ASTANA – With countries around the world racing to reach carbon neutrality goals, a mature carbon trading market is essential in unlocking this objective. Kazakhstan’s emission trading system (ETS), launched in 2013, can significantly benefit from integrating best practices, from building digital platforms to developing a voluntary market and improving reporting standards, writes Assel Aben, a chief expert of the Department of Economic Policy Analysis at the Astana-based Kazakhstan Institute for Strategic Studies.
Globally, momentum for the ETS is growing. Photo credit: ICAP
Kazakhstan’s carbon market is advancing toward global climate goals but still lags in speed, scale, and maturity compared with leading systems, including those of its neighbors.
“Kazakhstan, one of the most carbon-intensive economies in Central Asia, has pledged to achieve carbon neutrality by 2060. A key part of reaching this goal is a well-developed emissions trading system [ETS] for quotas and carbon units,” Aben wrote.
ETS is a market-based mechanism to reduce greenhouse gas emissions. It is also called a cap-and-trade program. Under this system, a regulator sets a cap on how much greenhouse gas certain sectors of the economy can emit. Companies that emit less can sell their spare allowances, while those exceeding their limit must buy more.
Kazakhstan launched the ETS in 2013, the first in the Commonwealth of Independent States.
“Since then, the system has gone through several phases. Its initial rollout, a suspension for reform in 2016–2017, updates, and the introduction of monitoring, reporting, and verification [MRV] standards in 2018–2021. MRV is currently carried out in semi-automatic or manual mode, though work is underway to develop a digital platform,” wrote Aben.
Bringing up the numbers, she noted that Kazakhstan’s carbon trading system covers more than 200 companies and around 50% of the country’s total emissions. It currently includes the energy and industrial sectors, but major sources of emissions such as agriculture and waste management remain outside the system.
The energy production sector is the largest producer of greenhouse gas emissions, historically contributing to around 70% of emissions.
“One of the priority areas was the development of the voluntary carbon market. In 2023, Kazakhstan announced the creation of a system of voluntary carbon units that comply with international standards VERRA and Gold Standard. This will help attract private investment in emission reduction projects and improve export competitiveness. The Astana International Financial Centre plays an important role in these processes, promoting sustainable finance initiatives and the development of a national registry of carbon units. AIFC is also seen as a hub for attracting foreign investors and trading allowances within the Eurasian space,” she wrote.
Low levels of trading activity, limited liquidity, poor digitalization, lack of qualified personnel, and diversity of reporting methodologies remain major hurdles in advancing Kazakhstan’s ETS.
All allowances are currently allocated for free, leading to a low carbon price of approximately $1 per unit, compared to $90 in the European ETS in 2023.
“Experts note that to effectively drive low-carbon projects, the price should be at least $20 per ton of CO2,” Aben wrote.
The International Climate Action Partnership Status Report (ICAP), released in April, indicates that the global momentum for emissions trading continues. Emerging economies are driving the wave.
Thirty-eight ETS operate globally, with an additional 20 under development and consideration. These systems cover 23% of global greenhouse gas emissions.
The report indicates that ETS also scales not only in numbers, but design. This year, the Chinese ETS was expanded beyond the power sector to include the steel, cement, and aluminum smelter sectors. According to the Chinese Ministry of Ecology and Environment, this move will bring an additional 1,500 companies under the system.
China’s national ETS, rolled out in 2021 after years of provincial pilots, covers roughly 40% of emissions from the power sector alone.
“In 2023, a national digital platform for managing the ETS was launched [in China]. It allows for real-time data collection and processing, anomaly detection, and automatic verification using big data and artificial intelligence technologies. Regulators, companies, and technical verifiers are all part of the system. This has sharply reduced the number of data manipulation cases and increased trust in the system,” writes Aben.
The price of one ton of CO2 is now above $10, with forecasts suggesting it could reach $30–50 by 2030.
Development of international mechanisms, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), puts mounting pressure on countries to accelerate their efforts. Aben noted that China is advancing carbon footprint certification and export-oriented climate standards, while Kazakhstan is moving to reform its ETS and improve transparency in reporting.
“Both countries face similar challenges: pushback from carbon-intensive industries, shortage of qualified personnel, lack of automated monitoring systems and imperfect calculation methodologies. However, China demonstrates a more mature, comprehensive approach, already using its ETS as a tool for global positioning and industrial modernisation,” wrote Aben.
Integrating the best lessons from around the world will determine whether Kazakhstan can become a competitive player in the global carbon market economy, thereby strengthening the country’s economic resilience and competitiveness in a world shifting toward low-carbon growth.
