Climate change is looming for Kazakhstan, as it is for many Central Asian countries. A recent report by the World Bank found that the nation’s average temperature could rise by 5.3 degrees Celsius by the end of the century. If that happens, it could upend Kazakhstan’s delicate climate systems, triggering a wave of potentially catastrophic droughts, floods and landslides.
A new study from the World Bank Group outlines how Kazakhstan might prepare for this new climate normal.
Kazakhstan’s recently released Climate and Country Development Report says major changes need to be made in key economic sectors to enable the country to address the climate crisis. Specifically, the country will need to boost climate-smart agricultural practices, invest in efficient water infrastructure to conserve its supplies, and strengthen other infrastructure to build resilience.
This process will be expensive. The cost of adapting to climate-related disasters will be more than $700 million per year, or 0.4% of the country’s GDP.
But it will be a good investment: annual losses from natural disasters could be five times the total, while failure to decarbonise could lead to sustained economic contraction in the not-so-distant future. The European Union’s carbon border adjustment mechanism would cost Kazakhstan $250 million in annual iron and steel export earnings, and up to $1.5 billion if it included crude oil, without decarbonization.
The reality is that Kazakhstan’s government will have a hard time footing the bill for climate change adaptation alone. It will need the help of the private sector.
Since the early 2000s, the country made ambitious, market-oriented reforms, triggering a wave of investment in extractive industries and propelling economic growth. In many sectors affected by climate change, however, barriers to private investment remain.
Removing them will be crucial to helping Kazakhstan adapt to the new climate normal. Reforms aimed at increasing competition, boosting access to finance (by removing credit subsidies that distort the financial sector), promoting investment in innovation and strengthening trade connectivity will help attract investment and increase productivity, enabling a more efficient allocation of of capital across sectors and locations. .
The lack of a credible climate policy also limits the involvement of the private sector in the climate transition. Only about 1 in 10 private firms in Kazakhstan is subject to climate policy – and they are less willing to engage in green management practices or invest in green solutions than in other Central Asian countries.
So what can Kazakhstan do?
First, the report recommends further reducing the role of the state in the economy. Action on climate change requires addressing key market distortions such as regulated prices and stimulating growth in new sectors such as renewable and hydrogen-powered energy, essential minerals and climate-smart agriculture.
Second, Kazakhstan needs to adopt reforms in its financial sector that make it easier for companies to borrow for climate-related projects. With more funds, firms will be able to adopt low-carbon production processes and implement technological innovations that help combat climate change.
It must also further support the development of the green and social bond market, which helps to channel finance to businesses, including smaller businesses, undertaking green projects. Reforms to improve disclosure and reporting practices for green projects will also support the market.
Third, the development of a comprehensive climate policy that emphasizes the transition from a planned to a market economy and accelerates the transition from oil dependence to a diversified competitive economy led by the private sector will be essential.
Introducing energy efficiency standards for new buildings, for example, will be vital to promoting sustainable infrastructure. In transport, expanding the public transport network and improving existing vehicle fleets through higher fuel quality standards and fuel efficiency labeling are essential.
A credible and stable climate policy will also help signal which areas will be attractive for the private sector to invest in.
Finally, the report recommends focusing on developing climate-smart infrastructure projects that are attractive to the private sector. Right now, there is capital and willingness to invest, but there simply aren’t enough bankable projects.
The changes could also unlock a wave of investment in projects such as solar plants and wind farms that help Kazakhstan reduce its carbon footprint and reduce its reliance on often expensive imported fossil fuels.
Development benefits from building resilience and decoupling growth emissions – including improving energy efficiency in businesses and households, improving soil fertility and agricultural yields, and reducing local air pollution – could also contribute to higher economy-wide productivity , while reducing spatial and household inequalities. .
Last week, the annual United Nations climate change conference, COP27, came to a close. With such gatherings, the hope is that somehow, some way, the largest contributing countries will significantly reduce greenhouse gas emissions that lead to climate change.
But that hasn’t happened yet. That means Kazakhstan needs to start preparing – reducing carbon emissions by transitioning to greener energy and also building resilience, adapting to climate change and avoiding the worst-case scenario.
The author is Wiebke Schloemer, Director of the International Finance Corporation (IFC) for Turkey and Central Asia. IFC is a member of the World Bank Group.