Carbon Trading’s Benefits for the Green Economy

лого-ЭкспоIn his state-of-the-nation address, President Nursultan Nazarbayev gave the nation the task of studying international experience in the transition to a green economy.

The implementation of this task requires basic and applied research in key areas of the government’s Concept for the Transition to a Green Economy. The World Economic Forum in Davos clearly demonstrated that the issues of climate change, investment in renewable energy and the introduction of clean technologies are areas of study of not only international organisations, but transnational companies, as they increase their competitiveness in global financial markets.

One of the recognised sources of financing for green technologies is the participation of enterprises in the trading of carbon and quotas for greenhouse gas emissions. This win-win market mechanism to reduce greenhouse gas emissions, despite a slight decrease of carbon trading transactions due to the slowdown of the world economy, has great prospects. In general, the scheme is based on the principle of cap and trade, in which a release limit is imposed on the total volume of emissions of companies involved in the scheme. Participants may then buy or sell quotas within the established limits.

Since the adoption of the Kyoto Protocol, the internal emission trading system (ETS) has been developing in the European Union, the United States, Japan and China. According to international consulting firm Point Carbon, the main sellers of quotas are currently the countries of Eastern Europe (the Czech Republic, 33 percent; Estonia, 15 percent; Poland, 7 percent). Major buyers of quotas are Japanese public and private companies, with 61 percent of world trade, Spain with 14 percent, and then American and Western European private companies.

In Europe, the ETS operates in parallel with energy-saving initiatives. The incentive to reduce emissions through carbon trading is not directly related to energy saving, but energy-saving measures lead to reductions in carbon emissions– and thereby enterprises accumulate quotas for sale.

Overall turnover of the European market of emission permits in 2012 was about 120 billion euros. The penalty for one tonne of emissions is 100 euros, adjusted for inflation. As noted above, in connection with the financial crisis in the EU there has been some reduction in auction trading, but the possibility of new entrants in the organisation, especially countries of the Commonwealth of Independent States (CIS), is not excluded.

Active internal trade has been observed recently between U.S. states, particularly California. According to forecasts, California’s carbon market will grow from $1.7 billion in 2012 to $10 billion in 2016.

In Japan, the initial reduction commitment was about 6 percent from 1990 levels, but in 2013, the government revised its commitments to reduce them by 3.8 percent to 2020 compared with 2005. The penalty for failing to fulfil obligations is $600 per tonne plus a 1.3 time-cost of compensation for excess emissions. Overall, the Tokyo prefecture has undertaken a commitment by 2020 to reduce emissions by 25 percent from the level of 2000.

In China, according to the country’s 12th five-year plan, the reduction of greenhouse gas emissions per GDP unit must reach 17 percent. As of 2013, participants in quota trading are the cities of Beijing, Chongqing, Shanghai, Tianjin, Hubei and Guangdong, which represent more than 2,500 companies. From 2015, other cities throughout the country will get involved in this trade. Chinese emission trading exchanges have different formats and sales and in Beijing the scheme includes all emission sources with over 10 tons of carbon dioxide per year.

The most active participant in the ETS among CIS countries is Ukraine. In 2013, Ukraine carried out transactions on bilateral agreements with Belgium, Germany, Spain, the Netherlands, Poland, France, Switzerland, Sweden and Estonia, 104 transactions in all, which allowed Ukraine to earn more than 30 million euros. In the first period of the Kyoto Protocol, the country earned about 470 million euros through emission trading.

The national system of emissions trading in Russia is regarded not only as a condition to  implement its declared policy of energy conservation, but a mechanism to improve the  competitiveness of Russian businesses, especially in energy-intensive export-oriented sectors. According to World Bank estimates, the cost of reducing carbon dioxide emissions in Russia is much lower than in developed countries. According to expert estimates, Russia can earn up to $10 billion a year through the sale of emission allowances. The profit of enterprises from the sale of quotas can range from 2 to 20 percent of the total financing of emission reduction projects.

Kazakhstan has great potential for participation in carbon trading. The country ratified the Kyoto Protocol in 2007 and is a relying party of application A, which gives it the right to participate in joint projects and the mechanisms of clean development. At the same time, Kazakhstan adopted voluntary commitments to reduce emissions by 15 percent in 2020 from the level of 1990.

Earlier this year, Kazakhstan’s government approved the Second National Allocation Plan for Greenhouse Gas Emissions in 2014-2015, developed in accordance with Article 16 of the Environmental Code and provisions of international treaties in the field of climate change. It includes 166 enterprises in the energy, coal, oil, gas and processing industries of the country, the baseline emissions of which are greater than 20 tonnes of carbon dioxide.

As noted in the Concept of the Transition to a Green Economy, sectors like the electric power industry, which uses coal, and the mining and transport industries account for the bulk of emissions. Current emissions exceed the limit values for Europe; particulate matter exceed emissions by 50 percent of total emissions, nitrogen oxides by 60 percent and sulphur oxides by 47 percent.

Much work is being done by the Kazakhstan Ministry of Environment and Water Resources and the Zhasyl Damu company to introduce amendments to the Environmental Code, to specify areas of activity for the quota system, to improve the system of monitoring and reporting, to transition from the old method of granting quotas to benchmarking and to introduce international standards to regulate the work of verifiers.

There is much work to be done, both in legal and institutional terms, to launch the national carbon market. However, the effect of the ETS development for domestic business and the country as a whole is obvious.

An important component of this green economy direction is the understanding and support of government and business organisations, as well as qualification of potential players in the cap and trade system. As part of its mission, from 2014, the Green Academy Research and Education Centre will carry out systematic training of companies on the inventory, monitoring and verification of greenhouse gas emissions with the support of the U.S. Agency for International Development and Consus Carbon Engineering of Poland. We hope that this training will contribute to domestic enterprises’ readiness to work in accordance with the new climate agreement scheduled for adoption in 2015.

In general, the launch of the national system of emissions trading and the effective participation of Kazakh companies in it will help to ensure greater stability in the national economy in the long term.

The author is the Director of the Green Academy Research and Educational Centre.

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