Kazakhstan proposes an emerging market model for the green energy transition

A view of the Expo Center in Astana, Kazakhstan. (Photo by James Grant)

James Grant

November was a big month for climate protection. Attending heads of state, diplomatic delegations or recorded messages – virtually every nation was represented at this month’s United Nations Climate Change Conference in Glasgow. Even North Korea was represented, whose ambassador to the UK attended a speech given by South Korean President Moon Jae-in.

Heads of state and government around the world agree that it is time for climate protection. There is much to be lost in the long run if the appropriate action is not taken and much to be gained when green technologies are both economically competitive and energy efficient. However, questions remain for emerging industrialized countries trying to reconcile decarbonization and development. After all, the rise of the West to economic dominance was fueled by hydrocarbons – and now the developed world refuses to fund hydrocarbon projects even as they tackle energy poverty in emerging economies.

Some of these questions were raised at the three-day Astana Club conference in Nur-Sultan, Kazakhstan, where I spoke last week.

Together with the former UN Secretary General Ban Ki-moon, the former Afghan President Hamid Karzai and the former Turkish President Abdullah Gül, the participants offered perspectives on what Kazakhstan and its Central Asian neighbors have achieved in the last 30 years since independence – and how they could successfully master the next 30. The focus of this discussion was the achievement of a “just” energy transition for those countries that are still financially dependent on the production of hydrocarbons and other raw materials.

Since its independence in late 1991, Kazakhstan, the world’s largest landlocked country, has turned its rich natural resources into rapid economic growth. It attracted over $ 300 billion in foreign investment, and over half of that from the United States. Kazakhstan also has immense renewable potential in the form of wind along the vast Kazakh steppe and, to a lesser extent, sun exposure in the south. Kazakhstan has vowed to be carbon neutral by 2060 – a bold goal for a country that derives the lion’s share of government revenues from hydrocarbons.

The Kazakh government has consistently enacted systemic market liberalization reforms that put the relatively young country on the right track. In the early 1990s, foreign companies invested tens of billions of dollars in greenfield projects, starting with Tengiz, Kashagan and Karachaganak, and bought the majority of state-owned companies in the oil and gas sector, made possible by privatizing its energy industry. The development of these vast oil fields – led by the American Chevron CVX and Exxon – played a central role in the country’s economic growth, with real wages doubling from 1999 to 2014.

Boreholes at Chevron’s Tengiz oil plant. (Photo by Robert Wallis / Corbis via Getty Images)

Corbis via Getty Images

Nur-Sultan (then Astana) used this energy income to invest in human capital through education and infrastructure. In addition, the FDI standards have been aligned with those of the OECD countries and the role of state-owned enterprises (SOEs) in the market has been reduced.

Kazakhstan was among the first to sign the Paris Agreement. It has recognized that a growth model that ignores environmental and climate impacts is no longer viable. It is now taking difficult but necessary steps to move its hydrocarbon-dependent economy to green electrification, which can serve as a model for other emerging economies in similar positions.

The establishment of the Astana International Financial Center (AIFC) in 2017 – Kazakhstan’s flagship project to turn the country into a hub for regional investment, business and sustainable finance – is a testament to the seriousness of the country’s green transition. Using English common law to resolve disputes, the AIFC has attracted over 1,000 member firms looking to grow their business through a range of novel mechanisms, from Islamic finance to green bonds (offered through the AIFC’s Green Finance Center).

Kairat Kelimbetov, the governor of the AIFC, had this to remain at the last Astana Club meeting:

“It is no secret that the Kazakh economy, like the economies of other resource-based emerging countries, has benefited from fossil fuel production for several decades. But since the global financial crisis, the government has been reviewing and rethinking the growth model and paying more attention to diversification and sustainability …

Emerging countries must adhere to the sustainable development model. This model has many different aspects … from impact investment to green finance, from increasing our economic complexity to ensuring the proper distribution of wealth among our citizens … There is no doubt that as a global community we all need to fight climate change and ensure sustainable development . It is not just another trend, but an inevitable requirement, and all of our economic development plans should be in line with the global agenda … “

Kazakhstan’s governor of the Astana International Finance Center Kairat Kelimbetov. (Photo by David … [+] Wong / South China Morning Post via Getty Images)

South China Morning Mail via Getty Images

Kazakhstan is putting these words into practice. The government announced a 15-25% reduction in emissions from 1990 levels by 2030. It aims to change its energy mix from around 3% renewable energies to 15% wind, solar and hydropower by 2030 and to reduce the energy generated from coal from 70 percent to 40 percent, said Prime Minister Askar Mamin. To further support carbon sequestration, the poorly forested country plans to plant two billion trees by 2025.

The AIFC capitalizes on the fact that funding for green projects is ripe when countries can attract investors. This year, for the first time in history, more bonds and credits went to green projects than to fossil fuels. JPMorgan JPM, Citigroup C, and Bank of America BAC lead a group of American financial institutions committed to enabling sustainable business worth at least $ 4 trillion over the next decade.

Investors recognize the potential to fuel and contribute to the growth of developing countries, but these inflows depend on a belief that their money is safe. By fighting corruption, strengthening contract enforcement and making business easier, developing countries can enrich themselves and better prepare for the green transition. Decarbonization doesn’t have to be the enemy of growth. This is the idea that will drive Kazakhstan’s necessary development towards a development that combines a green transition with the existing mineral and energy wealth.

With the assistance of James Grant

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