Kazakhstan has proposed allocating 737.7 million allowances to ETS participants over the 2016-20 period, a senior government official said Tuesday, which would translate into a 4% drop or a reduction of 6 million units per year compared to the 2014-15 second trading phase.
Kazakhstan opened its carbon market in 2013, making it the first Asian country to launch a national ETS. Its third trading period kicks off on Jan. 1, 2016, meaning the government must finalise its yet-to-be-completed allocation plan within weeks.
The latest government proposal is to issue around 147.5 million allowances per year over the five years, Gulmira Sergazina, head of the climate change department in the Ministry of Energy, said on the sidelines of the UN climate talks in Paris.
In comparison, 153.7 million permits were issued in each of the two years that made up the second trading period, still defined as a pilot phase.
The proposal comes as industry steps up lobbying efforts to convince the government to drop the ETS, claiming it is too costly.
In October, Asset Magauov, general director of the executive committee of major energy firm KazEnergy, said Kazakhstan’s INDC pledge to reduce GHG emissions to 15% or 25% below 1990 levels by 2030 would force the government to halve the amount of allowances in the system, which could double allowance prices while imposing huge economic damage onto emitters.
Sources told Carbon Pulse that preliminary data showed that the market was again overall long over during its second phase, despite some individual companies being short permits.
The allowance price has varied wildly over the past two years, ranging from $0.20 to $4, with poor liquidity contributing to volatility.
Many observers have urged Kazakhstan to shift the allocation methodology from grandfathering to benchmarking in order to avoid overallocation, but the source said the government has not been able to make the required legislative changes, declining to specify the reasons behind its inaction.
Carbon Pulse understands that a shift to benchmarking could be made in the fourth period, or even midway through the upcoming third phase.
Another issue that has plagued Kazakhstan’s ETS so far is that companies that expand their activities can apply for additional allowances that are issued in addition to the allocation quota, effectively raising the scheme’s emissions cap.
This feature will also be carried into the third trading period despite calls for the market regulator to instead award such extra allowances from a government reserve, in order to keep the market’s permit supply under control.
By Stian Reklev – firstname.lastname@example.org