On March 26, 2009 the Republic of Kazakhstan ratified the Kyoto Protocol of the United Nations Framework Convention on Climate Change ('Protocol'), which came into force on September 17, 2009. Assuming an obligation under the Protocol to reduce emissions by 15 percent by 2020 and by 25 percent by 2050 as compared with emission levels in 1990, Kazakhstan has taken an active part in the market mechanisms for trading quotas for the emission of greenhouse gases.
Market mechanisms are considered to be the main instrument of ecology policy, as part of which States or separate business entities can sell or buy the quotas for the emission of greenhouse gases on national, regional or international markets.
As of August 2013 the trading of quotas for the emission of greenhouse gases was planned to begin in Kazakhstan via the Kazakh trading exchange. Such trading is known internationally as 'Caps and Trade', the Head of Zhasyl Damu JSC Mr. Sergey Tsoi said. Please note that only the quota system and trade of greenhouse gases has been in operation since August 2013 in Kazakhstan (http://www.zakon.kz) According to the Minister of the Environment and Water Resources, Mr. Nurlan Kapparov, it was decided based on international practice not to introduce a system of tax collection (Caps and Tax), as such a conservative system can lead to misunderstandings between the government and industrial sector (http://climatechange.ru)
Under Chapter 9-1 (State Regulation of Greenhouse Gas Emissions) of the Environmental Code of the Republic of Kazakhstan dated 9 January 2007 No.122 (the 'Environmental Code'), users of natural resources are divided into the quota sector and administrative sector. On December 2012 the Government of the Republic of Kazakhstan approved the National Plan for the Allocation of Quotas ('National Plan'), which envisages the free allocation of quotas in the amount of 147 190 092 units among the current facilities of 178 large operators, who are emitting carbon dioxide at levels which exceed 20,000 tons per year. Such operators conduct their business in the following priority sectors: subsoil use, metallurgy, chemical industry, agriculture and transport ('User of Natural Resources'). Moreover, Article 94-2 of the Ecology Code (Quotas for Greenhouse Gas Emission) establishes a direct obligation on the part of Users of Natural Resources to obtain quotas on greenhouse gas emissions ('Quotas'). This is the quote sector.
Under Article 94-2 of the Environmental Code (Quotas for Greenhouse Gas Emission), if a user of natural resources exceeds the set quotas it may compensate its obligation to reduce greenhouse gas emissions with quota units purchased from other users of natural resources, which have a reserve of set quotas for greenhouse gas emissions, and (or) carbon units derived from projects. Furthermore, if a user of natural resources has a reserve quota for greenhouse gas emissions compared with set quotas for greenhouse gas emissions and commitments to reduce greenhouse gas emissions, the latter can sell quota units to other users of natural resources.
In other words, if an insufficient amount of quotas have been received as a result of the National Plan, users of natural recourses are entitled to purchase quota units and/or units of internal emission reductions ('Carbon Unit') from other users of natural recourses - by participating in auctions held by the trade exchange at least once a year. Please note that the reserved quotas as compared with the set quotes formed by reducing production, are not traded.
The Subordinate organization of the Ministry of Environment and Water Resources of the Republic of Kazakhstan ('Ministry') responsible for managing the reserve of quotas in the National Plan is JSC 'Zhasyl Damu'. According to JSC 'Zhasyl Damu', trading quotas and carbon units will be conducted by JSC 'Trade Exchange 'Caspiy'. At the present time no auction has been held due to the fact that some users of natural resources have not yet obtained certificates for greenhouse gas emissions or have not registered with the State Registry of carbon units of the Republic of Kazakhstan ('State Register'). The starting date of the auction is expected to be in December 2013.
Please note that the Ecology Code states that greenhouse gas emissions are not the subject of ecological permits, due to the fact that the bulk of greenhouse gas emissions are carbon dioxide emissions which do not require permits. The inclusion of these in the list of regulated gases and the necessity of obtaining permits would automatically entail payment for emissions, which would mean double taxation.
The Rules for trading quotas and carbon units were approved by the Order of the Minister of Environmental Protection of the Republic of Kazakhstan dated May 11, 2012 No.151 ('Rules of Trading'). According to the Rules of trading, the object of civil rights, allowed for circulation in the Republic of Kazakhstan, is an enforced quota unit placed on one of the accounts of the State Register. If the quota is withdrawn or invalidated by a decision of the Ministry, such a quota cannot be traded. However, the Environmental Code and other legal acts regulating environmental issues do not provide the list of grounds according to which quotas may be canceled and/or withdrawn from trade. Furthermore, there is no established form of the document confirming that the quota is traded.
The Rules of trading limit the validity period and period for trading the quota to the effective period of the National Plan. Considering the fact that no auction has been held, the exact date of the primary trading quotas for 2013 remains unknown. Thus, if the trading of quotas is not conducted, the implementation of the approved National Plan for 2013 will remain unclear. Consequently, the questions arise: whether a new National Plan for 2014 will be approved, and whether auotas under National Plan for 2013 will be transferred to the new national plan for 2014.
The Rules for trading provide for the primary and secondary sale of quotas. The primary sale of a quota is a distribution of quotas from the reserved quotas (at least 30% of the reserve quotas under the National Plan) among users of natural recourses -for their new and expanding facilities. The secondary sale of quotas is trading of previously distributed quotas on a trading exchange.
Under the Rules for trading, the participants of trading in the primary sale of quotas must meet the following qualification requirements:
- be an operator of a new and extensible facility subject to quotas for greenhouse gas emissions in the Republic of Kazakhstan, or a representative of the interests of one of these;
- have an account as an operator in the State Register, or represent the interests of an entity which has such an account.
Meanwhile, under the Rules for trading it is still unclear whether this list of qualification requirements is comprehensive. Thus, in our opinion, it may lead to the exclusion of the clients of participants from auctions for the sale of quotas, and thereby block the process of purchasing/selling quotas.
Moreover, the Rules for trading often use the term 'client', but there is no clear distinction between the legal status of bidders and their client. In this case, it remains unclear who is involved in trading - the participant or his client.
It should be noted that the Rules for trading specify neither the types of auction (open or closed), nor the process for the auction. Moreover, it remains unclear which trade exchanges will carry out the trading of quotas, namely whether they will be universal or specialized trade exchanges trading only such quotas. Moreover, the Rules for trading limit the trading of quotas to only buying and selling, but do not include other types of civil deals (barter, exchange, assignment).
Implementation of the emissions trading system will stimulate users of natural recourses to reduce greenhouse gas emissions, only if the former will clearly understand the processes of the quota trading systems in full. The mechanisms for this which exist today require further improvements.
Limiting emissions of greenhouse gases is one of the stages of Kazakhstan's transition to a 'green economy' as well as a new opportunity for Kazakhstan to participate in the world emission trading system and in solving a global environmental issues; that is why emission trading is one of the main instruments for implementing the 'green economy'.
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