Carbon Tax: Advantages for Kazakhstan's Commitments Towards Climate Change and Economic Strength
Middle-income countries like Kazakhstan, Brazil, and Turkey are taking significant strides in combating climate change by implementing carbon pricing mechanisms. These strategies, primarily carbon taxes and emissions trading schemes (ETS), aim to meet climate goals, generate government revenues, and improve economic competitiveness by incentivizing low-carbon investments and innovation.
Kazakhstan's Carbon Pricing Strategy
Kazakhstan is set to introduce a carbon tax soon, a move partly motivated by the need to avoid EU carbon tariffs and encourage cleaner energy investments. The country is also promoting renewable energy through corporate Power Purchase Agreements (PPAs), enabling businesses to use clean electricity and reduce reliance on traditional grids. This supports decarbonization and economic stability while complementing carbon pricing policies.
Regulatory reforms and investment in green energy and clean technologies are enhancing Kazakhstan's competitive edge in mining and energy sectors with high environmental, social, and governance (ESG) standards. The revised Tax Code presents an opportunity to improve the country's carbon pricing system, similar to other middle-income countries.
Brazil and Turkey's Approach to Carbon Pricing
Though not detailed extensively, Brazil and Turkey typically use a combination of market-based mechanisms like carbon taxes and ETS to balance emissions control with economic growth. These tools raise revenues that governments can recycle into sustainable development and climate adaptation measures, demonstrating substantial economic returns by reducing risks and opening new growth opportunities.
Inclusive Carbon Markets for Broad Participation
Inclusive carbon markets that engage smallholders and marginalized groups through premium pricing for carbon credits and technological advancements in monitoring and verification tend to strengthen broader participation, further supporting sustainability and economic competitiveness.
The Advocacy for Improved Carbon Pricing in Kazakhstan
The World Bank's senior adviser, Susanne Aakerfeldt, senior climate change specialist Daniel Besley, economist Mustafa Ozgur Bozcaga, and senior economist Natasha Sharma advocate for improvements in Kazakhstan's carbon pricing system to raise revenues, support economic diversification, improve development outcomes, and set an example for the region. A carbon tax could be part of the policy toolbox for Kazakhstan to meet its climate goals and raise revenues for domestic priorities.
The Impact of a Carbon Tax on Kazakhstan
A carbon tax could reduce domestic fossil fuel consumption, potentially increasing export earnings and national income due to global prices exceeding domestic prices. Equity would increase if carbon tax revenues were returned back to households in cash transfers, with the poorest and most vulnerable families potentially seeing up to a 6% increase in consumption.
A carbon tax could establish a price floor that complements Kazakhstan's existing emissions trading system, expanding carbon pricing to other sectors. Implementing a carbon tax could encourage investments in new and cleaner industries, creating jobs, supporting economic diversification, and aiding long-term growth in Kazakhstan.
Kazakhstan's Climate Goals and the EU's Carbon Border Adjustment Mechanism
Kazakhstan, one of the top 15 highest greenhouse gas (GHG) emitting countries on a per capita basis, faces the potential impact of the European Union's (EU) carbon border adjustment mechanism (CBAM) on its exports. The CBAM charges paid to the EU on Kazakh exports could amount to around $66 million by 2034, with key sectors like iron and steel, aluminum, and fertilizers being most affected.
Embracing a carbon tax could help to decarbonize certain sectors and enhance the competitiveness of these industries in EU markets. Kazakhstan's existing excise system on transport fuels could be strengthened to apply a carbon tax to all fuels, including natural gas and coal, capturing the informal sector.
Kazakhstan's Aspirations for Carbon Neutrality
The President of Kazakhstan has set a goal for the country to achieve carbon neutrality by 2060. A carbon tax of $25 per ton of carbon could generate revenues of around 1.7 percent of GDP in 2030, providing a significant financial boost towards this ambitious target. As of now, there are an estimated 75 carbon taxes and emissions trading systems in operation worldwide, including in Brazil and Turkey.
- The environmental science community advocates for improvements in Kazakhstan's carbon pricing system, such as a carbon tax, to facilitate economic diversification, improvement of development outcomes, and contribute to a region-wide example for carbon pricing policy.
- To address climate-change issues and meet their climate goals, middle-income countries like Brazil and Turkey implement various market-based mechanisms, including carbon taxes and emissions trading schemes (ETS), shifting toward green finance and policy-and-legislation focusing on encouraging low-carbon investments and innovation.
- In an effort to counter the EU's carbon border adjustment mechanism (CBAM), Kazakhstan's aspirations for carbon neutrality, and to promote clean energy investments, the country is set to introduce a carbon tax, in addition to corporate Power Purchase Agreements (PPAs) for renewable energy integration, reducing the country's reliance on traditional grids and supporting economic stability.
