and electricity generation constituted 54.4% and 44.6% respectively. As global and regional dynamics shape energy sector, SHURA Energy Transition Center published “Net Zero 2053: A Roadmap for the Turkish Electricity Sector” study in 2023, which emphasizes Türkiye’s potential to achieve net-zero emissions while maintaining economic growth and welfare. This quantitative modeling study, centering on the electricity sector’s role in transitioning to a net-zero economy by 2053, indicates that the total electricity demand will escalate to 982 terawatt hours (TWh) by 2053, with 90% of this demand being met by renewable energy sources. In the model, total energy demand rises until 2030 in tandem with heightened economic activity. However, it subsequently begins to decrease due to a shift toward high value-added, less energy-intensive sectors and products, alongside amplified levels of electrification and enhanced energy efficiency. As the pace of energy transition accelerates, the total energy demand is projected to diminish to the levels observed in 2020 by 2053. Within the scope of the modeling study, it is assumed that market conditions supporting energy transition are established in Türkiye. The emergence of market conditions that will accelerate energy transition can only be achieved through policies that prioritize this transition. Accordingly, many countries, primarily the European Union (EU), as signatories to the Paris Agreement, are formulating various framework policies across all sectors of the economy, particularly in the electricity sector, focusing on energy transition and combating the climate crisis. The EU aims to become the world’s first climate-neutral continent, assuming a pioneering role in shaping both the collective climate policies within the Union and individual climate policies of its member countries. The primary objectives in the EU’s framework policies are summarized as: • an interconnected European energy market, • economic and secure energy supply, • electricity sector characterized by a high share of renewable energy capacity and production. The key comprehensive policies published by the European Commission and the European Union in alignment with the net-zero emission goal include: • European Green Deal • Fit-for-55 Package • Carbon Border Adjustment Mechanism (CBAM) • EU Emissions Trading System (EU ETS) • REPowerEU Plan, • European Electricity Market Design 4 Executive Summary Net Zero 2053: Energy Sector Policies • Net Zero Industrial Act and Critical Raw Materials Act • Renewable Energy Directive The determined comprehensive policy frameworks are being shaped in alignment with the EU’s climate objectives and are being updated in response to global developments. These policies also yield significant implications for countries with strong economic and trade ties to the EU. For instance, the Carbon Border Adjustment Mechanism (CBAM), which aims not only to intensify efforts in combating climate change but also to safeguard Europe’s competitiveness against the cost of green transition, proposes subjecting certain products imported into Europe to a carbon tax linked to the EU Emissions Trading System (ETS). Additionally, new framework policies are being formulated within the context of the ongoing energy crisis and regional geopolitical developments. Announced by the European Commission in May 2022, the REPowerEU Plan aims to diversify the EU’s energy supply, promote energy efficiency, and support clean energy production to end the EU’s dependency on energy imports from Russia due to disruptions in the energy supply chain2. The fundamental goal of the REPowerEU Plan is to significantly increase the use of renewable energy in electricity generation, industry, buildings, and transportation sectors. This plan is based on the implementation of proposals within the Fit-for-55 Package, suggesting raising the share of renewable energy capacity in the total energy mix to 45% by 2030, up from the 40% level set in the Fit-for-55 Package. According to the Directorate General for Energy (DG ENER) of the European Commission, establishing an integrated energy market in the EU is one of the most cost-effective ways to ensure a reliable, sustainable and economic energy supply3. In response to concerns about energy supply security, alongside the high and volatile electricity market prices observed in Europe in 2022, the European Commission has taken steps to update rules on electricity market design and safeguard the EU against market manipulations in the wholesale energy market. The primary objectives of the electricity market reform proposal presented by the European Commission in March 2023 are to better protect consumers against short-term high prices, to accelerate the integration of solar and wind power plants into the system, to safeguard the electricity market against manipulations and to enhance energy cost predictability and stability. Pursuing these goals, the EU electricity market can be designed to be more competitive and secure. Among the proposed market instruments within the framework of the presented proposal are longer-term contracts such as Renewable Power Purchase Agreements (Renewable PPA) and investment support structured in the form of Two-Sided Contracts for Difference4 (CfD). In addition to the Electricity Market Reform, the announced “Net Zero Industrial Act” and the proposed “European Critical Raw Materials Act” have set up an EU framework to reduce the import of critical products and raw materials vital for energy transition. The proposed legislation addresses components of energy technologies that will serve decarbonization across all sectors of the economy. Within the “Annexes” section of the Critical Raw Materials Act, it is stipulated that the processing capacity of the strategic raw materials defined therein must be increased throughout the value chain, and at 2 European Commission, 2022. https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green deal/repowereu-affordable-secure-and-sustainable-energy-europe_en 3 European Commission, 2023. https://energy.ec.europa.eu/topics/markets-and-consumers/market-legislation/electricity market-design_en 4Contracts for Difference (CfD) are bilateral financial contracts that provide a payment from the buyer to the seller if the price of an underlying asset is below the agreed strike price, and a reverse payment otherwise. 5 Executive Summary Net Zero 2053: Energy Sector Policies least 40% of the annual consumption of strategic raw materials needs to be produced domestically. Dedicated incentives will also be provided for these strategic raw materials to ensure their availability and processing within the EU. The “Renewable Energy Directive” which came into effect in December 2018 and became binding as of June 2021, was revised in October 2023 due to the increasing need of the European Union (EU) to reduce its fossil fuel dependency amidst geopolitical developments. In essence, the Renewable Energy Directive provides a legal framework for the transition to clean energy sources across all sectors of the EU economy (European Commission, 2023d). Among the notable revisions within the Directive, one of the most significant points is the proposed accelerated and simplified permit procedures for renewable energy projects. Additionally, it’s understood that renewable energy projects will be considered as projects of public interest and prioritized. Targets have been updated on a sectoral basis in end-use sectors with low integration of renewable energy (such as transportation, buildings, and industry). The policies and policy instruments implemented by the EU in the transition to a net-zero emission economy serve as an example for Türkiye during its transition. Particularly since 2021, Türkiye has developed various energy and climate policies, including: • Green Deal Action Plan (2021) • Ratification of the Paris Climate Agreement (2021) • 2053 Net Zero Emission Target (2021) • Organization of the “Climate Summit” by the Ministry of Environment, Urbanization and Climate Change (2022) • Announcement of the Nationally Determined Contributions (NDC) at the COP27 Climate Summit in Egypt (2022) • Publication of the “National Energy Plan” (NEP) and “Türkiye Hydrogen Technologies Strategy and Roadmap” (2023) As Türkiye has ratified the Paris Agreement and declared its net zero emissions goal by 2053, it is expected that Türkiye will announce the complementary “Climate Law” in the near future. The National Energy Plan (NEP) is crucial in presenting a mid-term roadmap in the fight against climate change. The NEP details the projections for total energy demand until 2035 in harmony with the economic growth forecasts of the Presidency of Strategy and Budget of the Republic of Türkiye. It also outlines the planned developments in energy supply. Furthermore, it provides an overall view for 2053. One notable aspect highlighted in the NEP is the increasing integration speed of renewable energy sources with variable generation such as solar and wind power into the grid. The plan illustrates a decrease in the share of fossil fuels in primary energy consumption from 83.3% in 2020 to 20.8% in 2053. Additionally, the “Türkiye Hydrogen Technologies Strategy and Roadmap” released in 2023, focuses on the role of hydrogen in an economy devoid of carbon emissions by 2053. Accordingly, it presents a roadmap for research and development (R&D) initiatives and implementation programs for green hydrogen production in Türkiye, aiming to develop indigenous and clean hydrogen technologies. Recently announced, the Medium-Term Program (2024 – 2026)5 and the 12th Development Plan (2024 – 2028)6 both evaluate green and 5 Official Gazette, 2023. https://www.resmigazete.gov.tr/eskiler/2023/09/20230906M1-1.pdf 6T.C. Presidency of Strategy and Budget, 2023. https://www.sbb.gov.tr/wp-content/uploads/2023/11/On-IkinciKalkinma Plani_2024-2028.pd 6 Executive Summary Net Zero 2053: Energy Sector Policies digital transition themes. Another significant policy preparation expected in the near future, which will provide a comprehensive approach to Türkiye’s energy transition, is the release of the Second National Energy Efficiency Action Plan (II. NEEAP). Energy efficiency remains a priority in Türkiye’s climate, energy policies, and development plans (SHURA, 2023). Therefore, it’s anticipated that the new Action Plan will clarify essential steps required between 2024 and 2030 for energy efficiency implementations. Energy transition across all sectors of the economy is crucial in combating climate change, and this necessitates profound changes throughout the entire value chain. For this transition to be successful, various elements such as policies and regulations, technological advancements, and altering consumption habits ingrained within society need to be comprehensively evaluated. Globally applied climate change mitigation policies encompass a wide array of options, including carbon pricing, incentives for renewable energy, support for energy efficiency measures and standards, policies to increase electrification, regulations in the electricity system, and f lexibility-enhancing practices. It is essential to formulate the right combination from this broad spectrum of policies to expedite energy transition and decarbonization processes more swiftly and cost-effectively. In this context, areas for improvement in the electricity sector, which is considered critical for decarbonization and leading the energy transition, have been identified, and policy recommendations have been developed in this study. Additionally, fundamental strategies and feasible policy recommendations have been outlined for each sector where energy is utilized. The aforementioned practices and policy suggestions are summarized below (Table 1 and Table 2) in terms of short, medium, and long-term perspectives