Preparation of an EU twinning project on aligning the Kazakh ETS with the EU ETS

Kazakhstan ranks 21st in the world in terms of greenhouse gas emissions, with 397 megatons of CO2 equivalents (CO2e) in 2018. The vast majority of Kazakhstan's emissions (77 % in 2018) come from fossil fuel use in the energy sector. One climate policy measure to reduce Kazakhstan's emissions in the long term was the introduction of an emissions trading system (ETS) in 2013. Kazakhstan's ETS (KAZ ETS) is currently in its fourth trading phase and covers emissions from the energy and industrial sectors, covering approximately 41 percent of the country's emissions in 2018. However, the KAZ ETS has faced a number of challenges since its start of operation, most notably the comparatively low level of ambition. This in turn risks keeping Kazakhstan from achieving its climate targets under the Paris Agreement of 15 percent emission reductions by 2030 compared to 1990 levels. In addition, an insufficient number of trading market participants in the KAZ ETS has resulted in an allowance market with limited effectiveness.

To meet Kazakhstan's commitment under the Paris Agreement, these challenges need to be addressed and the ambition level and functionality of the KAZ ETS improved. This could be done, for example, by aligning key design features of the KAZ ETS with those of the European Emissions Trading System (EU ETS). To this end adelphi, within the project “Capacity Building Emissions Trading to Support Bilateral Cooperation 2018-2022”on behalf of the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), supported a working group established by the German Embassy in Kazakhstan as well as the Kazakh Ministry for Ecology, Geology and Natural Resources in preparing the Terms of Reference (ToR) for a possible EU Twinning project to align the KAZ ETS with the EU ETS. The services provided by adelphi consisted of three main elements: First, a status quo analysis of the KAZ ETS was prepared, including identifying challenges in the system's environmental ambition and functionality. Subsequently, the Terms of Reference for a potential EU Twinning project was elaborated together with the working group. Throughout the process, adelphi supported the German Embassy in coordinating this working group.