Carbon Markets: A Developing Tool in the Climate Transition at KASE

Global carbon markets have the potential to generate significant economic and environmental benefits by directing private investment toward impactful and efficient climate initiatives across various technologies and ecosystems. These markets are expected to offer a flexible, cost-effective approach for both developed and developing countries to achieve their emissions reduction targets under international frameworks. By placing a price on carbon, they incentivise industries to innovate and adopt cleaner technologies, leading to more sustainable production methods. Ultimately, the success of these markets hinges on effective regulatory frameworks and collaboration among stakeholders, ensuring that the transition to a low-carbon future is both equitable and impactful.

While recent times have been challenging for carbon prices, carbon markets continue to be endorsed by the United Nations as an essential part of achieving the world's climate targets. Three global trends are shaping the current landscape of carbon markets and influencing their development in Kazakhstan: the expansion of compliance markets, the revitalisation of voluntary carbon markets, and the strengthening of carbon border adjustment mechanisms.

Compliance markets have been growing as more countries implement cap-and-trade systems or carbon taxes. The drive to use market-based approaches for carbon pricing has led to the launch of numerous new programs in recent years. According to International Carbon Action Partnership Status Report 2024, 36 emissions-trading systems are in force globally, with an additional 22 in various stages of consideration and development. Some existing markets are continuing to finalise their reforms, with the latest news being about China expanding its national carbon trading market to include the steel, aluminum, and cement industries by the end of this year.

The voluntary market is also evolving despite the pushback caused by doubts about the quality of underlying carbon projects. Market players are responding to transformations driven by regulatory developments focused on the integrity of carbon credits and shifts in corporate strategies, prompting them to establish stricter standards and certification processes.

This year has begun with additional regulatory requirements for European importers, particularly those purchasing industrial metals, fertilizers, cement, electricity and hydrogen from non-EU countries. Designed to impose a carbon cost on imports based on their embedded emissions, CBAM affects high-carbon goods such as steel and aluminium — key exports for Kazakhstan to the EU. This adjustment may drive enhancements in Kazakhstan’s emissions-trading system (ETS), encouraging stricter caps and improved monitoring and reporting practices.

Kazakhstan’s carbon emissions trading system (ETS), operational since 2013, stands as a cornerstone of the country’s climate policy. It remains the only operational carbon market in the region, positioning the country as a leader in climate action within Central Asia. The system has undergone several phases of development, each with adjustments to improve its efficacy.

Relaunched in 2018 and governed under the Environmental Code of Kazakhstan, the ETS covers greenhouse gas emissions across sectors including power generation, oil and gas, mining, metallurgy and specific manufacturing sectors. The ETS applies to entities emitting over 20,000 tons of CO₂ annually, requiring their participation in Kazakhstan’s National Allocation Plan. Currently, 135 companies are participants in the ETS. Allocations are provided at no cost, allowing businesses to sell unused allowances (generated from emission reduction measures) or purchase additional quotas if emissions exceed their assigned limits. The ETS also enables regulated companies and project applicants to create carbon offsets through low-carbon projects, thus enhancing trading flexibility. However, despite these provisions, Kazakhstan's carbon market remains relatively small, characterised by limited liquidity and low carbon prices with average $1 per ton of CO₂.

Kazakhstan aims to reduce its carbon balance by at least 15 percent from 1990 levels by the end of 2030. This goal is the nationally determined contribution of the Republic of Kazakhstan to the global response to climate change. To support this ambitious goal and drive progress towards carbon neutrality by 2060, Kazakhstan is eager to gradually reduce the amount of freely allocated allowances in order to establish a fair carbon price. The first step towards paid allocations is an auction-based system that will allocate a portion of allowances to carbon market participants.

At this stage of development of Kazakhstan's emissions trading system, it seems like KASE, as the largest stock exchange in Central Asia, is well positioned to leverage the strength of capital markets and contribute towards a low-carbon future by establishing a robust platform for carbon units trading. Mobilising its market infrastructure, KASE can support the trading of emissions allowances and carbon credits, providing transparency, liquidity and regulatory oversight. By integrating carbon markets within its ecosystem, KASE can offer verified and standardised carbon credits to investors and companies, fostering participation from domestic and international stakeholders.

Globally, numerous exchanges are already participating in the carbon markets ecosystem. KASE is eager to apply this accumulated knowledge and experience to deliver the best solutions for our market. Although significant progress has been made in putting a price on carbon emissions in Kazakhstan, much remains to be done to address climate challenges. By sharing a responsibility to work towards net-zero targets, we can help confront this critical challenge.