Economic Approaches to Greenhouse Gas Mitigation in Kazakhstan

  • Howie, Peter (PI)
  • Akhmetov, Daulet (PhD student/Master degree holder)
  • Gupta, Shreekant (CoI)

Project: Research project

Call title (Call ID)

Faculty Development Competitive Research Grant Program 2018-2020

Project Description

Kazakhstan is the largest economy in Central Asia with a population of about 18 million and an area larger that of Western Europe. It is rich in natural resources including minerals and fossil fuels (oil, natural gas and coal). A large part of economic activity in the country is focused on the industrial sector and on extraction and processing of its resources. In terms of its carbon footprint, it (unfortunately) punches much above its weight – in 2014 Kazakhstan emitted 248 million tons of CO2 (World Bank, 2017) with a global rank of 24 (Indexmundi.com, 2017). This is significantly high given its population and the size of its economy. Its per capita emissions of 18 tons are among the highest in the world (Indexmundi.com, 2017). The global average is about 5 tons (World Bank, 2017). Kazakhstan is also one of the world’s largest emitters of CO2 per unit of GDP (Indexmundi.com, 2017). As a signatory to global climate agreements such as the UN Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol and more recently the Paris Agreement, and as a responsible member of the global community of nations it is incumbent upon Kazakhstan to reduce its carbon footprint. Indeed, under the Paris Agreement Kazakhstan has pledged to reduce its GHG emissions by 15% by 2030 as compared to the 1990 base year (United Nations Framework Convention on Climate Change, 2017).
In this context, the project will examine the effectiveness of market-based approaches to CO2 mitigation for Kazakhstan with a focus on the energy sector. CO2 emissions account for about 78% of total GHG emissions in Kazakhstan (UNFCCC, 2017). The energy sector accounts for more than 80% of GHG emissions which are almost entirely in the form of CO2 (UNFCCC, 2017). This sector in turn comprises energy industry, manufacturing and construction, transport and others. The first two (energy industry and manufacturing and construction) account for 44% and 11%, respectively, of total emissions from this sector (UNFCCC, 2017). Thus, we plan to focus on firms in these two sub-sectors.
Using firm-level data on emissions and costs for major sources in the energy industry and manufacturing and construction sub-sectors, we will quantify potential cost savings that could result from using market-based instruments (MBI) such as emissions taxes or emissions trading as compared to command and control (CAC) regulations, e.g., uniform abatement by all sources. The purpose of this project is to develop a methodology to quantify the cost-effectiveness of MBIs. A policy is cost-effective if it achieves a pre-specified goal at least-cost compared to alternative policies. For example, the goal could be to reduce ambient concentration of particulate matter at a particular location by x percent. This in turn could be translated into a target of reducing particulate emissions by y tons. If policy A achieved this reduction at a cost lower than policies B and C, it would be deemed cost-effective. It is important to note that this is not the same as the notion of efficiency.
Another purpose of this project is to determine rates of carbon tax that would deliver a desired level of CO2 reduction. To the best of our knowledge this type of study has not been attempted for Kazakhstan or for that matter for any other country in Central Asia nor any member state of CIS. In this context, it may be mentioned Kazakhstan was the first country in Asia to implement a CO2 emissions trading system (ETS) in 2013. The incipient scheme was unfortunately abruptly ended in 2016 shortly after its pilot phase. The ETS was not preceded by any economic study of its cost-effectiveness.
There is a vast theoretical and empirical literature on emissions trading and taxes including for GHG emissions. The European Union Emissions Trading (EU ETS) started in 2005 was the first large GHG emissions trading scheme in the world, and remains the biggest. Newell et al. (2013) provide a good overview of research on GHG emissions trading whereas Carl and Fedor (2016) do the same for carbon taxes. Empirical studies of cost-effectiveness of MBIs especially tradable permits, date back to the classic studies by Atkinson and Lewis (1974), Atkinson and Tietenberg (1982, 1991) and McGartland and Oates (1985).
StatusActive
Effective start/end date3/20/189/13/20

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emissions trading
greenhouse gas
mitigation
United Nations Framework Convention on Climate Change
economics
cost
pollution tax
carbon footprint
manufacturing
World Bank
type of study
market
Kyoto Protocol
Gross Domestic Product
economic activity
fossil fuel
energy
global climate
particulate matter
savings