Kazakhstan’s impressive economic growth since its independence on the backbone of oil exploration, extensive mining and increasing industrialisation has led to significant air pollution. The main air pollutants of concern are particulate matter (PM), sulphur dioxides (SOx) and nitrogen oxides (NOx). SOx emissions per capita in 2014 were almost five times those of OECD Europe. More than half of Kazakhstani citizens have a low level of satisfaction with the air quality of their country. Power generation combined with district heating alone generate 40% of SO₂ emissions and 60% of NOx. This is due to an overreliance on low-quality coal, inadequate pollution control equipment and old generating infrastructure. This level of air pollutants is not sustainable, putting at risk the country’s development ambitions. At the same time, new international agreements add urgency to the need to reduce greenhouse gas emissions. Furthermore, Kazakhstan has not yet acceded to any of the protocols of the Convention on Long-Range Transboundary Air Pollution, even though it has been a party since 2001.

Kazakhstan’s regulation and system of environmental payments for industrial air pollutants is not fit-for-purpose.

• It is characteristic of a top-down and command-and-control approach to regulation – a legacy from the Soviet Union. It takes limited advantage of market-oriented instruments to incentivise companies to invest in pollution reduction and technology modernisation. It leads to discriminatory implementation of environmental requirements and a high volume of complex environmental regulations based on unrealistic assumptions.

• Promotion of compliance does not seem to be a priority. Limited information for, and assistance to, the regulated community are available. The overall concept of an enforcement pyramid is recognised, but not implemented. The understanding of how to instil a culture of dialogue with industry is missing. Informal and formal warnings, directions for corrective actions or administrative notices are not used. Risk-based monitoring is absent.

• State-of-the-art technical measures or best available techniques to prevent air emissions from industry are not embedded in the environmental permits.

• The Environmental Code introduced integrated permitting on a pilot basis, following benchmarks established with the European Union. At present, no resource user has used this provision.

The current system of environmental pollution payments for industrial operators is highly controversial. It is focused on raising revenues in particular from foreign-owned operators, rather than on creating incentives to reduce environmental impact. It encompasses three sets of distinct instruments, which all require urgent reforms. Pollution taxes (tax payments for authorised emissions) are based on each enterprise’s emission limit values (ELV), calculated both for emissions within and above the ELV. Authorities may impose administrative penalties for pollution exceeding the ELV set in project documents and environmental permits. A judicial system enforces compensation (monetary damages) for environmental damage caused by emission into air. The value of the “pollution damage” is determined in most cases as a function of the pollution tax rates from each pollutant using a mathematical formula – a so-called indirect method of calculating monetary damages (also known as “fault-based damages”). This system adds to the cost of investing and doing businesses. The fact that control and supervisory bodies are assessed by the number and value of penalties/fines imposed creates false incentives.

This report proposes several changes to the framework regulating industrial air pollutants (i.e. the Environmental Code and some legislative acts on environmental issues). Some are technical and could be implemented in the short term, particularly those related to pollution payments. Others are directed to more mid-to-longer term reforms requiring strong political support. Ultimately, they support convergence towards more modern systems of environmental regulations.