Reducing carbon emissions while boosting growth: Turkey's response to the EU's carbon border adjustment mechanism

Governments around the world face an urgent need to reduce carbon emissions alongside equally urgent demands to lower poverty and promote growth. Further impetus comes from the looming imposition of carbon taxes on traded goods such as the EU’s carbon border adjustment mechanism (CBAM) that is scheduled to come into force in 2023. By partnering with the European Bank for Reconstruction and Development (EBRD), this project aims to shed light on the trade-offs between the twin objectives of carbon emission reduction and firm growth. The project will compare the relative efficacy of three programmes designed to reduce Turkish SMEs' emissions. All three programmes entail assistance from the EBRD in applying for loans, as well as expert training provided by an experienced consulting firm. Where the programmes differ is in the purpose of the loans and the subject matter of the expert training. Beyond comparing the carbon and growth efficacy of our three experimental interventions, the researchers also hope to capture leakage effects to other firms and countries.
 
The research methodology is the following: the firms applying to the EBRD programme will be randomised into three treatment arms of approximately 150 firms each and a similarly sized control group that receives no additional benefits. Treated firms will receive enhanced training by expert SME consultants with specialisation in Climate Change, Green Finance, Lifecycle Assessment, EU Ecolabel Standard, and GHG Measurement. As part of the application process, all firms will be required to report their carbon emissions. Then the researcher will be able to regress outcomes such as carbon emissions and employment growth on a treatment arm dummy variable in order to estimate the causal effect.
 
This project aims to shed light on the effectiveness of different credit and training programmes on carbon mitigation and growth for SMEs in developing countries. In particular, the intervention targets SMEs in the most carbon-intensive industries (e.g. iron & steel, cement, and aluminium) that are initially covered by CBAM as well as industries that use materials intensively (e.g. plastics). Although the project is set in Turkey, it has the potential to inform climate policies in middle-and low-income countries (LMIC) that specialise in high emissions sectors, and hence an important share of LMIC pollution.