The report from the Astana International Financial Centre (AIFC) titled “Emissions Trading Systems and the Voluntary Carbon Market: Global Review and Prospects for Kazakhstan” presents a comprehensive overview of carbon markets, with a focus on Kazakhstan. It discusses Emissions Trading Systems (ETS) and the Voluntary Carbon Market (VCM), examining global experiences and regulations to inform the revitalization of Kazakhstan’s ETS.
The report analyzes challenges facing Kazakhstan’s ETS, including low carbon prices, and suggests solutions like paid allowance allocation. It also explores the potential of Voluntary Carbon Markets, examining international renewable energy certificates and acknowledging the barriers hindering VCM development in Kazakhstan.
The report’s forecast indicates that renewable energy projects will serve as the primary source of carbon credits in the Voluntary Carbon Markets across Central Asian republics. By 2030, Kyrgyzstan is projected to lead with approximately 143 million carbon credits. Uzbekistan follows closely behind with an expected 128 million carbon credits. Meanwhile, Turkmenistan and Tajikistan together are forecasted to develop a more modest 1.84 million carbon credits within the same timeframe. This forecast for Turkmenistan considers announced plans for the construction of 100 MW solar and 10 MW solar-wind power plants (Table 2.2.5 on page 89).
An emissions trading system (sometimes called “cap and trade”) works like this:
- The Cap: The government sets a limit on how much pollution (like CO2) certain companies can release. This cap gets lower over time.
- The Permits: Companies receive or buy permits that allow them to emit a certain amount of pollution. For example, one permit might equal one ton of CO2.
- The Trading: If Company A finds ways to pollute less than their permits allow, they can sell their extra permits to Company B, which might be struggling to stay under their limit.
This system creates a financial incentive to pollute less. Companies that can reduce emissions cheaply will do so and profit by selling their permits. Companies that find it expensive to reduce emissions can buy permits instead.
Voluntary Carbon Markets are marketplaces where companies, organizations, or even individuals can voluntarily buy “carbon offsets” to compensate for their emissions.
Imagine Apple wants to label their iPhones “carbon neutral” and claim that they do not emit any emissions. However, their manufacturing and transportation emits CO2 and it is either hard or expensive for them to eliminate all emission throughout the whole supply chain. Instead, they can estimate how much CO2 they emit and then buy carbon credits to offset those emissions. Or let’s say you want to fly to Istanbul, but you know planes produce a lot of CO2. You can calculate your flight’s emissions and then buy carbon offsets in Voluntary Carbon Markets to “cancel out” that pollution.
The money from carbon offsets funds projects that reduce or remove CO2 from the atmosphere, like:
- Planting trees or protecting forests;
- Building renewable energy like solar and wind farms;
- Distributing clean cookstoves in developing countries.
The report’s forecast indicates that renewable energy projects will serve as the primary source of carbon credits in the Voluntary Carbon Markets across Central Asian republics. By 2030, Kyrgyzstan is projected to lead with approximately 143 million carbon credits. Uzbekistan follows closely behind with an expected 128 million carbon credits. Meanwhile, Turkmenistan and Tajikistan together are forecasted to develop a more modest 1.84 million carbon credits within the same timeframe. This forecast for Turkmenistan considers announced plans for the construction of 100 MW solar and 10 MW solar-wind power plants (Table 2.2.5 on page 89).
The main difference is that emissions trading systems are mandatory programs set up by governments, while voluntary carbon markets are voluntary. Companies or people participate in voluntary markets because they want to take responsibility for their environmental impact, even when not legally required.
The report identifies several challenges related to ETS and VCM within the context of Kazakhstan.
KAZ ETS Problems
- Very low carbon price: Only about $1 per unit (compared to EU’s $90), because allowances are given away for free, undermining the system’s purpose.
- Inactive market: Very few carbon allowances are actually being traded.
- Legal roadblocks: 2023 law changes restricted trading to specialized exchanges, stopping exchange trading completely.
- Lack of transparency: Direct private transactions between companies hide true prices and discourage offset project development.
VCM Challenges
- Underdeveloped market: Kazakhstan’s carbon credit system is far behind global standards.
- Limited historical participation: Low involvement in international carbon programs has prevented knowledge building.
- Missing infrastructure: Lack of basic market elements: demand, supply, clear rules, and supporting services.
- Awareness gaps: Local companies need more education about carbon market procedures.
- No local verification: No Kazakhstan-based bodies can validate carbon projects, forcing reliance on international verifiers.
