Kazakhstan: Inclusive and Sustainable Economic Growth Development Policy Operation

proposed

Kazakhstan is an upper-middle-income country and the largest economy in Central Asia. Kazakhstan is currently the 20th largest emitter worldwide of greenhouse gases (GHG) on a per capita basis, with electricity and heating accounting for 84 percent of overall emissions. Kazakhstan is among the top ten most energy-intensive economies, using three times as much energy per unit of output compared to the OECD average. Therefore, decarbonizing the economy is an urgent priority, and Kazakhstan has ambitious targets for addressing climate change, which require strong action. This includes scaling up the development of large-scale and distributed renewable energy, enabling the emission trading scheme to contribute to meeting the NDC, implementing tariff reforms in electricity and heating to remove energy subsidies, achieving full cost recovery, and strengthening energy efficiency. The proposed Program supports the Government of Kazakhstan (GoK)'s reforms aimed at (i) facilitating a cleaner energy transition through developing small-scale distributed renewable energy, (ii) improving financial sustainability in electricity by enacting systematic electricity tariff adjustments in line with a new incentive-based methodology to achieve full cost recovery levels, (iii) reducing fossil-fuel subsidies in heating through tariff reforms, (iv) promoting energy efficiency to reduce the carbon footprint of the economy by implementing more stringent energy efficiency norms for the highest energy-intensive industrial enterprises, and (v) strengthening emissions monitoring, reporting and verification to help meet the NDC. The Program will be co-financed in parallel with the World Bank (WB), as the lead financier. The Program is aligned with the goals of the Low Emissions Development Strategy (LEDS) of the Republic of Kazakhstan, which was adopted in February 2023 and aims to reduce greenhouse gas (GHG) emissions by 15 percent by 2030 and attain carbon neutrality by 2060, and the updated 2023 NDCs. The Ministry of Finance of the Republic of Kazakhstan is the main executing agency and is coordinating the implementation of all policy actions supported by this operation with respective line ministries.