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31 August 2022

Astana, Kazakhstan

Kazakhstan to advance energy subsidy reform

The release of a subsidy reform study within the PAGE framework will provide the Kazakh Government with an analytical basis for real reform. This will help to free up critically needed resources and redirect them towards the pursuit of Sustainable Development Goals, such as stimulating low-carbon economic development at a national level and supporting those in poverty.

 

The study titled “Fossil Fuel Subsidies in Kazakhstan: Assessments and Modelling of Reform” is aligned with joint activities of the Ministry of National Economy of the Republic of Kazakhstan and was supported by the UN Environment Program (UNEP) and the United Nations Development Programme (UNDP).

 

Modelling scenarios for the reform of fossil fuel subsidies have been undertaken to provide the Government with an analytical basis for preparing the reform. Reforming inefficient subsidies will free up critically needed revenue to achieve sustainable and inclusive economic development. This will entail financing renewable energy, stimulating low-carbon development and providing welfare support to those most vulnerable to changes in energy prices.  When modelling the reform of fossil fuel subsidies in Kazakhstan, two models were used: the Green Economy Model – GEM and the Integrated Fiscal Model – GSI-IF to assess various scenarios for removing subsidies for end-user energy prices, energy demand and consumption, GHG emissions and macroeconomic indicators (revenue, GDP, employment).

 

The GEM model is developed using systems-thinking and system-dynamics, and it integrates social, economic and environmental drivers of change. The GEM model considers various factors influencing energy demand – specifically economic growth and consumption, capital use, energy supply, determined by availability of necessary resources. On the one hand, the model reflects the impact of the energy sector on the economy, environment, and society, and on the other hand, the model presents many links between the energy sector and other sectors.

 

The GEM model is linked to the more detailed GSI-IF model, which was developed by the Global Subsidies Initiative of the International Institute for Sustainable Development specifically to assess the impact of reform of fossil fuel subsidies and carbon pricing policies. In particular, the carbon tax as well as energy consumption is assessed, considering incentives to save energy and replace some fuel types with alternatives

 

This model assesses the impact on both fiscal revenue and GHG emissions of both fossil fuel subsidy reforms, as well as changes in energy taxes. It also estimates the GHG emissions in different scenarios pertaining to the reallocation of savings from subsidy reform and tax revenues to initiatives such as energy efficiency improvements and the promotion of renewable energy.

 

The results of the study will be integrated in the current processes of developing the strategy for achieving carbon neutrality and updating the concept for the transition of the Republic of Kazakhstan to a green economy.

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