Kazakh producers to face challenges under Europe’s new carbon tax regime

Expert meeting in Astana. Photo credit: QazTrade
Expert meeting in Astana. Photo credit: QazTrade

Representatives of the public sector, business, and experts recently gathered in Astana to discuss the European Union's (EU) carbon tax and how it will affect Kazakhstan's industrial exporters, Kazinform News Agency correspondent reports, citing QazTrade Trade Policy Development Center.

The EU’s Carbon Border Adjustment Mechanism (CBAM) is a mechanism to impose a fair cost on the carbon emissions from the production of certain high-carbon goods entering the EU, aiming to promote cleaner production methods outside the EU. By ensuring imported goods pay for their carbon emissions, the CBAM aims to level the playing field between imports and domestically produced goods.

The implementation of CBAM is set for 2026, with a transitional period running from 2023 to 2026.

The new carbon tax will also be applied to Kazakhstan’s export products. While there is a transition period from January 1, 2024, afterward, six industrial sectors will face increased environmental payments for emissions. These are particularly the production of ferrous metals and aluminum, cement, fertilizers, hydrogen, and electricity.

Vice Minister of Ecology and Natural Resources Mansur Oshurbaev said the introduction of the mechanism calls for a considerable amount of work together with supervising ministries and industry players.

QazTrade Deputy General Director Nurlan Kulbatyrov noted the introduction of a carbon border adjustment tax is applicable to Kazakhstan's realities. Since last year, QazTrade, in cooperation with the Ministry of Trade and Integration, has been conducting carbon tax awareness activities for export-oriented companies.

“Our producers have questions related to the new cross-border tax initiative. We support the EU's sustainable development and decarbonization goals, but these goals should not create barriers to international trade,” said Nurlan Kulbatyrov.

According to QazTrade, the EU accounts for 39% of Kazakhstan's exports, including oil, oil products, ferroalloys, coal, uranium, wheat and other goods. In 2023, Kazakhstan’s exports to the EU were worth $41.4 billion, of which $388.7 million is for carbon-intensive goods.

Delphine Sallard, senior expert at the European Commission's Directorate General for Taxation and Customs Union, specified at the seminar that cross-border regulation will mostly affect the domestic sectors of ferrous metallurgy and aluminum, which accounted for about 0.9% and 0.8% of the total value of Kazakhstan’s exports to the EU in 2022.

The first stage requires industrial enterprises to submit reports to the European Commission. The reports should include information on export volumes, greenhouse gas emissions associated with the production and used allowances.

Carbon regulation will come into effect after 2025, and free allowances will gradually be leveled off. According to Delphine Sallard, the payments will initially affect direct emissions but may later be extended to other sectors at risk of carbon leakage, such as oil refining and chemicals.

According to Rodrigo Pizarro, head of the International Climate Action Program at the Organisation for Economic Co-operation and Development, the implementation of the carbon mechanism is meant to solve global environmental challenges.

Kazakhstan must reduce net emissions to 328.4 million tons of carbon by 2030 and reduce emissions by 25% compared to 1990 levels, with the condition of international support. As OECD experts explain, this means that by 2030, Kazakhstan needs to reduce the share of coal-fired generation from 65% to 40% and increase the share of renewable energy from 10% to 24%.

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