Kazakhstan is among the top 15 highest greenhouse gas (GHG) emitting countries on a per capita basis, reflecting its high energy intensity. To address this, the President of Kazakhstan has set a bold vision of achieving carbon neutrality by 2060, which should support broader efforts to diversify the economy beyond fossil fuels.
Susanne Aakerfeldt.
A carbon tax could be part of the policy toolbox for Kazakhstan to meet its climate goals, raise revenues for domestic priorities, and enhance economic competitiveness. By placing a price on GHG emissions, a carbon tax provides predictability for businesses and individuals, encouraging them to reduce their carbon footprint. Increasingly, middle-income countries are making progress in carbon pricing implementation, including Brazil and Türkiye, with an estimated 75 carbon taxes and emissions trading systems in operation worldwide.
The timing for such reform is critical. As part of global decarbonization efforts, the European Union (EU), Kazakhstan’s largest trading partner, will apply a carbon border adjustment mechanism (CBAM), which aims to account for the carbon emissions embedded in imported carbon-intensive goods. This means that certain Kazakh industries will face an additional charge when exporting. CBAM charges paid to the EU on Kazakh exports could amount to around $66 million by 2034, with key sectors like iron and steel ($45 million), aluminum ($14 million), and fertilizers ($7 million) being most affected.
Mustafa Ozgur Bozcaga.
Implementing a carbon tax would help to decarbonize these sectors and enhance the competitiveness of these industries in EU markets. As carbon prices paid in the exporting country are deducted from the CBAM charge, it would also allow Kazakhstan to keep some of the money that would otherwise be paid to the EU.
A carbon tax would also raise revenue for spending on public priorities. Applying a carbon tax of $25 per ton of carbon could generate revenues of around 1.7 percent of GDP in 2030. Levying this type of tax could be gradual (starting in 2026 at say $5), giving businesses time to adjust. The phase-in of the CBAM charge will also be gradual from 2026, with a steep raise not until 2030. With a carbon tax of $25/tCO2e, Kazakhstan would retain some of the revenues that would be foregone to the EU, while a higher carbon tax would result in a greater share of the revenues being retained.
Natasha Sharma.
Beyond raising revenue and enhancing the competitiveness of existing industries, a carbon tax offers several benefits. First, it could reduce domestic fossil fuel consumption, which would increase export earnings and raise national income due to global prices exceeding domestic prices. Second, it could encourage investments in new and cleaner industries, creating jobs by encouraging more labor-intensive production, and supporting economic diversification – critical for long-term growth in Kazakhstan. Countries like South Africa demonstrate this potential – since implementing carbon taxation in 2019, they’ve seen significant growth in green manufacturing while maintaining export revenues. And third, reducing carbon-intensive energy use improves air quality and health outcomes.
Kazakhstan already has some elements of a carbon tax in place, as excise taxes are levied on transport fuels. As Kazakhstan revises its Tax Code, the existing excise system could be strengthened to apply a carbon tax to all fuels, including natural gas and coal. This type of excise tax is difficult to avoid and captures the informal sector – important considerations for tax system design.
Daniel Besley.
Any reform must be balanced, considering the impact of higher energy prices on vulnerable households and industries. If revenues are used for purposes that benefit citizens evenly, say for investing in schools, the overall impact of the reform on equity is progressive. Equity would also increase if carbon tax revenues were returned back to households in cash transfers. For example, if 40% of the carbon tax revenues were distributed to the bottom 40% of the households, the poorest and most vulnerable families would be better off, allowing consumption to increase by up to 6%.
A carbon tax would establish a price floor that can complement Kazakhstan’s existing emissions trading system, while expanding carbon pricing to other sectors.
In sum, through the revision of the Tax Code, Kazakhstan has an opportunity to improve its carbon pricing system, similar to other middle-income countries. Such efforts would raise revenues, support economic diversification, improve development outcomes, and enable Kazakhstan to set an example for the region.
The authors are senior adviser Susanne Aakerfeldt, senior climate change specialist Daniel Besley, economist Mustafa Ozgur Bozcaga and senior economist Natasha Sharma, the World Bank.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of The Astana Times.
