Alan Bokayev, Chief Specialist of EcoJer Kazakhstan association of regional ecological initiatives ALE

In recent years, the issues of decarbonization and greening of the global economy have become increasingly important at local levels. What once seemed so far away for resource-based economy of Kazakhstan already affects the daily life of every citizen. We not only feel the pollution of the city air by exhaust gases, but also observe an annual increase in temperature. In this regard, most countries, including Kazakhstan, committed to contribute to the global reduction of greenhouse gas emissions, which directly affect global warming.

Natural resources are of crucial importance for the economic development of the country, and are an important source of income. Effective management of natural resources, the introduction of "green" technologies and improving environmental sustainability are among the main prerequisites for economic growth and social progress.

Kazakhstan is a count rich in natural resources, including fossil fuels. Therefore, we are constantly looking for a balance of development between hydrocarbon and renewable energy sources.

On July 1, 2021, the new Environmental Code of the Republic of Kazakhstan entered into force, containing a number of system proposals that should ensure the improvement of the country's environmental safety, stimulate the modernization of industry and reduce the negative impact on the environment.

The new version of the Code provides for introduction of a widespread principle throughout the world: "The polluter pays". This measure is supposed to raise environmental awareness among natural resource users.

An important element of the new Code is transition of enterprises of Kazakhstan to new environmental regulation related to use of the principles of best available techniques (BAT) from 2025, with the introduction of which companies will be exempt from payment for emissions.

According to the European Environment Office, introduction of BAT such as technology for cleaning of emissions in the EU resulted in significant reduction of emissions of nitrogen oxides - by 69%, sulfur oxides SO2 - by 94%, dust - by 94%.

The introduction of BAT contributes to solving not only environmental, but also economic

problems of the real sector of the economy: it reduces energy intensity, water consumption and costs.

The largest polluters will receive comprehensive environmental permits and be exempt from tax payments. They will have the opportunity to use these funds for the modernization of enterprises. Such steps will contribute to the technological development of the industry and environmental friendliness of production.

BAT are based on modern achievements of science and technology in the field of environmental protection. However, BATs are not limited to technologies only. They include methods, processes, approaches and solutions, management practices.

It is widely known that by implementing and improving, for example, operational management systems, companies achieve a reduction in operating costs and expenses, as well as non-financial indicators of their activities, for example, indicators in the field of security, are also improved by an order of magnitude.

The main idea of BAT

The main idea of BAT is that they should not result in excessive costs for the companies. After all, the techniques should not only be the best, but also affordable. That is, the introduction of such techniques in the relevant production sector should be economically and technically possible.

The transition of industry to a new regulation, which, on the one hand, is focused on reducing the negative impact on the environment, and on the other - on the modernization of production and encouragement of enterprises to use BAT, will significantly improve the environmental situation in the country and move to preventive measures.

By joining the Paris Agreement, Kazakhstan undertook to make efforts to achieve the set goals for reducing greenhouse gas emissions. Development of "green" market requires development of national strategic documents, special policies and consistent implementation, which will encourage market participants to implement activities on introduction of "green" technologies, "greening" of financial sector and promote the transition to "green" economy.

Kazakhstan has adopted national and statutory programs and strategies to create conditions for sustainable development. Our country became

the first country in Central Asia to create an organizational and legal basis for transition to "green" growth through the adoption of a number of legislative documents, including the Concept for Transition to "green" economy, the Law on Support for Use of Renewable Energy Sources. Currently, a draft Concept of low-carbon development and roadmap for achieving updated NDC (nationally determined contributions) are being developed.

In this regard, there is an urgent issue regarding the financing necessary to achieve the goals set. Some investments are probably more "green" than others. There is no single definition of what

is considered "green" or sustainable financing in the world. Some asset managers want to support only clean energy. There is a concern that broad definitions of sustainability do not make sense, allowing some funds to sell themselves as "green" or ethical, even if they are not of benefit for the environment.

Before the adoption of the new Code, the main issue in promotion of "green" technologies and "green" financing was the separation of green from brown. First of all, when implementing measures for economic stimulation of activities aimed at protecting environment, it is necessary to clearly differentiate what is considered "green" in order to ensure the flow of "green" investments. Thus, the following key concepts are introduced in the new version of the Environmental Code of the Republic of Kazakhstan:

1)       "green" technologies;

2)       service operator of "green" technologies;

3)       "green" financing;

4)       "green" projects;

5)       classification of "green" projects (Taxonomy);

6)       "green" bonds;

7)       "green" loans.

Importance of "green technologies"

"Green" technologies can help reduce carbon intensity, increase energy efficiency and resource efficiency, as well as prevent serious environmental degradation. Their successful application can lead to improved environmental quality, human well-being and social justice, while reducing the risk of resource scarcity and achieving the Sustainable Development Goals (SDGs).

The definition "green" technologies in the new version of the Code is developed on the basis of approach of the countries of the Organization for Economic Cooperation and Development (OECD), which also includes the Definition of areas of application of "green" technologies. At the same time, it is important to note that the accompanying document to the Code "Rules for recognizing technologies as "green" technologies» defines the following criteria for "green" technologies:

If "technology safety" criterion is met and only one of the first four criteria is met, the technology is recognized as "green" and is included in the Register of "green" technologies and projects (hereinafter-the Register).

The register is maintained by the Service Operator of "green" technologies and contains up-to-date information about "green" technologies, "green"projects, as well as investors and other market participants. Service operator also evaluates the technology for compliance with the "green" definition with the further issuance of an opinion.

For example, in case of purchase of an energy-efficient refrigerator, any individual can potentially take a "green" loan, but with definition of "green" projects, things are somewhat more complicated. The fact is that the project includes an implementation plan, a number of implemented technologies, cost estimates, and "green" project must also contain information about the (planned) achievement of environmental indicators, which must be confirmed by a third independent organization.

It is obvious that "green" financing should be more attractive for an entrepreneur than traditional loan, otherwise why prove the environmental benefits of project? In this regard, the relevant amendments were made to the Entrepreneurial Code of the Republic of Kazakhstan on subsidizing the interest rate on granted "green" loans and coupon interest rate on "green" bonds within the framework of the Business road map-2025.

As mentioned above, some investments are more "green" than others. How to determine whether the project is "green" enough to get access to preferential lending or other debt instruments, such as "green" bonds? Developed classification of "green" projects (the Taxonomy) helps not only to classify projects, but also contains a number of thresholds for the project to be "green". For example, if an enterprise's energy efficiency project is aimed at reducing energy consumption by more than 20%, then in accordance with the Taxonomy threshold, it qualifies for "green" financing. Of course, if we are talking about renewable energy sources, there is no question of threshold values, since renewable energy technologies are a priori "green".

The reader can get acquainted with other classes of "green" projects and threshold values directly in the Taxonomy.

"Green" taxonomy of Kazakhstan is a unified system of classification of economic activities and categories of environmentally sustainable projects. Each type of economic activity has a corresponding quantitative/qualitative indicator (threshold), the achievement of which will grant the enterprise access to "green" financing.

The taxonomy is developed on the basis of the Mongolian taxonomy, and thresholds are based on European similar values reflected in the technical report on the EU "green" taxonomy. Using EU methods, the threshold values of the Taxonomy of Kazakhstan are agreed with market participants and experts and adapted to local technical capabilities and conditions.

In addition, Taxonomy is an international tool. In other words, if the threshold value of the Taxonomy is met, the project can potentially attract foreign private investors, many of them have adopted a mandate to support "green" activities. Thanks to the new Environmental Code of the Republic of Kazakhstan, it is possible to confirm projects as "green" on the territory of the Republic of Kazakhstan. In this connection, it is possible to legitimately prove the "greenness" of investments in the reports on the funds spent.

Of course, international environmental standards are one step ahead of the expectations of Kazakhstani entrepreneurs, and therefore there is a debate about how “green” an enterprise should be in order to count on the support of the state or foreign investors. The answer is simple: as “green” as possible.

At the same time, there is also the creation of various development institutions aimed at supporting "green" activities, such as decarbonization. One of the positive examples in international practice is the creation of non-state environmental funds that support business in transition to a low-carbon and circular economy, as well as support the implementation of "green" projects aimed at reducing greenhouse gas emissions. In order to promote the achievement of carbon neutrality goals, on May 13, 2021, the NGO "Eurasian Environmental Fund" (hereinafter referred to as the Fund) was registered in the jurisdiction of the AI FC. Creation and development of the Fund is supported by the ECOJER Association and corresponds to the approved Development Strategy of the Association for 2021-2025.

The main goal of the Fund is to support and develop the market of carbon units through the mechanism of implementation of low-carbon projects. In this regard, the following tasks have been formed:

·                attracting financing: search for partners, investors, sponsors, donors, crowdfunding, formation of an investor base;

·                promoting the development of carbon market through the implementation of offset projects and development of motivation tools for participants in the carbon units market;

·                creation of offset projects and sale of formed carbon units, implementation of eco-projects at the expense of sponsors, donors;

·                establishing a partner network with major emitters of greenhouse gases to consolidate efforts in the field of decarbonization.

As of today, the Fund has implemented a pilot project with the Eurasian Bank and Mastercard, within the framework of which the bank issues multi-currency eco-cards made of recycled plastic. The Bank will send 0.5% of non-cash transactions on eco-card to the Fund for the implementation of eco-projects.

Creation of such development institutions in Kazakhstan will allow fulfilling the potential of "green" financing in full, as well as demonstrating the transparency and ethics of the local market to the world community. Diversification of sources of "green" financing, as well as increasing the accessibility of programs and tools, will have a favorable impact on local entrepreneurs not only from an economic point of view, but also "greening" of business and improving of environmental culture.