ASTANA – The Astana International Exchange (AIX) launched trading of International Renewable Energy Certificates (I-REC) in February, marking a milestone in Kazakhstan’s green finance efforts. The first transaction involved Valor Carbon, a London-based climate finance firm, purchasing 1,000 I-RECs from Samruk Green Energy, a state-owned company.
In an interview with The Astana Times, Valor Carbon shares the reasoning behind this purchase, its outlook on carbon markets, and long-term plans for Kazakhstan and Central Asia. Based in London, the company has offices in Astana and Bishkek.
A precedent for others
Carbon markets refer to carbon pricing mechanisms that enable governments and non-state actors to trade credits for greenhouse gas emissions.
Valor Carbon CEO Rocco Huesch. Photo credit: Huesch’s personal archive
Valor Carbon CEO Rocco Huesch stated that most carbon market deals are traded over the counter (OTC), through private transactions that lack transparency and do not allow market participants to track prices per ton of CO2.
“But because I-RECs [certificates confirm that electricity has been generated from renewable sources] are standardized, it makes a lot of sense to move them onto an exchange for better liquidity. So I think what’s so amazing about what AIX has done by orchestrating this first trade is that it hopefully sets the stage for more and more transactions to move out of the OTC side of the market and onto the exchange, for greater visibility,” said Huesch.
Regional Director Nurzhan Aspandiyar echoes this idea, stressing it sets a precedent for other environmental commodities to be traded in Kazakhstan.
“As you know, there was an exchange called Caspi where Kazakh allowances of Kazakh ETS [emissions trading system] were traded. But since 2022, we haven’t seen any trades happening,” he said. “We’d love to bring liquidity and transparency to the market. Price discovery is also very important.”
According to Aspandiyar, I-RECs are the first “proper environmental instrument that works in Kazakhstan.”
“Hopefully, we’ll see it work even better, with AIX now launching its platform. Our firm actually trades I-RECs. We understand that there needs to be a domestic demand for I-RECs,” he said.
ETS pitfalls
Kazakhstan’s ETS was launched in 2013. According to data from the Astana International Financial Centre (AIFC), it now covers 47% of emissions from 135 companies working in the energy, mining and manufacturing sectors. All allowances, however, are distributed free of charge.
Nurzhan Aspandiyar. Photo credit: Aspandiyar’s personal archive
Data indicates that one carbon unit in the country’s ETS costs around $1, a substantially lower figure compared to other markets. The reason behind this is a 100% free allocation of allowances. As of 2023, the price in the European ETS reached $90.
Valor Carbon acknowledges the growing momentum as many push for reform and improvements to the current ETS. Huesch, however, warns of a balance that needs to be met.
“It’s a complicated process. There are a lot of moving parts that you need to figure out. You need to balance the ability of Kazakhstan to hit its net-zero goals and its commitments under the Paris Agreement. You need to balance that with something that doesn’t impose an undue burden on economic growth in the country as well,” said Huesch.
While an ETS is an important tool for reducing emissions, it also places a burden on heavy emitters, many of whom are crucial to the Kazakh economy.
“Beneath that, there’s also a lot of little design decisions you need to make when it comes to the ETS and any revamps in the future,” he added.
Potential of carbon credits in Kazakhstan
One such area is the role of carbon credits.
“It would be a really good way if carbon credits domestically in Kazakhstan — domestic projects producing domestic carbon credits — were allowed into the ETS. That would be an amazing default way for setting up revenue from the ETS to start flowing into these positive projects in the country,” said Huesch.
Such an approach has also been tested in other systems, including those in the United States and Singapore.
Article 6 of the Paris Agreement
Huesch also discussed the carbon crediting mechanism, based on Article 6 of the Paris Agreement, which was operationalized during the 29th Conference of the Parties to the United Nations Framework Convention on Climate Change in Baku. Under this article, countries can transfer carbon credits to each other that they have earned by reducing greenhouse gas emissions.
While operationalizing Article 6 at a country level can yield massive investments, Huesch noted that implementing it is far from simple.
“It takes two to tango,” he added.
“Basically, there are two markets for carbon: there’s a voluntary market, and then there’s a compliance market,” he said.
Compliance markets refer to those that are regulated by a mandatory national, regional, or international carbon reduction regime. Participants in voluntary carbon markets are not subject to any direct government oversight. According to data from the Taskforce on Scaling Voluntary Carbon Markets, the voluntary market could be worth anywhere from $5 billion to $30 billion by 2030, with lower-end estimates, and potentially exceed $50 billion under higher-end projections.
Huesch noted one major example of the compliance market is CORSIA, which stands for the Carbon Offsetting and Reduction Scheme for International Aviation.
“It forces any international airline to offset the part of the emissions for any international flight. (…) Hundreds of millions of tons of carbon dioxide offsetting demand is required. But there’s a massive bottleneck right now, because the only credits that will be allowed into CORSIA are ones that are authorized under Article 6, which are being exported by some country, and most countries aren’t ready yet with the systems to authorize,” he explained.
Carbon market potential
While it remains unclear how Article 6 will be applied in Kazakhstan, Huesch expressed optimism about the huge potential the carbon market has in Kazakhstan.
The firm expressed readiness to support Kazakhstan in aligning its systems with the global standard. Valor Carbon views carbon markets as a strategic entry point for Kazakhstan and the broader Central Asian region to tap into the global climate finance flows.
“There are good things that can be done in Kazakhstan, regardless of what policymakers think eventually is best for the country, around Article 6. There’s always the voluntary markets. The voluntary markets are where Kazakhstan keeps the carbon credits for its own national goals, but allows export at the corporate level to corporations overseas or domestically,” he said.
The company also focuses on projects that deliver measurable carbon removal outcomes with a priority in nature-based solutions for carbon removal. In April, Valor Carbon presented a project during their meeting with the Kyrgyz officials aimed at attracting up to $180 million in climate finance to plant more than 10 million trees across 25,000 hectares in the Issyk-Kul region. The project includes the creation of carbon credits.
