Every five years, operators covered by Kazakhstan’s emissions trading system find themselves facing the same uncertainty as the government prepares a new allocation of greenhouse gas emission allowances for the next compliance period. Regulators emphasize the country’s international climate commitments, including its Nationally Determined Contribution (NDC), while businesses worry that free allowances will be insufficient, forcing them to purchase additional permits or carbon offsets. Even after allocations are finalized, companies remain concerned about whether they will receive extra allowances if production expands. This cycle has become a familiar feature of Kazakhstan’s climate policy since the Environmental Code came into force in 2021.
Kazakhstan’s Emissions Trading System (ETS) is generally regarded as being aligned with international standards for regulating greenhouse gas emissions. Yet the country’s actual contribution to global emissions raises an important question about proportionality. According to World Bank data, Kazakhstan accounted for just 0.8% of global greenhouse gas emissions in 2023, compared with 15% for China, 7% for Russia, and 5% for Germany. This inevitably prompts a broader discussion: are we placing an excessive burden on domestic businesses in pursuit of climate commitments whose global impact remains relatively modest?
There is little doubt that the ETS has encouraged investment in low-carbon technologies and improved energy efficiency at regulated facilities. However, in striving to gain international recognition for the system, Kazakhstan has arguably overlooked a more fundamental objective. As long as companies receive an ample supply of free allowances, there is little commercial incentive to invest seriously in decarbonization. Compliance becomes a matter of managing quotas rather than reducing emissions.
More importantly, the current framework pays surprisingly little attention to what may be the most meaningful indicator of climate performance: greenhouse gas emissions per tonne of output. This metric provides a direct measure of how effectively an enterprise is reducing the carbon intensity of its production and should serve as the benchmark for evaluating decarbonization efforts across Kazakhstan’s industrial sector.
The contrast with energy efficiency policy is striking. While ETS compliance focuses on staying within allocated emission caps, reporting on fuel and energy consumption provides a much clearer picture of whether enterprises are actually improving efficiency and meeting national energy-saving targets. The current emissions reporting system, by comparison, reveals relatively little about real progress in reducing carbon intensity.
Any credible decarbonization strategy should begin with a simple question: how many tonnes of CO2 are emitted to produce one tonne of product? Existing sectoral benchmarks are intended to answer that question, but many fail to capture important differences in production processes. Kazakhstan’s oil refineries, for example, are assessed under a single benchmark despite producing different product mixes with varying carbon footprints. While the World Bank’s Partnership for Market Implementation (PMI) project is expected to improve these methodologies, there are legitimate reasons to question whether it will fully address these shortcomings.
This raises a fundamental policy choice. Is Kazakhstan’s primary objective simply to comply with international climate rules, or is it genuinely committed to achieving carbon neutrality by 2060?
The Environmental Code has already answered the first question. The result is a market characterized by an oversupply of free allowances and carbon offset prices that remain below one US dollar, offering little incentive for investment in emission reduction projects.
If the country is serious about carbon neutrality, the regulatory focus should gradually shift from total emissions to emissions intensity. Operators should be assessed against measurable benchmarks for greenhouse gas emissions per unit of production. While businesses benefiting from generous free allocations are unlikely to welcome additional performance requirements, this approach would create far stronger incentives for technological modernization and operational efficiency. As a first step, regulators and the ETS operator could begin conducting detailed assessments of emissions intensity across covered installations.
Such a transition would fundamentally reshape Kazakhstan’s carbon market. Over time, free allowances could be phased out, and facilities failing to meet emissions intensity targets would need to offset excess emissions by purchasing carbon credits generated through verified offset projects. That, in turn, would allow offset prices to reflect genuine market demand rather than being artificially depressed by an oversupply of free allowances. At present, developing offset projects for Kazakhstan’s domestic market is often economically unattractive because the price signal is simply too weak.
Emissions intensity benchmarks should also become progressively more stringent over time, following the same logic applied to Best Available Techniques (BAT). The most effective starting point remains reducing fuel and energy consumption, which simultaneously lowers greenhouse gas emissions, cuts conventional air pollution, and improves industrial competitiveness.
Viewed from this perspective, carbon neutrality is not merely an environmental objective. It is an opportunity to improve the financial performance of enterprises through greater energy efficiency, reduce harmful emissions, strengthen environmental quality, and make Kazakhstan’s emissions trading system more dynamic and economically meaningful.
Climate policy is often seen as an abstract agenda with little relevance to the day-to-day operations of industrial enterprises. In reality, once Kazakhstan succeeds in aligning energy consumption, energy efficiency, and emissions reductionwithin a single policy framework, carbon neutrality will become far more than a long-term political commitment. It will become an achievable economic strategy.
Aliya Shalabekova, independent expert, exclusively for EconomyKZ.org
