New emissions trading scheme will impact oil and gas operations in Kazakhstan

10 July 2012

With significant untapped reserves of oil, coal and gas, Kazakhstan has seen considerable growth in extraction and exploration activities in recent years.

As of 1 January 2013, oil and gas companies operating in Kazakhstan will be subject to the country’s new Emissions Trading Scheme, which is designed to control and reduce the production of greenhouse gas (GHG). Founded on the same model as the European Trading Scheme, the new legislation will be applicable to companies with emissions exceeding 20,000 metric tonnes of CO2. Once a company passes this threshold, they will need to submit an environmental emissions report to the country’s Ministry of Environment Protection (MEP) on an annual basis.

As with the European scheme, the reports will need to include information on GHG emissions and absorptions as well as any quotas that were transferred or acquired, and be verified by an accredited third party. Based on these submissions, the MEP will allocate quotas for GHG emissions, and which will be reviewed on an annual basis. If a company exceeds its quota, it will then have an opportunity to buy additional units from another oil or gas company also operating in the country.

Simplify compliance and reduce financial exposure
Without a quota from the Kazakh Emissions Trading Scheme, oil and gas companies that fall within the scope of the new legislation will no longer have a license to operate in the country. To maximize current and future exploration opportunities and ensure operational continuity, oil and gas companies working in Kazakhstan need to ensure they are fully prepared for this shift in policy.

To simplify compliance, ERM’s global experience is that companies should begin by creating an accurate GHG inventory for the baseline years. This will help prepare operators for achieving compliance in January 2013 and allow them to calculate potential financial exposure. A comprehensive baseline is also a good starting point for establishing a carbon management strategy as well as identifying cost-effective reduction projects and supporting systems to track, reduce or offset emissions. This will help prevent allocations from being exceeded and enable companies to capture financial opportunities associated with future reductions.

The carbon management plan should also consider:

  • Production forecasts for 2013 and beyond
  • Impact of current corporate sustainability efforts on future emissions
  • Expected quota allocations for GHG.

With increased visibility of their in-scope operations, oil and gas companies will not only be able to calculate their potential financial exposure in terms of buying additional units, but also identify environmental initiatives that will help drive down emissions. This will limit the need to top-up quotas by trading units with other oil and gas companies, resulting in reduced operational cost and complexity.

Maximize trading and offsetting opportunities
ERM’s dedicated climate change team can help oil and gas companies prepare their operations for a new era of GHG emission controls in Kazakhstan. Using our extensive experience of national and international emissions schemes, we work with clients to uncover opportunities for offsetting and trading emissions while working towards a reduced carbon footprint. From implementing GHG monitoring solutions and evaluating historic emissions to developing reports for approval by accredited third parties, ERM will help to simplify the adoption of the Kazakh Emissions Trading Scheme and minimize ongoing risk and cost.

Kazakhstan has already made some progress in controlling the impact of oil and gas operations on climate change. Between 2006 and 2010, the country reduced the volume of unwanted gas burnt off by oil and gas companies by nearly a third to 1.35 billion cubic meters. This dramatic reduction in gas flaring has been credited with cutting the country’s CO2 emissions by almost six million metric tonnes.

Next year’s introduction of the Kazakh Emissions Trading Scheme will represent another important step in the country’s efforts to control climate change. As a growing oil and gas power in Central Asia, the success of the scheme will be fundamental to achieving a balance between meeting global demand for energy and preserving the planet.

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