New findings reveal fossil fuels are key drivers of recent inflation in Türkiye

New Cambridge Econometrics analysis for the European Climate Foundation, explores the role of energy prices in recent consumer price inflation in Türkiye, with a view to understanding the potential for faster energy transition measures to ease inflationary pressures and risks.

Cambridge Econometrics analysed energy system and inflation data from a variety of sources to understand the role of energy prices in Turkish consumer price inflation. The report also takes stock of Türkiye’s wider energy transition strategy, the Turkish government’s response to the recent energy price increases and discusses how the future energy system can better protect consumers from sudden price hikes. 

3 key findings:

1. Fossil fuels, including natural gas, are responsible for a large share of consumer price inflation in Türkiye

  • Over the past 12 months: 
    • Electricity prices have increased 102%
    • Gas and transport fuels (diesel and petrol) have increased 145% and 182% respectively 
  • Fossil fuel price increases are currently responsible for approximately a fifth of annual rate of Türkiye’s inflation which stands at over 80%.

2. Higher energy costs weigh heavily on household budgets in Türkiye and poor households are most impacted

  • The poorest 20% of households are spending 25% more on energy in 2022 than in 2021.
  • Türkiye’s poorest households will spend close to 10% of their income on energy bills in 2022. 

3. Türkiye can draw strategic benefits from continuing its ambitious energy transition towards renewables.

  • 50% of electrical production in Türkiye is generated by renewables. 
  • The cost per MWh of new wind power and utility-scale solar PV capacity is only half that of gas-fired electricity production.
  • Further investment in cost-competitive renewables and the electrification of transport and heating would allow Türkiye to reduce its dependency on energy imports and reduce the exposure of households to volatile fossil fuel prices. 
Carl Heinemann Managing Economist [email protected]