Towards a Low-Carbon Economy: The Role of Financial and Trade Policies in Turkey’s Energy Transition

Year 2026, Volume: 13 Issue: 1, 79 - 98, 22.01.2026

Gülay Özkan , İrfan Kadıoğlu

https://doi.org/10.30910/turkjans.1752904

Abstract

This study critically examines the financial and trade determinants of the green transition in Turkey by employing Toda-Yamamoto causality analysis. Using time-series data for 1990–2022, it analyzes how bank credit volume, foreign direct investment (FDI), and trade openness affect renewable energy production and carbon emissions. The results confirm that bank credit significantly promotes renewable energy production but also increases carbon emissions by supporting carbon-intensive sectors. FDI shows a weak positive impact on renewable energy but a strong positive impact on carbon emissions, which is consistent with the Pollution Haven Hypothesis. Trade openness supports renewable energy development through technology transfer, but also raises emissions via increased production and logistics. The causality results confirm complex bidirectional relationships between the variables, highlighting the need for integrated financial, trade, and environmental policies. Despite certain data and scope limitations, this study provides robust policy insights that emphasize the qualitative improvement of green finance, sector-focused incentives for clean investments, and sustainable trade practices. Future research should explore micro-level data and sectoral specifics to deepen our understanding of green transition mechanisms in emerging economies. This study contributes to global literature by offering empirical evidence and policy reflections relevant to developing countries that aim to align growth with sustainability.

Keywords

CO₂ Emissions , Foreign Direct Investment , Green Finance , Renewable Energy Investment , Sustainable Development Policy , Trade Openness.

Ethical Statement

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper

Supporting Institution

No financial support was received for this study.

Project Number

N/A

Thanks

None

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