Carbon taxes, AI, and green growth: World Bank perspective in an exclusive interview

World Bank experts Susanne Åkerfeldt and Daniel Besley  talked with a Kazinform correspondent about how climate policy can drive economic growth in Kazakhstan and the U.S. withdrawal from the Paris Agreement.

World Bank perspective in an exclusive interview
Photo credit: Kazinform

In an exclusive interview, World Bank experts, Senior Advisor Susanne Åkerfeldt and Climate Change Specialist Daniel Besley, spoke with a Kazinform News Agency correspondent about how climate policy can drive economic growth in Kazakhstan, the U.S. withdrawal from the Paris Agreement, and the importance of modern technologies in achieving climate goals.

How is the World Bank helping countries balance economic growth and their commitments to reducing emissions?

Daniel Besley: First, it’s important to recognize that these two things are not mutually exclusive. In fact, action on climate change and economic growth can be mutually reinforced. For example, if we look at what Kazakhstan needs for long-term, sustainable economic growth, there are some elements where climate action can support it.

We know that Kazakhstan needs to diversify its economy to have long-term economic growth. Action on climate change can help create new green industries, new centres and drivers of growth that can support long-term growth in the country. For instance, we know that Kazakhstan has a lot of wind resources, and that wind power will play a big role in the long-term electricity grid of the future.

Emissions
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So what role is there for manufacturing parts of wind turbines in the country? We know that Kazakhstan has many of the minerals critical to the energy transition, creating potential new areas of growth. Climate action can help promote these opportunities. Also, we'd see that there is a lot of infrastructure in Kazakhstan that needs to be modernized.

Action on climate change involves significant investment in infrastructure, such as electricity grids and transport networks. Taking action can lead to big infrastructure projects that help modernize the systems forming the backbone of Kazakhstan’s long-term development. Indeed, climate policy can help unleash a large wave of investment in Kazakhstan that can support long-term development and economic growth.

You had a session with various climate change experts at the Economic Research Institute. What are your key insights from this meeting?

Susanne Åkerfeldt: It was a very interesting discussion with a great turnout—about 80 people in person and 60 online. I'd like to come back to what my colleague Daniel started saying, because he talked about what we want to achieve: there is a need for economic growth, and there is still a need to address climate change. What we discussed at this workshop was more about the tools available and how we can achieve that. This is where the World Bank can help, because we have experience in different regions and countries around the world.

We can see what has worked and what hasn’t, as well as the pros and cons of different approaches. The key topic was actually carbon taxation—what it is and how it can be introduced in Kazakhstan. Kazakhstan already has the KAZ ETS, an emissions trading scheme, so we discussed how carbon taxation could be implemented to complement the ETS.

So, we looked at the fact that you already have excise duties on petrol and diesel, meaning there’s an administrative system in force. If you use that system and recalculate the rates based on carbon content, you would have a good instrument and an effective incentive to use less-polluting fuels, thus supporting green growth. That’s what we discussed in the presentation. We also had a colleague from South Africa, who has been introducing carbon taxation, to talk about it.

Globally, there are about 40 different regions with carbon taxation in force, and we draw on those experiences. It can be administratively simple to implement this because you already have the system in force. You can use that system with low administrative costs and low compliance costs for companies. Additionally, it can be applied upstream, very high up in the fuel supply chain.

This means the tax is levied on everything, including the informal sector, and it covers the whole economy. It generates revenues, and those revenues can be directed to the areas where Kazakhstan feels they are most needed. Kazakhstan has a very strong target to achieve net-zero emissions by 2060, and we feel that this carbon tax, alongside the emissions trading scheme, could be very helpful in reaching that target.

How will the carbon tax policy interact with Carbon Border Adjustment Mechanism (CBAM)?

Susanne Åkerfeldt: Oh yes, the CBAM. Maybe your listeners aren’t familiar with what CBAM is. CBAM stands for the Carbon Border Adjustment Mechanism, which is a measure introduced by the EU. Other countries are following suit—the UK plans to implement it in 2027, and there are also other countries discussing it. This shows that there is one region of the world that is trying to be a forerunner.

Carbon tax
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They want to move forward, and they see that the rest of the world may not be doing the same, but that doesn’t stop them. So, they are introducing more stringent measures. However, they still want these measures to be effective in avoiding carbon leakage. That’s why they introduce a measure saying that there will be the same kind of charge on the products that are imported to the country as if they are produced within the region.

For example, in Kazakhstan, you produce products like fertilizers, aluminum, steel, and iron, which are major exports. From 2026, there will be a charge on these products when they are exported to the EU. If Kazakhstan has already introduced a carbon price, like a carbon tax, that charge can be deducted. This means the government in Kazakhstan can keep the revenues for the benefit of its citizens, rather than the EU collecting that money.

How has the World Bank's strategy changed in response to recent climate crises and geopolitical challenges?

Daniel Besley: Whether it’s the flooding we’ve seen in many regions around the world, the droughts, or the wildfires in places like California and even Kazakhstan a couple of years ago, it’s clear that climate change is happening now.

The World Bank is very cognizant of ensuring that we are putting enough effort and action and attention to adaptation, especially recognizing that it is often the poor and most vulnerable populations who are most impacted by climate change. Given that one of our main objectives is to address poverty, the World Bank places a strong emphasis on helping societies and populations become more resilient to the impacts of climate change, both now and in the future. For example, the World Bank has set a target that 50% of all the climate finance it provides must be on adaptation around the world.

Susanne Åkerfeldt: And, of course, fiscal policy design can help with this, because if you use an instrument like carbon taxation as part of fiscal policy, it can be less distortive than other taxes, allowing you to create a better fiscal system that supports this.

Daniel Besley: Exactly, recognizing that the government plays a big role in responding to disasters, like floods, for example, it’s important to ensure that you have the necessary revenue sources and fiscal buffers to be able to respond effectively.

How does the World Bank assess the vulnerability of Central Asia to climate change, such as flooding and droughts?

Daniel Besley: In Central Asia, for sudden onset impacts, flooding is certainly a big concern, both in terms of the increased frequency of floods and the extent, how extreme floods are. We’ve seen examples of that, so attention needs to be paid. The World Bank is working on how to make infrastructure, particularly roads, railways, and buildings in flood-prone areas, more resilient to flooding. Over the longer term, water availability, particularly fresh water, is a key issue in Central Asia. With changing rainfall patterns projected for the future, we are likely to see more droughts.

What we need to put in place now is greater water availability for future generations. We also need to understand the impact of changing rainfall patterns and droughts on sectors like agriculture, which is so critical in Central Asia. How does agriculture need to change to changing patterns of the weather and how can we make sure that the water is available to keep agricultural production going.

How does the World Bank evaluate the role of emerging technologies such as AI, carbon storage or hydrogen energy?

Daniel Besley: Yeah, we often look at these things by sector or industry, so what the decarbonization pathway looks like for different industries. We do this by examining the different options we currently know for reducing emissions and looking at the costs of those technologies. For example, hydrogen for steel manufacturing. We also look at how the costs of these technologies are likely to reduce over time, considering the learning rate of those technologies.

Once we assess those options, we can then look at how the costs are likely to change in the future as they’re increasingly deployed. This helps us determine which options are likely to be least cost and, therefore, most attractive for businesses to invest in. These are the kinds of assessments we do.

And then, of course, the next question is, what policies do we put in place, or what do we work on with governments to drive those technological changes? Suzanne has talked quite a bit about carbon taxation, and carbon tax is particularly useful for deploying technologies once they are available. Once a technology is proven, a carbon tax is a very good way of deploying it at scale across the economy.

Green hydrogen
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There is often also a role for governments to work with new technologies, such as hydrogen, to help bring down the costs so that they can be deployed at scale, but also to research and evaluate how these technologies can be used in different countries, such as piloting them in Kazakhstan, so they can be adapted to local conditions.

Susanne Åkerfeldt: You can also say that taxation is a broad, market-based instrument that leaves the choice up to consumers and companies. They can decide which measures they want to invest in, and this results in lower administrative costs because you don’t have to pick a winner that doesn't have to be saying that we support just that technology. That said, there is often a need for complementary measures alongside taxing schemes.

As a starting phase, you might need something like what Daniel is suggesting. But one thing I’d add about the taxation matter is that it can be done step by step. You don’t need to change the entire system all at once. You can begin by simply recalculating the current diesel and petrol rates. And you don’t even need to call it a carbon tax if that would be difficult in the country.

You can say that this is our excise duty—we’ve always had an excise duty; now we’re just recalculating it to better align with our targets. So, that’s one thing I wanted to add.

And what about AI? For example, can AI or blockchain technologies help in monitoring carbon footprints? What’s your opinion on that?

Daniel Besley: I can imagine that these developments and technologies will be useful for helping individuals monitor their carbon footprints. When it comes to corporate footprints, a relevant example for Kazakhstan could be fugitive emissions, such as methane leaks. It’s broadly recognized globally that we likely don’t measure and report methane leaks and fugitive emissions as well as we should. Every country struggle with this. I think using new technologies, such as artificial intelligence to analyze data from satellites, could help us understand where emissions are occurring and how we can better track methane leaks at different sites in countries.

Another concern about these technologies is their energy consumption. What can you say about that? Is it really a concern, especially with AI and blockchain technologies?

Daniel Besley: We have seen that AI can be a very large energy user, so it's important that as we support these technologies, we also consider how to provide low-carbon energy. We need to think about how to build out the grid to support the extra demand these technologies will place on it, ensuring they don't disrupt the transition to net zero.

In your opinion, how critical could the United States' withdrawal from the Paris Agreement be for the further implementation of climate-related projects?

Daniel Besley: Action on climate change is a long-term endeavor. It's been ongoing for many decades and will continue for many more. During this period, we see changes in the geopolitical context all the time. The U.S. has pulled out of Paris before, yet the Paris Agreement and the international negotiations and framework remained, and they will continue to do so. If we look at international climate finance, we see that only a small portion comes from total climate finance. Most climate finances are domestic. The vast majority of it is secured nationally, and it’s really domestic policy that will drive action on climate change. Any changes in the international sphere will likely have only marginal impacts, generally over the short to medium term.

Would you like to add something (Susanne Åkerfeldt)?

Susanne Åkerfeldt: No, I think that was a good conclusion. The climate crisis is here, and we all have to take part in it, with or without the U.S. Of course, we would welcome it if as many countries as possible are on board, but there are also different parts of the U.S. that are still acting on a state level. So, I want to be optimistic. I believe the climate movement needs to be optimistic.

Is there anything you would like to add, something we haven’t covered yet, or any other topics?

Susanne Åkerfeldt: I’d like to wish the Kazakhstan government and everyone the very good luck. Kazakhstan seems to be a great country. I wish you all the best in your endeavor to make it greener and develop a low-carbon economy so that it can achieve economic growth.

Daniel Besley: Yes, likewise. Kazakhstan has set ambitious targets on climate change, including a 2030 emissions target and carbon neutrality by 2060. We will continue to work with the government and stakeholders to help them plan how to achieve these goals, as it’s an important transition for the long-term prospects of Kazakhstan.

Susanne Åkerfeldt: And if I may add, it’s also very important to have the general public on board, just as you were mentioning with stakeholders. It’s crucial to have public consultations and make sure the public understands why this is necessary, because it’s in their own interest. So have open discussions and consultations and campaigns and so on.

Daniel Besley: And I think that’s a challenge in Kazakhstan, because the data suggests there is generally a low level of understanding and knowledge among the broad public about climate change and the desire for action on it. I believe education and awareness will be an important part of any real push for climate action.

Earlier Kazinform interviewed President and Chief Executive Officer of the World Monuments Fund, Bénédicte de Montlaur, who spoke about the decision to include the Moon in the list of heritage sites.

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