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Carbon markets as a financial instrument in the forestry sector in Turkey/Marches de carbone comme instrument financier dans le secteur de foresterie en Turquie/Los mercados de carbono como un instrumento financiero en el sector forestal de Turquia.

INTRODUCTION

The emergence of carbon markets

The demand for natural resources has increased due to the rise in world population and industrialization. In parallel with the increase in demand, natural resources have been overused and destroyed. As a result of the destruction of natural resources, a number of environmental problems have occurred, including pollution, desertification, global warming, and climate change. Climate change is one of the greatest challenges of the last decades and affects the entire world. Several multinational steps and collaborative efforts have been made to prevent climate change from becoming a global disaster. International agreements such as the UNFCCC and Kyoto Protocol are among the examples of such efforts.

While the UNFCCC is the primary international body seeking to mitigate climate change by reducing greenhouse gas emissions, the Kyoto Protocol established a framework for Annex I countries (that is, developed countries) for "reducing their overall emissions of such gases by at least 5% below 1990 levels in the commitment period 2008 to 2012 (Gorte and Ramseur 2010). To provide flexibility to countries in meeting their greenhouse gas reduction targets, the protocol included flexible mechanisms such as the Clean Development Mechanism (CDM) and Joint Implementation (JI) (Golub et al. 2009, Gorte and Ramseur 2010). Beside these flexible mechanisms, countries and firms are permitted to develop projects voluntarily to reduce emissions and sell emission reduction certificates from these projects. The market in which countries and firms buy or sell these units of greenhouse gas emissions in an effort to meet their limits on emissions is called the carbon market (MoEF 2011a, MoEF 2011b).

There are some ways of combating climate change by slowing down emissions. Governments can reduce emissions through advocacy, by way of regulation, and via the application of economic instruments. Economic analysis shows that placing primary emphasis on the use of economic instruments provides the most cost-effective way for reducing emissions. Two of the main forms of these instruments are carbon taxes imposed on all C[O.sub.2] emissions and the allocation of tradable permits. Tradable permits include allowance trading and emission reduction credit trading. As a result of these trading systems, carbon financing is facilitated (The Royal Society 2002).

The emerging carbon market is one of the few sources of financing for environmental services. Using carbon markets, countries and firms can invest in different sectors such as clean technologies (renewable energy, energy efficiency and solid waste management) and forestry-related sectors (afforestation, reforestation, improved forest management and avoiding deforestation).

Financial situation of carbon markets

The trading volume and financial value of carbon allowances markets and spot and secondary offsets increased until 2008. But the global economic crisis, which started in late 2008 and intensified in early 2009, negatively impacted both the demand and supply sides of the market. Although trading volume increased more than 100% in 2009, the average credit prices and the total market value declined sharply due to the global economic crisis (The World Bank 2010).

The financial situation of the compliance carbon market is shown in Table 1. Given the lack of post-2012 regulatory clarity, the value of the primary Clean Development Mechanism (CDM) market declined. The secondary CDM also declined in 2009. As these segments of market declined, the dominance of the European Union Allowances (EUAs) market became more pronounced. EUAs accounted for 84% of the total compliance carbon market value in 2010 (The World Bank 2011).

The financial value of voluntary carbon markets (VCM) is shown in Table 2. Although the value and volume of voluntary carbon markets are small when compared to compliance markets, countries and firms that are not in compliance markets but are willing to take part in emission reduction activities can find a good alternative in VCM. As the global financial crisis gave way to recovery, voluntary buyers recommitted their discretionary income to offsetting emissions. At the same time, political circumstances in the US spelled the end of the Chicago Climate Exchange (CCX) and shifted the majority of transactions to the over-the-counter (OTC) market (EcoSystem MarketPlace 2011a).

The relationship between the carbon market and the forestry sector

Since carbon dioxide is the most important anthropogenic greenhouse gas, it is crucial to put emphasis on the global carbon cycle while combating climate change. Combinations of ground based observations, atmospheric carbon budgets and satellite measurements indicate that forests are currently a net sink for carbon at the global scale (IPCC 2014). Hence the world's forests have a substantial role in the global carbon cycle. The Intergovernmental Panel on Climate Change (IPCC) reports the latest estimates for the terrestrial sink for the decade 1993-2003 at 3 300 MtC[O.sub.2]/yr, ignoring emissions from land-use change (Denman et al. 2007). The most likely estimate of emissions from land use change for 1990s is 5 800 MtC[O.sub.2]/yr, 4 200 MtC[O.sub.2]/yr of which is partly being sequestered on land as well (IPCC 2007). Based on a survey for the period 2000-2007, it is estimated that intact and regrowing forests currently contain 861 [+ or -] 66 PgC and stored 4.0 [+ or -] 0.7 Pg C/yr globally (IPCC 2014). IPCC Third Assessment Report concluded that the forestry sector has a biophysical mitigation potential of 5,380 MtC[O.sub.2]/yr on average up until 2050 (Kauppi et al. 2001).

Forests play a major role in combating and contributing to climate change (GDF 2010, UN 2010) by serving as:

* a carbon sink by absorbing carbon dioxide from the atmosphere

* reservoirs for carbon dioxide by storing it in tree trunks, leaves, branches, and forest soil

* an alternative, clean energy source

* a carbon dioxide source in case of forest fire, deforestation, and degradation.

Forests are powerful concentrators of carbon. It is estimated that emissions from deforestation and forest degradation in developing countries account for nearly 20% of total global greenhouse gases emission annually. Following the rate of emissions from the energy sector, this is the second highest percentage and represents a higher volume of emission than originating from the transport sector. (MoEF 2010, Khan 2010).

Forestry is one of the sectors where projects are implemented to sequester greenhouse gases or reduce emissions. Projects such as afforestation, reforestation, and the prevention of deforestation lead to the generation of carbon offsets or credits. These credits are sold to regulated entities or to those who wish to reduce their carbon footprints (Gorte and Ramseur 2010).

Until recently carbon projects were neglected in compliance carbon markets, but in future these markets, particularly the CDM forestry credits and Reducing Emissions from Deforestation and Degradation (REDD+) mechanisms, will provide opportunities for the generation of forest carbon credits. At the present time, the only way to acquire forestry carbon credits is through voluntary markets. Afforestation and reforestation projects, improved forest management and avoiding deforestation are the major sources for forest carbon credits in voluntary markets (Khan 2010, MoEF 2010, MoEF 2011a).

Until 2005, the OTC market was the exclusive home for forest carbon. Since 2005, OTC remains dominant, but various other emerging market programs have made variable inroads in terms of global market share in the primary market for forest carbon. The OTC market volume share was over 70% in 2007, up to 79% in 2008, 75% in 2009 and up to 91% in 2010 (EcoSystem MarketPlace 2011b).

Volume, value, and prices in the forest carbon markets are summarized in Table 3 (EcoSystem MarketPlace 2013). In 2011, forest carbon project developers reported the highest value, totaling $237 million. In 2012, values decreased 9%, while transaction volumes increased from 25,6 MtC[O.sub.2]e to 28 MtC[O.sub.2]e. As in previous years, the OTC market is the dominant market, but there is a significant decline in CDM/JI market volume in 2012.

In 2012, average project prices in compliance markets increased more than 45%, while the voluntary market showed a 16% decrease in the same period. In 2012 the average price for forestry offsets fell to $7.8/tC[O.sub.2]e from $9.2/tC[O.sub.2]e. This is mostly due to the decrease in the average of the voluntary market price. Overall, this average price is the aggregation of hundreds of diverse prices that vary greatly by different project standards, locations and other environmental and social co-benefits. It ranges from less than $1/tC[O.sub.2]e to over $100/tC[O.sub.2]e.

Forestry projects must hold certain properties to be accepted in the carbon market. For example these projects have to meet the "additionality" criteria. According to the Kyoto Protocol, greenhouse gas emission reductions generated by CDM and JI project activities must be additional to those that otherwise would occur (UN, 1998). Additionality is established when there is a positive difference between the emissions that occur in the baseline scenario (business as usual) and the emissions that occur in the proposed project (MoEF 2011b).

There are legal, regulatory and institutional, financial and investment and environmental aspects of additionality. At least three forms of environmental additionality exist in a forestry projects. First, there is determination of additionality in terms of net impacts on greenhouse gas balances, a form that could be termed 'GHG additionality'. This is fundamentally dependent upon the breadth of impacts taken into account in determining the baseline and GHG savings associated with an activity. Second, in some cases, activities may only be considered additional where their output is associated with emissions per unit output below a specified level, a form termed 'unit additionality'. Third, additionality can also be considered in terms of whether (in the case of afforestation and reforestation) forests are able to establish themselves in the absence of planned activities or project, or (in the case of avoided deforestation or forest degradation) would have been deforested or degraded, forms of what will be termed 'project additionality' (Valatin 2011).

The first step in determining a project's additional greenhouse gas benefits is the elaboration of a project baseline scenario against which changes in carbon stocks occurring in the project can be compared. Then it is necessary to demonstrate that the purported greenhouse gas benefits are truly additional, not simply the result of incidental or non-project factors such as new legislation, market changes, or environmental change (IPCC 2000).

Purpose and scope of the study

The discussion above shows that carbon markets could be important financial resources for various sectors aiming to reduce emissions and combat climate change. These carbon markets offer good alternatives for financing forestry sector projects in Turkey. The purpose of this study is to analyze the current situation and future trends of the forestry sector in carbon markets in Turkey, which occupied a unique position in the international climate change agreements. The study assesses the potential to utilize carbon markets for the forestry sector in Turkey.

In what follows, Turkey's position in that regime will be discussed first. The financial opportunities that can be available to the forestry sector through compliance and voluntary markets will be taken up next. In the conclusion, the paper recommends a number of steps, taking into account varying scenarios, as to how the forestry sector in Turkey can take advantage of carbon markets as a financial resource.

CARBON MARKETS AND THE FORESTRY SECTOR IN TURKEY

Turkey is a developing country, and factors such as rapid population growth, urbanization, and industrialization put increasing pressure on the country's natural resources and environment. These factors amplify the negative effects of climate change and hamper sustainable development. As such, combating climate change is just as crucial in Turkey as it is worldwide (Demirci 2011).

Turkey has a unique position in international agreements such as the UNFCCC and Kyoto Protocol that seek to regulate climate change mitigation processes. The country became a Party to the Kyoto Protocol on 26 August 2009, after depositing the instrument of accession with the United Nations. This came as a result of the adoption, by the Turkish Grand National Assembly, of Law No. 5836 approving Turkey's accession to the Kyoto Protocol to the UNFCCC on 5 February 2009 and the adoption by the Council of Ministers of the relevant Cabinet Decree No. 2009/14979 on 13 May 2009 (Official Gazette 2009).

But, since Turkey was not a Party to the UNFCCC at the time the Protocol was adopted, it was not included in Annex B of the Protocol which defined quantified emissions limitations or reduction commitments for Annex I parties. Therefore, Turkey did not have a quantified emissions limitation or reduction commitment in the first commitment period between the years 2008-2012 under the Protocol (Khan 2010). Thus, for the reasons mentioned above, Turkey currently cannot benefit from flexible mechanisms to reduce emissions by developing projects in any sector including forestry. Voluntary programs are thus critical. In the next section, we outline the current state of forestry in Turkey and how the country might benefit from new voluntary programs.

THE FORESTRY SECTOR IN TURKEY

General information about the Turkish forestry sector

The state of Turkey's forests can be summarized as below (Khan 2010, MoEF 2010, MoEF 2011a, MoEF 2011c):

* 27.2% of the total land area (21.2 million hectares) of Turkey is covered by forests.

* Almost 99.9% of forests are state owned.

* Forestry operations are planned and executed by the General Directorate of Forestry (GDF) under the Ministry of Forestry and Water Affairs (MFWA).

* Almost half of the forests are degraded.

* 4.2 million hectares of these degraded forests can be converted to productive forest areas via afforestation, rehabilitation, and erosion control works.

* National inventories show that total forest area has increased by almost 1.2 million hectares since 1973.

Turkey has been decisive about sustainable forest management. In the last 30 years, there have been rehabilitation and reforestation activities of about 50-60 thousand hectares per year in Turkey (Khan 2010). This trend is expected to continue in the near future. In the Strategic Plan of the General Directorate of Forestry, targets are defined as (GDF 2009):

* The rehabilitation works of degraded forests will be carried out on 300 thousand hectares each year.

* Industrial plantations with primarily rapid developing native species will be established at 15000 hectares by the end of 2014.

* National forest assets will be increased to 30% of total country area.

Even though there has been an increase in total forest area, forests in Turkey is at risk of climate change effects. In terms of the negative effects of climate change, since Turkey is surrounded by seas on three sides, it is exposed to severe droughts, heavy rains, floods and gales (MoEF 2009). The general geographic region including Turkey is thought to face higher temperature and lower precipitation in the coming decades and increasing numbers of pests and forest fires may seriously harm forest ecosystems (Tolunay et al. 2011).

In the UNFCCC, developing countries affected by the adverse effects of climate change are described under nine titles (UN 1992). Six of these titles are also valid for Turkey: *

* Countries with low-lying coastal areas,

* Countries with arid and semi-arid areas, forested areas and areas liable to forest decay,

* Countries with areas prone to natural disasters,

* Countries with areas liable to drought and desertification,

* Countries with areas of high urban atmospheric pollution,

* Countries with areas with fragile ecosystems, including mountainous ecosystems

Turkey's situation indicates that Turkey's forests play a crucial role in climate change mitigation and adaptation processes. This role is expected to grow in the future. Thus, in recent years targets have been set in the strategic plan and related reports to improve carbon markets and to emphasize forests' importance in these markets (Demirci 2011).

As Turkey has only recently been introduced to carbon markets, studies are being carried out to estimate the national carbon sequestration potential. Upon becoming a Party to the UNFCCC, the country put together the First National Inventory Report to provide an estimate of emissions for various sectors and estimate carbon stocks and carbon sequestration potential (MoEF 2007). There are some existing studies which were conducted to estimate the total carbon stock in Turkey's forests. But differences exist among the results obtained in these studies. Such differences are due to the differences in the amount of Turkey's forest area, differences in the methods of calculation used, differences between the accepted amount of carbon removed from the forests in different ways, the lack of sufficient data, and the differences in the years taken as a basis of evaluation (Tolunay 2011).

Based on one of these studies, net carbon sequestration and its C[O.sub.2] equivalents are estimated in Table 4. Over the period shown in the table, total carbon sequestration has increased by almost 30%. This trend is expected to continue in the future as total forest area increases. Future estimations show that net carbon sequestration in forests is likely to be 16,000, 17,000, and 18,000 million tons in 2015, 2020, and 2023 respectively. During the same period, C[O.sub.2] equivalents will be 60,000, 63,000, and 65,000 in 2015, 2020, and 2023 respectively (Asan 2012).

In addition, the "National Afforestation and Erosion Control Mobilization Plan" (NAAP) was put into practice in 2008. The Plan targets the afforestation, rehabilitation, and erosion control of 2.3 million hectares in a 5-year period (2008-2012). With the plan remaining in effect until 2020, 181.4 million tons of carbon will be sequestrated. During same 5-year period, total greenhouse gases emission increased steadily due to industrialization and Turkey's economic growth. Total emissions were just 187 million tons C[O.sub.2] equivalent in 1990 and reached 401 million tons C[O.sub.2] equivalent in 2010 (Table 5).

If the total emission amount is compared with Turkey's forests' current and potential carbon sequestration, it can be argued that Turkey has a comparative advantage in international carbon markets. Thus carbon markets appear to offer a good opportunity for the Turkish forestry sector.

Financing in the Turkish forestry sector

There are various financing sources and instruments for the forestry sector in the world. These sources are classified as public, private, national, or international. While public sources include general government revenue, revenue from state-owned forests and international official development assistance (ODA), private sources include forest owners, the forest industry, philanthropic funds, and NGOs (Simula 2008, AGF 2012, Ok et al. 2013).

In Turkey, almost 99.9% of the forests are state owned, and in fact forestry operations have been planned and executed by state forest enterprises since 1937. As public institutions, state forest enterprises are mainly financed by public revenue resources (taxes, charges, etc.) and the state budget (Dasdemir 2011). In addition to these, there are some other financial resources, which can be classified as internal and external as shown in Table 6 (Asan 2010).

These various types of resources are all good options for the forestry sector in combating climate change. But, as yet, these resources are limited in Turkey. When these resources are taken advantage of in developing forestry projects, it is expected that the pressure on the sector's own capital will subside. This will help the sector enjoy significant development.

In the UNFCCC, the parties of the convention are advised to give full consideration to what actions are necessary, including actions related to funding, insurance and the transfer of technology, to meet the specific needs and concerns of these countries arising from the adverse effects of climate change and/or the impact of the implementation of response measures (UN 1992). For the funding of the forestry sector in order to prevent the adverse effects of climate change these alternative financial resources can be used.

As an alternative financial resource, carbon markets represent the most remarkable opportunity for the forestry sector. Although forestry sector projects are currently not utilizing this resource as well as they could, there is a growing recognition at the international level that forests play a very crucial role in combating climate change. This indicates that in the near future, potential carbon markets, with a value of more than $140 billion, may be a financial resource for Turkey's forestry sector (Demirci 2011).

CARBON MARKETS AS A VIABLE INSTRUMENT FOR TURKEY'S FORESTRY SECTOR

There are three important obstacles and uncertainties in linking Turkey's forestry sector to international carbon markets. The first two are worldwide problems, while the last one is a problem specific to Turkey. These are:

* Uncertainties about Kyoto Protocol and carbon markets' future

* Insufficient recognition of forests' role in mitigating climate change

* Turkey's unique position within the climate change regime

Initially there was an expectation that Kyoto Protocol would be abolished at the end of the first commitment period (2008-2012). But during climate change negotiations held in Doha in 2012, Parties to the Protocol agreed to a second commitment period from 2013 to end of 2020 (UNFCCC 2013a). This new commitment period will affect carbon markets positively, as countries have to reduce their emissions 18% below their 1990 level. Also as a result of the climate change conference in Warsaw in 2013, it was agreed to keep governments on a track towards a universal climate agreement in 2015. This agreement includes significant new decisions that will cut emissions from deforestation and on loss and damage. During the conference, the importance of forests as being carbon sinks, climate stabilizers and biodiversity havens is also emphasized (UNFCCC 2013b). These developments show that carbon markets will be effective in the near future.

As mentioned before, in the first commitment period, forestry-related projects are neglected in carbon markets, but at the ongoing Conference of Parties (COP), especially at COP 16 held in Cancun, a significant development took place. REDD and REDD+ are developed for financing forestry activities such as reducing emissions from deforestation and forest degradation, conservation of forests, sustainable management of forests, and enhancement of forest carbon stocks (The World Bank 2011). At the same time Land Use, Land Use Change and Forestry (LULUCF) activities became more popular. At the UN Secretary-General's Climate Summit, governments, companies and civil society set goals to reduce deforestation and to restore degraded lands. In the declaration of the summit, it is mentioned that governments can facilitate REDD+ actions to reduce forest emissions and multilateral institutions can test and scale up forest and land use investments and systems to deliver results-based REDD+ payments (UN 2014).

All these developments indicate that international problems about the role of the forestry sector in climate change regime are being overcome. However, given Turkey's position in relation to Kyoto Protocol's post 2012 regime, the country is unable to benefit from carbon markets until Turkey is no longer an Annex I country. Therefore, urgent actions are needed to re-formulate Turkey's current position in UNFCCC, Kyoto Protocol, and bilateral agreements in order to participate efficiently and fairly in the international negotiation process. This can help Turkey solve the financial problem of the forestry sector in a rational way.

Turkey is now taking steps to participate in carbon markets. For this purpose, Turkey attended the climate change conferences held in Doha in 2012 and in Bonn and Warsaw in 2013. There, Turkey recorded that it would fulfill its obligations in the new climate regime to be established for the period beyond 2020 and to comprise all countries, and that it would be involved in the new organization. This means that,

Turkey will commit to achieve quantified emissions limitation and reduction in the new system where all countries will make a commitment for the period 2020. In addition, Turkey will be able to benefit from the flexibility mechanisms, from which it cannot benefit due to her current status, and the new market and non-market mechanisms to be established (Ba^sullu and Tolunay 2014). Also in COP 20 held in Lima, decisions concerning Turkey's obligations were taken. In these decisions, by admitting that, Turkey is in a situation different from that of other Parties included in Annex I to the Convention, it is mentioned that COP recognizes the opportunities for Parties whose special circumstances are recognized by the COP to benefit, at least until 2020, from support from relevant bodies to enhance mitigation, adaptation, technology, capacity building and access to finance and encourages these countries including Turkey to fully utilize those opportunities (UNFCCC 2014).

To take part in carbon markets, forming a framework for forestry carbon management is needed. It is imperative to first estimate the national carbon stock as well as future carbon sequestration potential of the country and second link up the national framework with the global carbon market through the appropriately available mechanisms. It will also be necessary to institute an efficient and seamless national carbon management model (Khan 2010).

The work related with climate change in Turkey is conducted by the Coordination Committee on Climate Change and Air Management (CCCCAM) chaired most recently by the Ministry of Environment and Urban Planning. Currently CCCCAM is the primary authorized body in the activities to be conducted in relation with climate change, decisions to be adopted and the strategies and policies to be drawn up (Bassullu and Tolunay 2014). Under this Committee, a unit on forestry can be established to manage forest carbon projects. This unit is expected to work under the General Directorate of Forestry and can act as coordinator of forestry projects and determine the rules and requirements to access carbon finance.

The forestry sector in flexible mechanisms

Forestry projects are considered part of the "Land Use, Land Use Change and Forestry" activities within the scope of the Kyoto Protocol. Flexible mechanisms and the EU ETS generate the largest part of the global carbon market. But it is important to note that, forestry projects are limited in these mechanisms.

The Clean Development Mechanism is a good opportunity for developing countries to carry out projects about renewable energy, energy efficiency, and waste management, among other things. For Turkey's forestry sector, there are some important obstacles such as the following (Gorte and Ramseur 2010, MoEF 2010, MoEF 2011a, UNEP 2011):

* In the first commitment period, only afforestation and reforestation projects were admitted for CDM credits.

* Meanwhile, Annex I countries were limited to using forestry credits up to 5% of their 1990 emission level for the first commitment period.

* Forestry credits are not accepted and traded in EU-ETS.

* Due to these reasons, demand for forestry credits has been very limited and the unit price of forestry credits has been far less than other sectors' CDM credits.

* Turkey, as an Annex I country, cannot be a host party to forestry projects to get financial aid for these projects.

Despite these constraints, there has been optimism about the forestry sector in the second commitment period of the Kyoto Protocol, as the sector presents a very cost-effective and easy way to combat climate change. In the event that forestry credits will be accepted by CDM and other mechanisms, it is possible that in the near future the average credit prices of forestry credits will be more than the current price level. But, for the second commitment period of the Kyoto Protocol, Turkey's situation did not change. It means that Turkey cannot be a host party to forestry projects until 2020. However, for the period beyond the 2020, Turkey can take a new position in climate change regime and benefit from this mechanism.

As mentioned above, NAAP targets afforestation, rehabilitation and erosion control of 2.3 million hectares. With this plan in effect until 2020, 181 million tons of carbon will be sequestered. If this amount was financed via carbon credits through CDM, more than $1.3 billion could be acquired. Once the obstacles are overcome and Turkey becomes a host country, it will be possible to finance similar forestry projects in that fashion. But at the same time, the additionality of forestry projects should be considered carefully to assess such projects in the carbon market. To realize this, the guidance mentioned in the Kyoto Protocol and IPCC have to be followed by authorized bodies.

A higher number of forestry activities can earn carbon credits under the Joint Implementation approach than under the CDM. In addition to afforestation and reforestation, avoided deforestation and forest management enhancing carbon sequestration are qualified as JI projects (Gorte and Ramseur 2010). However, only one forestry project was realized as a JI project in 2010 (UNEP 2011).

As JI projects are conducted jointly between two Annex I countries and because Turkey is still an Annex I country, in the current circumstances Turkey can develop forestry projects jointly with other Annex I countries. This alternative does not favor Turkey, because Turkey has to be a non-Annex I party and host country for forestry projects.

Turkey's forestry sector cannot benefit from EU ETS unless forestry carbon credits are included in EU ETS. Especially in the second commitment period of the Kyoto Protocol, it is most likely that Turkey will take part in forestry projects as part of LULUCF and JI. In the event that forestry carbon credits are allowed to be traded in EU ETS, unit forestry credit prices will rise and Turkey can get more financial aid from carbon markets for the forestry sector.

Forestry sector in voluntary carbon markets

Turkey is one of the most active players in voluntary carbon markets. The private sector has developed 218 registered projects until September 2012, with a carbon reduction capacity of nearly 16 MtC[O.sub.2]e per year (MoEUP 2012). Most of the projects focus on hydroelectricity and wind energy (Table 7).

Figure 1 shows the average project prices by project location. For the 2008-2010 period Turkey saw price increases that are above the world average (EcoSystem Marketplace 2010, EcoSystem Marketplace 2011a). The basic reason behind this is that firms are participating voluntarily in the carbon market.

As there is no net deforestation and forest degradation in Turkey, REDD projects in VCM are not applicable in Turkey. However, forest carbon credits can be generated and traded in voluntary markets through afforestation, reforestation, improved forest management, and agro-forestry activities.

Afforestation and reforestation (AR) activities involve converting "non-forest" into "forest". According to the UNFCCC, the difference between afforestation and reforestation is the length of time during which the terrain contained no forest: over 50 years in the case of afforestation and less than 50 years in the case of reforestation. AR projects may include (Chenost et al. 2010):

* Commercial AR, often on a large scale and mainly targeted at the production of timber or non-timber forest products;

* Community and peasant AR, often on a small scale and providing goods and services to local communities;

* AR on degraded lands with the main aim of restoring and preserving soils;

* Agroforestry AR, combining forestry and agricultural production.

In Turkey there are opportunities for such AR activities, as almost 4.2 million hectares of degraded forests in Turkey can be converted to productive forest areas via these projects. Especially with fast growing species, wood demand is satisfied and also by this way amount of carbon stored in forest biomass and soils can be increased.

Even though NAAP aims to afforest and rehabilitate 2.3 million hectares, only 136 thousand hectares are planned to be afforested by public and private organizations. The remaining area was afforested and rehabilitated by the General Directorate of Forestry. The total cost of the plan is 2.7 billion Turkish Liras (approximately $1.4 billion) and the majority of this cost was financed through the state budget. Funds from donors were also accepted (MoEF 2011c).

Although forestry activities such as this comprehensive plan can be financed through voluntary carbon markets and carbon offset buyers are willing to commit millions of dollars to support such activities, Turkey is yet to make any attempt to benefit from these markets. As noted above, it is estimated that a total of 181 million tons of carbon will be sequestered additionally with this plan. If this amount is financed via carbon offsets through voluntary carbon markets, more than $1.6 billion can be acquired. Thus, it is obvious that voluntary carbon markets offer, now and in the future, viable options for financing similar projects in Turkey. Since rehabilitation, afforestation and reforestation activities are stated as targets in the strategic plans of forestry sector, achieving these targets could lead to substantial amounts of new finance for the forestry sector.

CONCLUSION

This study reveals that Turkey's forestry sector can benefit from carbon markets if Turkey's unique position within the climate change regime can be managed efficiently. In summary, to benefit from carbon markets as a financial instrument, Turkey would have to carry out the following strategies and actions:

On the national level:

* An institutional framework should be established to participate in both compliance and voluntary carbon markets. At the same time, it is essential to create the necessary legal framework as soon as possible.

* A comprehensive and detailed study should be carried out to estimate the national carbon sequestration potential for the forestry sector. Public and private organizations should be encouraged to calculate their total carbon footprint and develop forestry projects within voluntary carbon markets.

* Since the only available option for Turkey is voluntary carbon markets, forestry projects such as afforestation, reforestation, improved forest management, and agroforestry should be fostered in these markets. To that end, project development, registration and certification systems for VCM management should be improved.

Internationally:

* In order to take part in flexible mechanisms and develop forestry projects under the related mechanisms during the second commitment period of Kyoto Protocol, Turkey's position as an Annex I country under the Protocol should be renegotiated taking into account the fact that Turkey's greenhouse gases emission is less than that of most non-Annex I countries.

* Turkey should act as a host country in CDM projects. Parties to the protocol should reach an agreement to remove the obstacles and limits before forestry CERs. If this is accomplished, flexible mechanisms could provide a large financial resource for the forestry sector.

* Although Turkey currently cannot participate in REDD+ mechanisms, negotiations should be made to take advantage of these mechanisms and NAMAs for forestry projects.

* Several multilateral official development assistance institutions such as GEF, FAO, UNEP, UNDP and bilateral assistance especially from the EU offer an important financial source for Turkey's forestry sector.

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U. DEMIRCI (1) and A. OZTURK (2)

(1) Research Assistant, Artvin Coruh University, Faculty of Forestry, Artvin, 08000, Turkey

(2) Associate Professor, Artvin Coruh University, Faculty of Forestry, Artvin, 08000, Turkey

Email: udemirci08@hotmail.com, atak08@hotmail.com

TABLE 1 Compliance carbon market evolution (values in $ billion)

        EU-ETS Allowances   Other Allowances   Primary CDM

2005    7.9                 0.1                2.6

2006    24.4                0.3                5.8

2007    49.1                0.3                7.4

2008    100.5               1.0                6.5

2009    118.5               4.3                2.7

2010    119.8               1.1                1.5

        Secondary CDM   Other Offsets   Total

2005    0.2             0.3             11.0

2006    0.4             0.3             31.2

2007    5.5             0.8             63.0

2008    26.3            0.8             135.1

2009    17.5            0.7             143.7

2010    18.3            1.2             141.9

Source: The World Bank 2011.

TABLE 2 Voluntary carbon market evolution (values in $
million)

        Chicago Climate   Voluntary OTC Market   Total
         Exchange CCX

2007         72.4                262.9           335.3
2008         306.7               396.7           703.4
2009         49.8                357.8           407.6
2010          0.2                393.5           393.7

Source: (The World Bank 2011, EcoSystem Marketplace 2009).

TABLE 3 Volume, value and prices in the forest carbon markets

Market              Volume          Value        Average Price
               (MtC[O.sub.2]e)   (Million $)    ($/tC[O.sub.2])

                2011    2012     2011   2012     2011    2012

Voluntary OTC   16.7    22.3     172     148     10.3     7.6

California/WC    1.6     1.5      13     12      8.1      8.2

Australia CFI    --      2.9      --     36       --     13.3

Voluntary       18.3     27      185     196     9.2      7.7
Total

CDM/JI           5.9     0.5      23     0.6     3.9      1.1

NZ ETS           --      0.2      --     1.9      --      7.9

Other/Unknown    1.5     0.6      29    15.6     19.7    25.3

Compliance       7.3      1       52    18.1     7.2     10.5
Total

Grand Total     25.6     28      237    216.1    9.2      7.8

Source: EcoSystem Marketplace 2013. Totals in the table may
not add up perfectly due to rounding.

TABLE 4 Net carbon sequestration in Turkey's forests between the
years 1990-2009

Years   Gross Carbon Increase       Carbon Lost
         (Million ton/year)      (Million ton/year)

1990           17 984                  5 871
1991           18 075                  5 675
1992           18 194                  5 687
1993           18 323                  5 737
1994           18 325                  5 332
1995           18 585                  5 722
1996           18 714                  5 784
1997           18 765                  5 348
1998           18 863                  5 202
1999           18 979                  5 126
2000           19 112                  5 300
2001           19 200                  4 937
2002           19 405                  5 284
2003           19 517                  5 161
2004           19 712                  5 429
2005           19 410                  5 429
2006           20 126                  5 500
2007           20 314                  5 773
2008           21 672                  5 969
2009           21 589                  5 994

Years    Net Carbon Sequestration    C[O.sub.2] equivalent
            (Million ton/year)        (Million ton/year)

1990              12 113                    44 413
1991              12 400                    45 465
1992              12 507                    45 858
1993              12 587                    46 152
1994              12 992                    47 639
1995              12 864                    47 167
1996              12 930                    47 410
1997              13 417                    49 195
1998              13 661                    50 091
1999              13 853                    50 793
2000              13 812                    50 644
2001              14 263                    52 298
2002              14 121                    51 778
2003              14 356                    52 639
2004              14 284                    52 373
2005              13 981                    51 264
2006              14 626                    53 628
2007              14 541                    53 319
2008              15 702                    57 576
2009              15 664                    57 365

Source: GDF 2009, Asan 2012.

TABLE 5 Greenhouse gases emissions by sectors (million tons C[O.sub.2]
equivalent)

Sectors/Years         1990     1995     2000     2005     2010

Energy               132.13   160.79   212.55   241.75   285.07

Industry             15.44    24.21    24.37    28.78    53.90

Agriculture          29.78    28.68    27.37    25.94    27.13

Waste                 9.68    23.83    32.72    33.52    35.83

Total                187.03   237.51   297.01   329.90   401.92

Source: TSI 2012.

TABLE 6 Internal and external financial resources of forestry sector

Internal financial resources      External financial resources

General budget, GDF special       GEF, World Bank, EU funds, funds
budget, GDF working capital       from FAO and UNDP
budget and working capital
budget of MFWA

Contributions of                  Bilateral cooperation and joint
nongovernmental organizations,    projects with other countries
natural people and legal
entities for afforestation

State Planning Organization's     Voluntary carbon markets
(SPO) investment expenditures
for forestry projects about
climate change mitigation

SPO, The Scientific and           Financial resources from NAMA and
Technological Research Council    REDD+ projects
of Turkey, local authorities,
R&D supports of Universities

Supports as part of social        Kyoto Protocol Flexible Mechanisms
responsibility projects of
banking sector and other
private sectors

Aids of development agencies

TABLE 7 Voluntary carbon markets project types and
emission reductions in Turkey

Project Type         Number of   Annual Emission Reductions
                     projects         (ton C[O.sub.2])

Hydroelectric             124                    7 181 723

Wind                       64                    5 603 468

Bio-gas                     6                      514 789

Geothermal                  6                      405 309

Energy efficiency           5                      151 432

Landfill gas               13                    2 473 093

Total                     218                   16 329 814
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Author:Demirci, U.; Ozturk, A.
Publication:International Forestry Review
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Date:Jun 1, 2015
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