Abstract
We analyze the energy market and ETS outcomes in Kazakhstan, a major fossil-fuel exporter. The energy market was characterized by the presence of large state-owned enterprises, prevalence of fossil fuel subsidies, and dominance of coal-fired generation. Despite the ETS, Kazakhstan's CO2 emissions and CO2 emissions intensity of its power sector continued to grow. Power sector investment and prices declined while CO2 emissions intensity of GDP reversed its downward trend. To increase ETS effectiveness it is necessary to prioritize stakeholder engagement, address deficiencies in carbon allowance allocation and trading, and enhance the carbon cost pass-through mechanism. Finally, formulating and implementing a comprehensive low-carbon transition strategy should improve ETS outcomes.
| Original language | English |
|---|---|
| Article number | 100818 |
| Journal | Energy Strategy Reviews |
| Volume | 40 |
| DOIs | |
| Publication status | Published - Mar 2022 |
Funding
To conclude, our analysis of the dynamics of several economic indicators before and after the introduction of the KazETS suggests mixed results. On the one hand, there is an indication of a reduction in the growth rate of annual CO2 emissions from the relevant sectors, primarily on the account of the power sector. On the other hand, CO2 emissions intensity of GDP increased during 2013?17 reversing its long-term downward trend, while CO2 emissions intensity of the power sector (See Fig. 4) continued its upward trend even after the introduction of the KazETS. These results for the KazETS are less impressive when compared to 2.0% average annual decrease of total CO2 emissions and a 1.1% average annual decrease in CO2 emissions from the EU power sector [115] between 2005 and 2016.2,3 Furthermore, the level of investment in Kazakhstan's power sector has been falling since 2014 alongside inflation-adjusted electricity prices as well as there has been no change in the level of innovations. These findings contrast the ones observed in the EU, where rising electricity prices and increased low-carbon innovation in the power sector were documented. Finally, EU-ETS studies did not find convincing evidence of a negative impact of the ETS on employment, exports, and firm downsizing or relocation [96]. In Kazakhstan, the pass-on effects of the KazETS on energy consumers have been deactivated because the cost pass-through transmission mechanism via increasing electricity and heat prices was disabled by Kazakhstan's government regulations. It is important to highlight that even if policy conditions were ever to lead to a carbon price increase, a policy which prohibits the pass-through of a portion of the costs of carbon allowances could lead the former policies to be ineffective or have negative side effects [97]. Furthermore, because of the absence of indirect emissions regulations (often referred to as Inclusion of Consumption regulations) for large electricity and heat consumers [59], large electricity consumers fail to adopt best available technologies [98]. In addition, lax benchmarks and the ability to choose allowance allocations by grandfathering have reduced the incentives for fuel substitution. Finally, free allocation of allowances has inhibited recycling of revenues towards RES and demand-side policies as well as increasing public support to decrease emissions enough to meet global carbon targets.
Keywords
- Cap-and-trade
- Carbon price
- Climate policy
- Fossil-fuel subsidies
ASJC Scopus subject areas
- Energy (miscellaneous)