BAKHYT YESEKINA, MEMBER OF THE GREEN ECONOMY COUNCIL UNDER THE PRESIDENT OF THE REPUBLIC OF KAZAKHSTAN, DOCTOR OF ECONOMICS, PROFESSOR

The decisions laid down in the Strategy for achieving low carbon neutrality will determine the prospects for the development of Kazakhstan for many decades to come.

The problems of the global energy transition based on the principles of decarbonization, technological modernization and the integration of ESG into the processes of managing the national economy remain at the top of the global development agenda, despite the new challenges of our time associated with local wars and the food crisis.

The World Economic Forum (WEF), which took place
on May 23-26, 2022 in Davos and brought together more than two thousand participants – well-known politicians, businessmen and experts in the field of global development, was a clear confirmation of this.

The participants of the forum were unanimous: without making new effective decisions in the field of joint combating climate change, it is impossible to ensure the energy transition, sustainability and security of the further development of the planet. Today’s global problems, as WEF President Børge Brende noted, “require adequate global solutions. Governments, businesses, civil society must work hard to ensure more inclusive development that creates jobs and resilient recovery.”

The Greens are Coming

Today, scientists, experts, politicians and businessmen around the world are exploring effective ways to decarbonize national economies and mechanisms for the introduction of “green” technologies, primarily in the extractive industries. The debate arises from the many examples of the devastating impacts of climate change, including dramatic warming in Southeast Asia, floods in parts of South America, and other negative environmental events.

Leading climatologists of the world continue to demand from international financial structures, transnational corporations to reduce investments in fossil fuels in order to avoid even more devastating consequences, as the latest report of the Interstate Commission of Experts on Climate Change (IPCC) of the UN eloquently warns about.

Launched at COP-26 in Glasgow, the so-called Pioneer Coalition, which brought together companies with supply chains in carbon-intensive sectors, was an example of decisive action and broad international cooperation in the field of climate change adaptation. It includes representatives from large consumer goods and transport firms, as well as renewable energy companies that use steel to build wind turbines.

The coalition currently brings together more than 50 companies from nine countries – Denmark, India, Italy, Japan, Norway, Singapore, Sweden, the United Kingdom and the United States, which account for over 40% of global GDP and 30% of global emissions. Companies with a combined market value of more than $8.5 trillion across five continents have demonstrated their readiness to commercialize new clean technologies by committing to zero-carbon procurement through technology by 2030 in six sectors: carbon dioxide removal, aluminum production , steel production, aviation, service delivery of goods, cargo transportation.

Under the Paris Agreement, world powers are trying to find a solution to the problem of energy transition through the adoption of national strategies and plans for their implementation. So, for example, China plans to achieve carbon neutrality through the accelerated development of renewable energy sources, strengthening control over energy consumption, “green” and low-carbon transformation of industry, urban construction, transport, and agriculture.

The EU countries, which have submitted strategies for low-carbon development until 2050, are gradually tightening their national obligations and requirements for importers of carbon products.

Germany was one of the first countries to present the Low-Carbon Development Strategy until 2050 and in 2019 adopted a federal law on climate change. The country chooses the path of restructuring the energy sector, plans further expansion of renewable energy sources and a gradual phase out of electricity production from fossil fuels, which will reduce emissions in the energy sector by 62% by 2030 compared to 1990. The implementation plan for the Paris Commitment will be updated every five years (Federal Climate Change Act).

The plan to decarbonize the Norwegian economy includes support for low-carbon technologies, an increase in emissions tax from $95 to $240 per ton, a transition to zero-emission transport from 2022 (city buses from 2025) and other regulatory measures. The country also passed a law (2018) on climate change.

France’s low-carbon development prospects are also reflected in the National Strategy to Reduce Carbon Emissions and the Long-Term Energy Program, which are based mainly on the transition from nuclear energy to renewable energy and the development of technologies.

At present, despite the energy risks that have arisen, the rise in energy prices, the EU countries are consistently continuing the policy of decarbonization of their economies. Recently, a new EU energy transition plan, REPowerEU, was adopted, which aims to accelerate the transition to clean energy sources and reduce Europe’s dependence on Russian energy resources.

This plan is supposed to be implemented through energy saving at all levels – from households to industrial enterprises, diversification of energy supplies, rapid replacement of fossil fuels with renewable energy sources and a reasonable combination of investments and reforms.

Difficult road to neutrality

As international experience shows, the basic element of the transition to carbon neutrality is the introduction of an effective carbon regulation system that stimulates decarbonization. An analysis of the current situation shows that the current system of carbon regulation in Kazakhstan does not allow achieving the country’s commitments to reduce greenhouse gas emissions and needs to be radically improved.

Trade in quotas for greenhouse gas emissions does not have the proper stimulating effect either. According to the data of the Kazakh company CCX (Caspy Commodity Exchange), which trades quotas on a par with the allowance trading system (ETS) and Modern Trading Solution, in 2021 the cost of carbon units at the auction was at the level of 1-1.2 dollars, while in the EU, the price of carbon is over $70 per tonne of CO2.

The updated NDC (Nationally Determined Contribution of the Republic of Kazakhstan for 2021-2025), developed by the IEGPR as part of the obligations of the Paris Agreement, suggests an increase in the price of a carbon unit to $16.9 in 2023-2025 and to $50.8 in 2026-2030 years. To achieve such a price for greenhouse gas emissions, it is necessary to take urgent measures to improve the efficiency of the carbon regulation system, stimulate the reduction of emissions and the introduction of “green” technologies.

In this regard, the Strategy for Achieving Low-Carbon Neutrality of Kazakhstan (Strategy), which is currently being developed by the Ministry of National Economy with the participation of national experts, should provide for systemic measures to stimulate the development and implementation of low-carbon technologies. Unfortunately, the necessary technological solutions, including the production of hydrogen, bioethanol, geothermal energy with almost zero carbon content, have not yet become commercially competitive, and in this regard, the Government needs to adopt a Program for the technological modernization of industry, first of all, its basic industries.

The next important direction of the transition to low-carbon development, according to WEF participants, should be a just transition and job creation in those sectors of the economy that are already facing a difficult situation, especially in connection with ongoing technological changes.

To ensure a fair transition to carbon neutrality, additional legislative, political and economic measures are needed to distribute the burden and benefits of climate action in an acceptable way among different social groups, create new opportunities in industries and regions affected by decarbonization policies and adaptation to climate change.

Undoubtedly, the transition to carbon neutrality will lead to a transformation of the country’s economic structure, while the main challenges are expected in the energy sector due to the reduction in coal mining and coal-fired power generation, which today makes up more than 60% of the country’s energy balance.

According to preliminary expert data from the Ministry of Energy of the Republic of Kazakhstan, the abandonment of coal and other actions to decarbonize the economy will lead to the release of 27 thousand jobs in the field of coal mining, energy production, and taking into account workers in related areas – about 35 thousand. Workers associated with the extraction of fossil fuels Those at risk of losing their jobs in the process of energy transformation should be covered by social protection measures that provide for the development and launch of programs for retraining and retraining, creating new jobs in industries with low emissions.

Summarizing the recommendations of the WEF in the field of climate and transition to low-carbon development, it should be noted that Kazakhstan, like other countries that continue to intensively use hard coal, will find it difficult to achieve carbon neutrality by 2060. According to the IEA, for this, states need to increase the share of energy expenditure in global GDP from 8% to 25% by 2035.

To achieve this goal in our country, according to research by McKinsey, it is necessary to increase the share of investments in decarbonization to 15% of GDP against 7.5% of the world average.

What hasn’t been taken into account yet?

Today, the Paris Agreement countries face simultaneous pressure on all three pillars of the energy transition: economic development and growth, environmental sustainability, energy security and free access. To address these development challenges, the WEF recommends taking the necessary actions at the national level.

First, international climate goals should be legally fixed and be a priority of domestic policy. Among the world’s top 10 greenhouse gas emitters, Japan, Canada, the EU and South Korea have legally binding decarbonization targets. Given an increasingly volatile political climate marked by growing populism and national egoism, climate change efforts must not be held hostage to domestic policy shifts.

Anchoring climate goals in policies, plans and laws to be implemented at the national level can provide stability and certainty, promoting sustainable progress in political cycles.

Energy security planning must move from just-in-time to just-in-time planning, requiring the maintenance of sufficient spare capacity and storage infrastructure, using market mechanisms to incentivize investment in these solutions. Additional benefits and a role in the field of energy security are called upon to play energy efficiency and energy saving.

It is necessary to minimize the risks associated with the possibility of reducing investment in clean energy, which is of particular importance for maintaining capital inflows.

Over the past decade, global investment in the energy transition has more than tripled to $755 billion, but this investment surge came in a decade of economic growth and was fueled in part by accommodative monetary policy and low benchmark interest rates. To date, the financing gap remains significant, so measures to minimize the risk of reduced investment in green energy, especially in developing countries, are critical.

Finally, issues of equity and fairness must be central to the energy transition. In recent decades, due to the relative inelasticity of energy demand, high energy prices have contributed to high levels of consumer price inflation. First of all, socially vulnerable segments of the population and small businesses suffer from this.

Ensuring the availability of energy is essential not only for economic growth and social well-being, but also for supporting climate change policies. In this regard, it is necessary to take long-term systemic decisions to maintain equal access to energy sources for representatives of socially vulnerable groups and small businesses.

The process of decarbonization at the country level requires systematic work – appropriate investment, legal and institutional reforms both in the field of public administration and in the sphere of planning the development of the national economy and its basic industries. The government, the business community and society as a whole need to be aware that the decisions that will be included in the Strategy will determine the prospects for the country’s low-carbon development for many decades to come.

In this regard, the Strategy for achieving carbon neutrality of the Republic of Kazakhstan until 2060, which is essentially a strategy for diversifying the economy and its technological breakthrough, should become a new long-term strategic document during the renewal of the country’s socio-economic policy.