Kazakhstan will suspend its emissions trading scheme until 2018 following complaints from industry that the emission reduction demands under the system are too strict and the legal foundation too weak, Vice Energy Minister Asset Magauov said.
In late December, Kazakhstan approved the final allocation plan for the 2016-2020 trading period, adding nearly 9 million more allowances than was set out in a previous draft in an attempt to appease industry, which has opposed the scheme since it was launched in 2013.
But Magauov, who joined the government only last month after previously holding the position as CEO of the country’s biggest energy association, told national media this week that the ETS will be suspended for two years, although emitters will have to continue reporting their GHG output for that period.
“The trading system will be suspended because we can see certain imbalances in the system, gaps that we need to eliminate. But at the same time Kazakhstan will have to develop a new methodology for the issuance of new allowances,” he said, according to news website zakon.kz.
Earlier this week, the oil-rich nation sharply downgraded its growth and oil output forecasts for 2016 because of a collapse in global oil and metals prices.
The government’s budgets have been reined in following the oil price collapse and its currency has lost nearly half its value since abandoning its US dollar peg last August.
One observer who wished to remain anonymous told Carbon Pulse that industry pressure was the primary reason for the suspension, although the ETS law has a number of weaknesses that need to be addressed.
Current regulations don’t allow the regulator to make ex-post adjustments to allocation levels even when obvious mistakes have been made. The current law also prohibits banking of allowances, which some say have caused market distortions.
There is also a lack of trust in the MRV system, and difficulties with the legal definition of emissions sources, according to the observer.
The biggest sector in the Kazakhstan ETS is electricity generation, where 53 entities were scheduled receive 472.6 million allowances over the five years to 2020.
The allocation plan also allocated 190.5 million allowances to mining, metallurgical and chemical firms, and 83.4 million to oil and gas companies.
The market has been over-allocated in the first three years since it was launched, with prices ranging from $0.20 to $4 per tonne of CO2.
By Stian Reklev – firstname.lastname@example.org