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Seizing the Momentum. EU Green Energy Diplomacy towards Kazakhstan

Authors:

Abstract

The relationship between the EU and Kazakhstan has historically been dominated by trade in oil and natural gas. However, the EU’s Green Deal and commitment to reach climate-neutrality by 2050 means that the bloc is slowly but surely reducing foreign non-renewable energy imports. Moreover, energy transitions and halting climate change have become global developments and commitments, enshrined in the Paris Agreement on Climate Change. Fossil-endowed Kazakhstan has pledged to be carbon neutral in 2060, but its transition policies must pick up speed. Meanwhile, the EU is embarking on a reinvigorated energy diplomacy agenda that should encourage and support other countries to transition towards renewable energy production, export and domestic consumption. This policy brief explores what tools the EU could use to support such transitions and what Kazakhstan could benefit from most. It considers the link with geopolitics and competitiveness and how to overcome obstacles for EU-Kazakhstani renewable energy cooperation, whilst also offering recommendations as to next steps forward.
Policy Brief
Seizing the momentum
EU Green Energy Diplomacy
towardsKazakhstan
OC TOBER 2021
Louise van Schaik, Roman Vakulchuk & Akash Ramnath
Introduction
Whilst the EU has made progress towards
emissions reductions and climate neutrality,
it has long realised that it cannot fight
climate change on its own and is considering
how it can help accelerate decarbonisation in
other countries. In January 2021, EU foreign
ministers adopted Council Conclusions
on EU energy and climate diplomacy, and
the European Commission and European
External Action Service are now working
on a Communication, with more specific
follow-up actions due in Spring 2022.1
1 Council of the European Union. Council conclusions
on Climate and Energy Diplomacy - Delivering on
the external dimension of the European Green Deal
(5263/21), (Brussels: Council of the European
Union, January 25 2021).
The relationship between the EU and Kazakhstan has historically been dominated by
trade in oil and natural gas. However, the EU’s Green Deal and commitment to reach
climate-neutrality by 2050 means that the bloc is slowly but surely reducing foreign
non-renewable energy imports. Moreover, energy transitions and halting climate
change have become global developments and commitments, enshrined in the Paris
Agreement on Climate Change. Fossil-endowed Kazakhstan has pledged to be carbon
neutral in 2060, but its transition policies must pick up speed. Meanwhile, the EU is
embarking on a reinvigorated energy diplomacy agenda that should encourage and
support other countries to transition towards renewable energy production, export
and domestic consumption. This policy brief explores what tools the EU could use to
support such transitions and what Kazakhstan could benefit from most. It considers
the link with geopolitics and competitiveness and how to overcome obstacles for
EU-Kazakhstani renewable energy cooperation, whilst also offering recommendations
as to next steps forward.
At the same time, the EU is already
providing considerable levels of climate
finance, green investments through the
European Investment Bank as well as having
implemented taxonomy regulation that sets
screening criteria to determine whether
certain industrial activities significantly
harm the environment. Additionally, the
operationalisation of its new Neighbourhood,
Development and International Cooperation
Instrument (NDICI-Global Europe
instrument), with climate-spending targets,
demonstrates the bloc’s prioritisation of
the issue.
A relevant country for transition and the
EU’s green energy diplomacy is Kazakhstan.
It has abundant potential for renewable
energy production and is strategically
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positioned in Central Asia. Yet the country
is almost wholly reliant on oil and gas
revenues to fund state activities, which also
means that a reduction of demand from
the EU could have problematic economic
consequences. Assisting Kazakhstan’s
transition could mitigate such risks, facilitate
the country achieving carbon neutrality
by 2060 and bolster the EU’s influence in
the region.
This policy paper explores the potential of
EU green energy diplomacy in Kazakhstan.
It is part of a wider effort to consider
how EU green energy diplomacy could
be strengthened, considering its foreign
policy positioning and support for the
implementation of the Paris Agreement.
It first takes a closer look at instruments
and tools the EU has available or under
construction for green energy diplomacy,
then considers Kazakhstan’s’ energy and
geopolitical positioning and EU-Kazakhstan
relations, before concluding with policy
recommendations for stepping up EU green
energy diplomacy towards Kazakhstan.
EU green energy diplomacy
under construction
At the heart of the EU’s transition strategy
is the European Green Deal, accelerating
an elaborate set of climate policies in
place since the early 2000s. This ambitious
package of policies is designed to climate-
proof Europe’s future economy. Targets
have been codified through the European
Climate Law, which calls for a 55% reduction
in carbon emissions by 2030 and climate
neutrality by 2050. To achieve these goals,
the European Commission tabled the
“Fit for 55” package, a set of policies that
are now in the legislative process. Part of
the package is a Carbon Border Adjustment
Measure (CBAM), which would place a
carbon price on imports of electricity, iron,
steel, aluminium and fertilisers that – if
produced within the EU – face a similar
carbon price through the EU Emissions
Trading Scheme (ETS). This illustrates the
EU no longer shies away from using “sticks”
to convince others to follow its climate and
energy policy developments.
However, greater recognition is also being
paid to the importance of providing “carrots”,
i.e. incentives to transition. Because the
EU only represents about 8% of global
emissions, a successful transition depends
on others reducing emissions too.2 Moreover,
the EU believes technologies required for
climate neutrality and a switch from fossil
to renewable energy sources will boost its
international competitiveness in key markets.
According to the above-mentioned Council
Conclusions, the EU would need to facilitate
external transitions and discourage all further
investments into fossil fuel-based energy
infrastructure projects in ‘third countries’.3
EU energy diplomacy would “promote
energy efficiency, the deployment of safe
and sustainable low-carbon technologies,
the increasing uptake and system
integration of renewable energy, and the
highest environmental, nuclear safety and
transparency standards.” A call is made for
“further deepening international cooperation
on hydrogen, to strengthen efforts to
produce and enable import of renewable
hydrogen in particular”.4
To achieve these objectives, the EU has
various instruments and tools at its disposal
or that are “under construction”:
1. Taxonomy Regulation is a list of
sustainable economic activities to better
clarify the true environmental impact
of investments by corporations.5 The
labelling could be used for policies to
incentivise or disincentivise specific
investments.
2 Kate Abnett, “EU launches big climate plan for "our
children and grandchildren”, Reuters Environment,
July 14, 2021.
3 Council of the European Union, “Council adopts
conclusions on climate and energy diplomacy
(Press Release)”, Council of the European Union,
January 25 2021.
4 Council of the European Union, “Council
conclusions”, January 25 2021.
5 European Commission, “EU taxonomy for
sustainable activities”, European Commission,
July 2021.
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2. EU Fund for Sustainable Development
(EFSD+) is a plan to use public funds
to facilitate private investments in
environmental assets and multiply the
value to meet designated UN Sustainable
Development Goals.6
3. Neighbourhood, Development and
International Cooperation Instrument
(NDICI – Global Europe Instrument)
will cover the majority of EU external
spending. At least 30 % of NDICI spending
needs to be climate-related, and all of its
expenses need to be Paris Agreement
proof, meaning not supporting fossil and
in line with a countries’ own Nationally
Determined Contribution (cf article 29 of
NDICI regulation).7
4. The EU is a staunch supporter of the
NDC Partnership, that helps countries
to develop Nationally Determined
Contributions, i.e. their “climate pledges”.
It has its own programme for Strategic
Partnerships for the Implementation
of the Paris Agreement (SPIPA) that
covers almost all countries including
Kazakhstan and with some countries
separate partnerships are in place to for
instance cooperate on renewable energy
technology development, green hydrogen
or the exploration of rare earth elements.
5. Trade agreements, such as the
Enhanced Cooperation Partnership
Agreement (ECPA) between the EU
and Kazakhstan, include cooperation
intentions in areas such as climate and
energy, meaning that the EU could
link energy transitions to wider trade
objectives.8
6. Connectivity Partnerships offer
another route to channel renewable
transition action. These partnerships
prioritize EU support for sustainable
6 Eric Pichon, “Amending the European Fund for
Sustainable Development”, European Parliamentary
Research Service, (PE 659.293), October 2020.
7 EU Neighbour s: East, “Factsheet: Neighbourhood,
development and international cooperation
instrument (NDICI) – ‘Global Europe’”, European
Commission, June 11 2021.
8 European Council, Enhanced Partnership and
Cooperation Agreement between the European
Union and its Member States and the Republic
of Kazakhstan”, Council Decision (EU), 2016/123,
October 26 2015.
infrastructure and climate friendly
connectivity in target countries, whilst
also pooling resources to support
infrastructure financing regionally. This
is modelled on the EU-Asia Connectivity
Strategy of 2018. In her 2021 State of the
Union speech, Commission President
Von der Leyen mentioned that ‘Global
Gateway’ loans would serve as another
channel to direct infrastructure and
energy investments, however, details are
limited.
The question is if these instruments can
generate sufficient impact and whether
new instruments would be needed?
What instruments are most suitable for
the transition challenges of countries the
EU would like to support, what type of
investments are likely to contribute most to
decarbonisation in a longer-term perspective,
what are the right standards, e.g. for green
hydrogen in place, and is it possible to
disincentivize private actors from continuing
fossil fuel investments?
Domestic Importance of Energy
in Kazakhstan
Kazakhstan’s politics and regional outlook
is significantly defined by energy. Oil and
natural gas exploration, refinement and
distribution have been a core part of the
region’s economy since the Soviet era.
The country ranks 17th in the world for
annual crude oil production, 24th for natural
gas and 9th for coal extraction.9 In 2018, the
President of Kazakhstan’s Central Bank
admitted that 85% of the country’s economy
was dependent on oil and gas exports.10
During the Covid-19 pandemic the lower oil
prices resulted in 20% lower revenues for
the government.11
9 International Energy Agency, “Kazakhstan energy
profile”, International Energy Agency, April 2020.
10 Economic Section of the Embassy of the Kingdom
of the Netherlands in Kazakhstan, Special Energy
Issue, (Nur-Sultan: Embassy of the Kingdom of
the Netherlands in Kazakhstan, 2018).
11 Energiewende, “Global Decarbonization after
Covid-19: Strategic Options for Kazakhstan”,
energytransition.org, October 29 2020.
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During the December 2020 UN Climate
Ambition Summit, Kazakhstan’s President
Tokayev announced that Kazakhstan
will achieve carbon neutrality by 2060.12
Moreover, the President has committed
to targets of 30% of all electricity to be
generated by renewable sources by 2030
and 50% by 2050.13 This comes on the
back of introducing new renewable auction
processes, strengthening regulatory
frameworks and submitting targets of
reducing greenhouse gas emissions
by 15% by 2030, as part of their Paris
Agreement NDC.14 In September 2020,
the President furthermore positioned
green growth policies at the centre of
the state budget for the first time in the
country’s history.
Kazakhstan also introduced an emissions
trading scheme in 2013, applying to around
225 industrial entities whose emissions
exceed 20,000 tons of CO2 each year and
are involved with power, centralized heating,
extractive and manufacturing industries.15
Yet, Kazakhstani emissions are currently
still rising.16
Because of low population density and
geography, Kazakhstan is well positioned
to generate renewable energy. Large-
scale installations can be easily built in the
mainly flat steppe landscape with high wind
speeds. Southern Kazakhstan receives high
and consistent levels of solar radiation.17
Hydropower is also prevalent in the
eastern and southern parts of the country,
12 KazInform Media, “Kazakh President’s
video address to Climate Ambition Summit
published”, Climate Action Summit Video, 3: 58,
December 13 2020.
13 Energiewende, “Strategic Options for Kazakhstan”.
14 Republic of Kazakhstan, Intended Nationally
Determined Contribution -Submission of the
Republic of Kazakhstan”, UN Framework on Climate
Change, December 6 2016, 1.
15 International Carbon Action Partnership,
Kazakhstan’s Emission Trading System”, ETS
Detailed Information, August 9 2021, 1.
16 Climate Action Tracker, “Kazakhstan: Countr y
Summary”, Climate Action Tracker, 2021.
17 Energiewende, “Strategic Options for Kazakhstan”.
accounting for 13% of the total national
energy generating capacity.18
However, only 3% of electricity generation
is from renewable sources and Kazakhstani
firms are hardly involved.19 During a
2019 auction for renewable contracts,
145 companies from 12 countries took
part, including Bulgaria, China, France,
Germany, Italy, Malaysia, the Netherlands,
Russia, Spain, Turkey and the UAE. Some
of the investors were backed by funding
from companies from other countries, such
as China, meaning it is difficult to identify
exactly which countries are most heavily
investing in Kazakhstan’s renewable future.20
Moreover, investments into the electricity
grid have been limited. State-owned
Kazakhstan’s Electricity Grid Operating
Company (KEGOC) runs on outdated Russian
software that is ill suited for the integration of
renewable electricity; the Asian Development
Bank says that an investment of $1.4 billion
is needed to increase renewable energy
electrification by just 3%.21 Grid hardware
depreciation is also a risk, yet specifics
are hard to ascertain. Thus, there is still
a long way to go to meet the President’s
energy transition ambitions. Also, a difficult
and strategic question is to what extent,
in the long run, hydrogen produced from
renewables, can become a new export
product and to which markets.
As of 2021, renewables are regulated by the
Department for Renewable Energy, under
the Ministry of Energy banner. Coordination
of renewable energy is assigned to a small
government unit that has limited human
18 International Trade Administration, “Kazakhstan
- Country Commercial Guide: Power Generation”,
United States of American Department of
Commerce, 2020.
19 Energy Central, “Kazakhstan: 3% of all energy
generated by renewable sources in 2020”, Energy
Central News, Februar y 10 2021.
20 Fatima Kukeyeva, Hor Ka Wai Christopher &
Duman Zhekenov, “Kazakhstan foreign policy in
the context of renewable energy”, Series: History.
Philosophy, 2020, 3( 99): 167.
21 Asian Development Bank, “Kazakhstan: Fostering
the Development of Renewable Energy”, ADB: TCR
Validation Report, December 2020: 1, 7.
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Clingendael Policy Brief
resources, technical capacity and experience.
The decision-making power rests with the
Ministry of Energy, which has many years
of experience with oil and gas but limited
experience with governing renewables.
Expanding the Department for Renewable
Energy’s responsibilities and autonomy might
be an important first step to move closer to
the energy transition ambitions.
Energy as the focal point of
Kazakhstan’s’ international
relations
Kazakhstan’s fossil dependency resembles
that of the country it is most connected
to, Russia. Kazakhstan is part of the
Moscow-led Collective Treaty Security
Organisation (CSTO) and Russia still
maintains 7 permanent bases and leases over
11 million acres of land within the country.22
Russia and Kazakhstan are also members
in the Eurasian Economic Union (EAEU),
an economic integration organization that
was originally modelled as a customs union.
Despite close economic and security ties,
Kazakhstani policymakers are attempting
to keep Russia as well as other countries
such as China and the US at an arm’s length
given their fears over overreliance on one
country. To this end, Kazakhstan has been
pursuing a multi-vector foreign policy to
balance bilateral and regional relationships
and reduce dependency on one or several
countries.
Kazakhstan occupies a vital geographic
location within Beijing’s Belt & Road
ambitions. The Kazakhstani government
in Nur-Sultan conversely sees developing
the country as a Eurasian transport and
logistics hub to partially diversify its
economy. China has already built 5 train
lines and 6 international highways through
the country.23 On the ground, its investments
in coal and non-renewables extraction
and production reduce the incentive
22 KJ Reports, “Geopolitics of Kazakhstan: Between
Chinese Dragon and Russian Bear , YouTube Video,
8:3 4, November 22 2019.
23 KJ, “Geopolitics of KAZAKHS TAN”.
to accelerate the transition. However,
Kazakhstani policymakers are also wary of
falling too close to China for fear of losing
economic independence the same way other
Belt and Road Initiative (BRI) participating
countries have.
Further out, Kazakhstan also maintains
friendly relations with the US. American
energy companies Chevron and ExxonMobil
led the development of oil and gas fields in
the Caspian Sea shortly after the country
gained independence. Moreover, Kazakhstan
had a close security relationship with
Washington, allowing American troops
and equipment to be transited through
the country during military operations in
Afghanistan and Iraq. The US recognised
the strategic importance of the country and
in September 2020, the U.S.-Kazakhstan
Business Council was launched by the US
Chamber of Commerce to boost bilateral
trade up from $2 billion.24
Turkey and Iran also have energy interests in
the country. In 2021, Iran pledged to expand
bilateral trade to over a $1 billion in the next
3 to 5 years and Iranian energy companies
are currently building a 50-megawatt wind
power plant.25 Similarly, Turkey is shoring
up its energy supply through the formation
of the Turkic Council and plans to pump
Kazakhstani oil through the Baku-Tbilisi-
Ceyhan pipeline.26
Kazakhstan’s desire to maintain strategic
independence is also evident in its regional
relations. By virtue of history, geography and
economics, it plays one of the key roles in
the Central Asian community. The resolution
of the Caspian Sea dispute in 2018 eased
relations with Turkmenistan and the Uzbek
economy’s liberalisation between 2016-17
could facilitate greater cross-border trade,
especially energy, although the region
24 Kenneth Rapoza, “‘Strategic Competition’: U.S.
Looks To Kazakhstan To Expand Ties”, Forbes:
Markets, April 25 2021.
25 Tehran Times, “Iran, Kazakhstan target $1b in
annual trade”, Tehran Times, May 24 2021.
26 Yeghia Tashjian, “Turkey’s Pivot in Central
Asia: A Calculated Risk? , Armenian Weekly,
Februar y 17 2021.
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remains one of the worst connected globally.
The country effectively acts as a lynchpin for
the region to multilateral engagement, being
a member of the Organisation for Security
and Cooperation in Europe, Organisation of
Islamic Cooperation, Shanghai Cooperation
Organisation, Commonwealth of Independent
States, as well as leading the creation of the
Eurasian Economic Union. Thus, Kazakhstan
position can open greater regional access for
external powers such as the EU.
Current EU-Kazakhstani
EnergyRelations
The geopolitical situation Kazakhstan
finds itself in has, in large part, driven
Nur-Sultan closer to the EU. By engaging
Western Europe in particular, Kazakhstani
policymakers believe it can act as a
counterweight to the disproportionate
influence of Russia and China. They look
more to individual countries than to the EU,
since the latter is using a regional approach
to Central Asia and has not included this
region in its neighbourhood policy, which
restricts options available for funding and
capacity building.
The EU represents Nur-Sultan’s largest
export partner, with 41% of all exports
in 2020 heading there.27 European oil
companies spearheaded the development
of major oil and gas fields, such as the
Kashagan field. The field’s current holding
company, North Caspian Operating Company
(NCOC) includes European companies
such as Eni (Italy), Total (France) and Shell
(Netherlands & UK), each holding a 16.81%
share.28 These European energy companies
still are proactive in the exploration and
excavation of Kazakhstani fields. This
creates a paradoxical situation that while
the EU is advocating for climate action and
clean energy capacity, companies operating
from its territory still invest in fossil fuel
development in Kazakhstan.
27 European Commission, “Kazakhstan”, European
Commission, June 21 2021.
28 NCOC, “NCOC Governance and Management
System”, North Caspian Operating Company, 2021.
Most importantly, 80% of Kazakhstan’s
energy exports go to the EU and it is
estimated that overall EU demand for oil
imports will decrease by 78 % after 2030;
natural gas imports are expected to drop
by 58-67%.29 Fall in European demand
would not only disproportionately impact
Kazakhstani revenues but also have severe
deflationary impacts on global energy
prices, further worsening the profitability
of hydrocarbon exports, even though in the
short-term prices may still be high.
Europe and Kazakhstan have both
recognised this and Europe is currently the
largest investor and technical supporter in
renewable projects.30 Traditional oil and gas
companies have also shown some interest
towards renewables, such as Shell’s support
for a 50MW solar power plant in the Jambul
region. However, it is the European Bank for
Reconstruction and Development (EBRD)
that has been the key actor in this regard.
To date, the bank has invested 8 billion
cumulatively in over 281 projects, with first-
of-their-kind investments in wind installations
such as the Zheruyik Wind Power Plant
(70 million in 2014) demonstrating that
volumes are substantial.31 The EBRD has
also helped facilitate European firms like
Siemens enter the Kazakhstani market and
the national government in drafting a power
production transmission plan in collaboration
with the US.
The European Investment Bank (EIB) ,
which is an EU institution, has a 5% stake
and sits on the EBRD’s board, in addition
to partnering on numerous Central Asian
projects. Another big European funder of
the low-carbon transition is the German
Development Cooperation (GIZ), who
29 Mark Leonard, Jean Pisani-Ferry, Jeremy Shapiro,
Simone Tagliapietra & Guntram Wolff, The
Geopolitics of the European Green Deal, European
Council on Foreign Relations, February 2021: 5.
30 Komila Nabiyeva, “Win-win or Win-lose?: China-
Kazakhstan Energy Cooperation within the Belt and
Road Initiative”, Stiftung Asienhaus: Blickwechsel,
April 2019: 4.
31 EBRD, “EBRD projects in Kazakhstan”, European
Bank of Reconstruction and Development,
May 31 2021.
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is supporting the development of a low
emission strategy.
Green energy transition
opportunities and challenges
inKazakhstan
Based on interviews with experts, an
overview is presented here of opportunities
and challenges for the green energy
transition in Kazakhstan. The overview is not
based on a technical analysis of the energy
sector, and merely illustrates which options
could be considered for further exploration:
Energy efficiency is clearly an area
where gains can be made and both the
EBRD and EIB are already investing in this
field with interest by other donors, such
as the GIZ. New houses are needed, and
better insulation is highly needed in older
residential buildings.
Private renewable energy generation
capacity in Kazakhstan is extremely low.
The EU could help devise subsidies and
create access to the Kazakhstani market
for companies in private renewable
generation. There is scope within the
Boosting Investment in Renewable Energy
guarantee to support this, but since
Kazakhstan falls outside of the EU’s
Eastern Neighbourhood policy, this is
currently not possible.32
Renewable grid infrastructure is
another field where EU support could
help. This requires both capacity building
and bringing in expertise from abroad as
funding for technical improvements.
Green hydrogen production is a
promising opportunity. Kazakhstan
has ambitions to use hydrogen as a
by-product produced from solar and
wind production (3 million tons) and
turn that into a renewable source.33
The EU pushes for ‘green hydrogen’
production globally through the ‘Europe
32 European Commission, “Boosting Investment in
Renewable Energy”, EU External Investment Plan,
2019.
33 Zholdas Orisbayev, “Kazakhstan unveils ambitious
green-hydrogen project”, eurasianet, July 8 2021.
Clean Hydrogen Alliance’, a partnership
of over 1000 public and private actors
who can take advantage of EU financing
to scale up production and distribution
capabilities, with the aim of generating
180-470 billion by 2050.34 In June 2021,
German hydrogen developer Svevind and
Kazakh Invest signed a Memorandum
of Understanding to develop 3 million
tonnes of green hydrogen a year and
increase renewable capacity to 45GW,
a substantial increase on the 20GW
currently installed in the country.35
Exploring the potential for mining
of critical materials and metals
(including rare-earths) is another
vital part of the energy transition that
often gets overlooked. Rare-earth
elements have critical usage in renewable
technologies such as wind turbines,
solar panels and electric batteries. China
dominates the market; the EU imports
98% of its rare-earths from there.36
Given the high presence of rare earths
in uranium tailing, cooperation with
Kazakhstan offers a great opportunity,
as they are the world’s largest uranium
producer (42% of global supply in 2019).37
The EU could develop this potential by
providing modern extraction technology
and encouraging financing. It could also
consider encouraging Kazakhstan’s
participation in European Raw Materials
Alliance (ERMA). Moreover, Kazakhstan
is abundant in lithium, vital in batteries.
Integration of this resource might be
achieved through the European Batter y
Alliance (EBA). Finally, the announcement
of the Global Gateway partnerships
alludes to the need for the EU to become
secure supply of raw materials for chips
34 Mathieu Pollet, “Explainer: Why is the EU
Commission betting on hydrogen for a cleaner
future?”, euronews, July 7 2020.
35 Kiran Bose, “Svevind inks deal for green hydrogen
in Kazakhstan”, Energy Live News, June 29 2021.
36 Finbarr Bermingham, “China’s rare ear th
dominance casts shadow over Europe’s ambitious
climate targets,” South China Morning Post,
Februar y 25 2021.
37 Enerdata, “Kazatomprom (Kazakhstan) extends its
20% ur anium production cut until 2023”, Enerdata
Intelligence & Consulting, July 6 2021.
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and semi-conductors, and a partnership
with Kazakhstan could utilise this
framework.38
However, there are also challenges to
harvest these energy transition opportunities
and these include:
Continued reliance on fossil industry
and vested interests are intricately
connected to political elites. Whilst
President Tokayev has declared urgency
in combatting climate change and
supporting a transition, the financial
value of continuing with non-renewable
production and exports means that there
is limited incentive at a Ministry of Energy
level to match the President’s urgency.
Individuals and institutions who benefit
from the status quo have a lot to lose if
non-renewable production is limited and
the oil money dries up. Moreover, the
oil and gas industry is a large source of
employment and unless these jobs are
replaced through the green transition,
the country could face the risk of social
unrest and/or strikes.
Government subsidies for fossil fuels,
conveyed through price caps and export
bans mean that renewables have higher
price points; 3% of the country’s GDP
goes into this implicit subsidy.39
Business ethics dis-incentivising
public and private investment. Despite
efforts by Kazakh Invest to improve the
attractiveness of Kazakhstan, foreign
investments are still often impeded by
anti-corruption diligence rules in the
foreign countries of origin. Finally, the
Kazakhstani government demands
developmental loans to be paid in the
local currency, yet this leads to high
exchange risk, in part driven by anti-trust
and corruption concerns.
38 Angela Dewan & James Frater, “EU chief
challenges US on climate and asser ts Brussels'
role in ‘new international order’”, CNN: Europe,
September 15 2021.
39 EBRD & PriceWaterhouseCoopers UK , EBRD report:
Kazakhstan has decade to prepare for global switch
from oil, (London: European Bank of Reconstruction
and Development, November 2018): 15.
Investors continuing fossil fuel
investments. A key dilemma for the
EU is that fossil fuels continue to be a
draw for international investors including
European ones, especially those seeking
shorter-term returns. Thus, there are
genuine risks that these investors are
lured away from EU-supported green
projects in Kazakhstan and even push
the government to enhance support for
its fossil fuel sector.
Kazakhstan is not part of the EU’s
neighbourhood policies and therefore
misses out on oppor tunities, such as the
EIP or EFSD+. In the NDICI, Kazakhstan
falls under the ‘Asia and Pacific’ region,
which limits the amount of funding
available. Of the 60 billion dedicated
to geographic-specific spending, only
8.49 billion is dedicated to Asia,
covering all thematic areas.40 Moreover,
the EU sees Kazakhstan as more
economically developed, disqualifying it
from accessing funding ringfenced for
developing economies.
Towards larger EU support
forthe green energy transition
in Kazakhstan
Despite these challenges, the EU intends
to step up green energy diplomacy, and the
forthcoming Communication on this topic,
may be relevant for Kazakhstan, as it is
increasingly realising that it needs to move
out of its high fossil dependency. This would
also enable it to develop its tremendous
renewable generation potential and could
increase its autonomy from big powers
vying for influence. For the EU, the countr y
is a strong case in point for stepping up
green energy diplomacy efforts. In order
to do so it could consider the following
recommendations:
40 European Commission, “Factsheet: Neighbourhood,
Development and International Cooperation
Instrument (NDICI) - ‘Global Europe’”, European
Commission, June 9 2021.
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Increase the funding opportunities by EIB
towards actual financing of renewable
infrastructure and find ways to slowly
ween off investments which might lock in
carbon dependencies.
Discuss the implications of CBAM
and the taxonomy, which could
utilise the International Platform on
Sustainable Financing as a framework
to offer clarification on the impacts for
Kazakhstan.
Support an improvement/upgrade of the
Kazakhstan electricity grid to include
renewable source generation and
enhance both software and hardware
infrastructure.
Implement a system of incentives and
penalties to disincentivize European
energy firms from investing in
Kazakhstani oil and gas. This could
be achieved by further strengthening
of taxonomy regulations or a separate
classification system.
Continue to leverage EBRD in the countr y
to grow on-the-ground intelligence and
confidence by both foreign investors and
Kazakhstani stakeholders.
Accelerate involvement of Kazakhstani
companies domiciled in Europe in the
European Clean Hydrogen Alliance to
increase awareness and engagement of
Kazakhstani energy stakeholders.
Step up support for Kazakhstan through
the Strategic Partnerships for the
Implementation of the Paris Agreement
programme and encourage the NDC
partnership to pay more attention to the
country.
Consider financial and technological
support to explore rare earth availability
and lithium mining potential in
Kazakhstan for batteries and other clean
energy technologies. Also accelerate
discussions of Kazakhstani companies’
participation in European Raw Materials
Alliance and the European Battery
Alliance to synergise producers and
extractors into European value chains.
Offer greater detail regarding the
industry and country scope for ‘Global
Gateway’ partnerships and work to
integrate strategic Kazakhstani raw
material sectors into EU value chain.
Offer greater clarity to the Enhanced
Cooperation Partnership Agreement’s
focus on energy and transitioning;
specific actions to link Kazakhstan’s
transition to overall trade relationships
through carrots and sticks might help
sharpen bureaucratic and private
attention to the topic.
About the Clingendael Institute
Clingendael – the Netherlands Institute of International Relations –
is a leading think tank and academy on international affairs.
Through our analyses, training and public debate we aim to inspire
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contribute to a secure, sustainable and just world.
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About the authors
Louise van Schaik is Head of Unit EU & Global Affairs at the
Clingendael Institute. She also coordinates the research on climate
change and is specialized in EU external action, European climate policy,
climate-security and global health.
Roman Vakulchuk is Senior Researcher at the Norwegian Institute
of International Affairs (NUPI). He specializes in Kazakhstan, other
countries of Central and Southeast Asia and on energy transitions,
renewable energy, climate change, investment policy and public sector
reform.
Akash Ramnath is a Junior Research Fellow within the EU & Global
Affairs Unit at the Clingendael Institute. He specializes in energy
geopolitics and climate-security.
... Oil and gas production, consumption and exports have grown significantly in Kazakhstan and Turkmenistan, and much has been written about Central Asia's dependence on oil and gas (Schaik et al., 2021;Ma et al., 2020;Vakulchuk, 2016). However, the coal industry, the largest emitter of greenhouse gases among other fossil fuels, has received limited attention from the scholarly community. ...
Technical Report
Full-text available
This data article provides an overview of fossil fuel trends in Central Asia from 2010 to 2019. Data on the production, consumption, export and import of coal, natural gas and oil are summarised for Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. While promoting renewable energy, Central Asia continues to rely on and expand the use of coal, natural gas and oil with no major phase-out plans yet on the horizon.
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