Aida Maqsut, Director of  SSDC LLP

The climate agenda is extremely relevant in today's world. Many countries and organizations recognize the need to reduce greenhouse gas emissions and limit global warming to < 1.5 °C compared to preliminary industrial levels.

In recent years, we have observed an increase in the frequency and scale of disasters related to climate change, such as severe floods, droughts, fires, hurricanes, etc. These events resulted not only in the death of people, but also to economic losses and damage to ecosystems.

In addition, climate change can lead to a deterioration in the quality of life of the population, leading to a shortage of food and water resources, population migrations, diseases and other negative consequences.

In this regard, more and more companies and governments recognize the need to take measures to combat climate change. Many companies set goals to reduce greenhouse gas emissions, introduce energy-saving technologies and switch to renewable energy sources. At the same time, governments are developing and implementing strategies to reduce emissions, including carbon taxes, emissions trading systems and other market mechanisms.

Thus, the climate agenda is extremely relevant and requires further efforts on the part of all stakeholders, including governments, companies and citizens.

The Government of the Republic of Kazakhstan also recognizes the need to take measures to combat climate change and is actively working in this direction. Under the Paris Agreement, Kazakhstan has committed to reduce its greenhouse gas emissions by 15% by 2030 compared to 1990.

Carbon markets are one of the tools for achieving climate goals at both the country and company levels.

Carbon markets provide economic incentives to reduce greenhouse gas emissions and promote green technologies through the use of greenhouse gas emissions trading mechanisms and opportunity to earn money from reducing emissions.

Carbon markets also encourage investment in green technologies, as companies that reduce their greenhouse gas emissions can sell their carbon units on the market, which can lead to increased revenue and investment in green technologies.

One of the key advantages of carbon markets is that they create financial incentives to reduce greenhouse gas emissions, which leads to a reduction in overall emissions in a shorter time. It can also help companies and states achieve their climate goals set out in the Paris Agreement.

Today there are 2 types of carbon markets: voluntary carbon markets and regulated carbon markets.

Regulated carbon markets

Regulated carbon markets are an instrument of state regulation of greenhouse gas emissions. Kazakhstan already has a system of trading quotas for greenhouse gas emissions, which sets limits on the total amount of emissions in various sectors of the economy.

Kazakhstan's Greenhouse Gas Emissions Trading System (ETS) was introduced in 2013 and is the first and only one of its kind in Central Asia. The principle of the system is that the Government of Kazakhstan sets greenhouse gas emission targets for companies which have emissions exceeding 20,000 tons of CO2 per year, and then allows companies that exceed their targets to purchase emission quotas from companies that, on the contrary, reduce their emissions below the established targets.

The system also provides for completion of its emission obligations through the purchase of carbon offsets that have been registered under the ETS. Any project aimed at reducing GHG emissions can be registered under the carbon offset. Such projects may include renewable energy projects, energy efficiency improvement projects, forest projects, carbon capture and storage projects, and others. To date, there are the following restrictions on the trade of offset units within the framework of the Kazakhstan EST:

1. Offset units can be traded only within the framework of the Kazakhstan ETS, and cannot be transferred to the registry of another country.

2. Trading on ETS is limited to project applicants and companies that are regulated by ETS. Thus, companies that are not regulated by ETS, but at the same time focus on achieving their climate goals, cannot purchase offset units on ETS.

These restrictions and excessive distribution of free units to emitters affect the economic efficiency of ETS of the RK and low prices per carbon unit (1-1.3 dollars per unit). Low prices make it difficult to invest in environmentally friendly technologies and the development of environmentally friendly infrastructure, and thus do not provide an incentive to reduce greenhouse gas emissions of regulated companies.

Voluntary markets

Добровольные углеродные рынки - это Voluntary carbon markets are mechanisms in which companies, states, or other organizations can buy or sell carbon units that are not necessarily established by government or regulatory authorities.

One of the most common voluntary carbon market systems is the Verified Carbon Standard (VCS), which is designed to set standards and certifications for greenhouse gas emission reduction projects that are not subject to mandatory government schemes. This means that VCS provides carbon units to reduce greenhouse gas emissions that can be sold on the market.

Another example of a voluntary carbon market system is Gold Standard, which also provides carbon units to reduce greenhouse gas emissions, but unlike VCS, Gold Standard also focuses on social and environmental benefits for local communities. Today, in addition to VCS and Gold Standard, more than 10 different voluntary systems exist and are being developed, which is an indicator of the need for development of such markets.

One of the key advantages of voluntary carbon markets is that they can promote innovative and environmentally sustainable projects that do not fall under mandatory government schemes. They can also provide an additional source of funding for such projects, as well as raise the profile of the organization regarding its environmental responsibility. Unlike a regulated system (such as ETS), voluntary markets have a wider range of participants and projects, since they are not limited by the geography of project implementation, and by participants who can participate in trade. Companies can use voluntary units to achieve their voluntary climate goals (which are not regulated by the legislation of the country), thereby compensating for their GHG emissions. With voluntary carbon units, companies can offset emissions from both direct sources (Scope 1) and indirect sources (Scope 2 and 3).

To date, prices for voluntary units vary from $ 1.5 to $ 50, depending on the type of project, year of release. According to Bloomberg, prices for voluntary units in 2050 may range from $22- $88 per ton of CO₂, while global demand may grow to 5.4 Gt of CO₂ in 2050, compared with demand of 0.181 Gt of CO₂ in 2023. Bloomberg attributes this growth in demand primarily to the trends of many companies to achieve carbon neutrality.

Interactions between voluntary and regulated carbon markets

Voluntary and regulated carbon markets can interact in Kazakhstan, providing businesses and citizens with flexible tools to reduce greenhouse gas emissions and ensure compliance with government requirements for climate policy. At the same time, it should be taken into account that regulated carbon markets are more formalized and state-controlled, while voluntary markets usually have a wider range of participants and projects.

In order to avoid a conflict between voluntary carbon markets and Kazakhstan's emissions trading system, it is necessary to establish clear rules and mechanisms of interaction between them. To do this, it is possible to ensure transparency and openness of interaction between voluntary carbon markets and the ETS of Kazakhstan and create reporting and monitoring mechanisms that will allow the state to monitor and assess the impact of voluntary carbon markets on reducing greenhouse gas emissions in Kazakhstan.

Development of voluntary market on the territory of Kazakhstan will increase the volume of investments in "green" projects, while Kazakhstan's greenhouse gas emissions will be reduced, which will allow achieving the goals of the Paris Agreement economically faster and more efficiently.