This chapter considers a number of cross-cutting issues that will underpin successful implementation of the reforms of the industrial air pollutants environmental regulatory system. These largely concern the requirements needed for further planning, behavioural changes in enforcement practices, and collection of comparable quantitative and qualitative data that are internationally accepted. These issues are most relevant for impactful and lasting reforms, however well-designed they might be in line with OECD benchmark and how fast legislative acts might be enacted. The chapter also points out to areas where the OECD and Kazakhstan can further enhance their mutually rewarding co‑operation to address these challenges.
Addressing Industrial Air Pollution in Kazakhstan
Reforming Environmental Payments Policy Guidelines
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OECD Green Growth Studies
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Chapter 5. Conclusions and ways forward
Abstract
5.1. Introduction
Much of this report is oriented towards providing Kazakhstan with the methods and practices of OECD member countries to support the active pursuit of policies. Ultimately, this will lead to faster and better adoption of best available techniques (BAT), lower the cost of doing business and attract more foreign knowledge and investments.
Many policy actions are focused on reform of the environmental payments for industrial air pollutants. These actions need to be prioritised, and the right framework conditions for implementation must also be in place. Several components of well-enforced environmental regulations in OECD member countries are still missing in Kazakhstan. These include effective capacity building in the Ministry of Energy and in the oblasts, a robust data system, better engagement and co‑operation with all stakeholders, and reliable monitoring and evaluation. Making strides with respect to these building blocks will strengthen the social acceptance of better regulation – modernised policies and laws that achieve their objectives at minimum cost – and enhance the attractiveness of Kazakhstan’s economy and the well-being of its citizens.
5.2. Deepening the implementation plans at sectoral level
Kazakhstan is making efforts to understand some of the main concepts of modern environmental regulations, such as developing amendments to the Environmental Code. While this report focuses on environmental payments, reforms of these areas in isolation will clearly have limited success to adopt a system in line with the Polluter-Pays Principle. Authorities in Kazakhstan must understand how the elements of the OECD environmental regulatory framework are linked and inter-dependent. Only in this way can it address industrial pollution specifically and environmental challenges at large. In many OECD member countries, the experience of modernising environmental regulation demonstrated that the soft areas of education, engagement and enabling approaches are key to successful outcomes (e.g. better compliance). Enforcement of penalties is considered a last resort.
Effective implementation of structural reforms in environmental regulations is one of the most challenging undertakings both for OECD partner countries and for some of the most advanced OECD economies. Implementation is much more difficult than designing and adopting many reforms. More often than not, first-best policy recommendations fall short of delivering desired outcomes for several reasons. These reasons include limited administrative capacity, fragmentation and complexity of governance frameworks, inadequate decision-making structures, and poor processes and organisational culture.
An overall implementation and transition plan will be needed for these reforms to be effective. Prioritising efforts deserves more consideration. A Strategic Environmental Action Plan and Regional Programmes should be developed. There can be different timescales for implementing different aspects of the plan and programmes. Some reforms could be implemented relatively quickly. These include, for example, reform of the system of administrative penalties (fault-based payments) or the preference for the indirect method to assess compensation for environmental damages. Other reforms will be affected by longer-term decisions such as the introduction of the Integrated Environmental Permit (IEP) based on BAT. However, reforms need not be delayed; Israel, for example, has initiated a BAT approach building on the Industrial Emissions Directive without an IEP.
Resources are needed for a project-based approach, a risk register and a robust delivery unit to set out its goals/outcomes. Timescales should be used, steered by an inter-ministerial governing body. This should set out risks to the implementation of the above recommendations, and measures to mitigate, such as the removal of barriers and constraints.
The government could consider putting in place a demonstration project. This could target one sector (e.g. power), a set of pollutants (SOx, NOx, PM), and take place in a selection of priority regions (i.e. heavily polluted oblasts). This would enable the main stakeholders to get together to demonstrate how a BAT-based approach would work in practice. It would certainly be best to de-link the demonstration project from financial reforms. These reforms could and should be undertaken in parallel, and brought together further down the line. There is a danger that introduction of BAT and IEP will make processes even more complicated and bureaucratic. Therefore, a representative group should be established to map out the “new” customer journey and design a process that is as clear and simple as possible. This should be done as part of the process to establish the initial BAT guidance.
At ground level in Nur-Sultan and in each priority region, an action plan for each priority industrial sector (“sector strategies to reduce pollution”) should encompass the following elements:
A definition of the addressable scope. This should evaluate the scope for reducing emissions reductions generated by stationary (fixed installations) and mobile (transport) sources within the value and supply chains that sectors can control and influence. It should also evaluate the scope for reducing emissions from the wider transport “sector” in industrial oblasts, where it is difficult to differentiate between fixed and mobile sources of pollution.
Performance targets (see the section below on incentives).
Possible state interventions combining:
technical measures: quick-wins (e.g. installations of simple electric filters, NOx filters, or better combustion techniques and process optimisation – see Box 2.5.), BAT and guidance needed to meet agreed industry sector goals, standards and targets (e.g. BAT-AEL)
direct regulatory measures: i) IEPs based on BAT (permitting process); ii) compliance promotion, monitoring and checking (compliance assurance); and iii) enforcement principles and practice (enforcement processes)
economic measures for pollution reduction and associated reforms: i) cost recovery for services provided to the industries being regulated (see the following section for further details); ii) market-based instruments to improve uptake of green technology; and iii) funding from the government (subsidies) and foreign investment to support and build capacity, closely linked with the strategy of Kazakh Invest to attract more knowledge-intensive industries.
Possible delivery agents to be mobilised: state authorities (e.g. Ministry of Energy; Ministry of National Economy; Ministry of Industry and Infrastructure Development, particularly the Committee of Technical Regulation and Metrology; Akimats from the selected oblasts), companies, third parties including professional associations (e.g. National Chamber of Entrepreneurs; Association of Mining and Metallurgical Enterprises; Association of Kazakhstan Machinery Industry; American Chamber of Commerce in Kazakhstan; and Eurobak – the European Business Association of Kazakhstan), non-governmental organisations and citizens.
Final outputs: a sector strategy to reduce pollution and determine the optimum mix of interventions.
5.3. Communicating, co‑operating and building multi-level capacity for enforcement
In implementing OECD recommendations, policy makers should allow sufficient time for well-considered changes and consultations with all relevant stakeholders.
In line with establishing sector strategies to reduce pollution, more work is needed to ensure a whole-of-government mobilisation on the design, development and enforcement of a new mechanism of environmental payments. Engagement with all stakeholders, in particular the most important foreign and domestic emitters, should be stepped up. The establishment of an inter-ministerial working group involving several public and private stakeholders to support the development of the concept note to amend the Environmental Code was an encouraging step. It involved most stakeholders active with the Committee on Environmental Regulation and Control (CERC) of the Ministry of Energy.
Efforts to engage fully with the Ministry of National Economy, of Finance and of Industry and Infrastructure Development should be pursued. It is particularly important to obtain political will for reform and increase the level of awareness on the Polluter-Pays Principle. This should take place across the government and its national agencies with consensus reached on issues affecting tax, budgetary, justice, business and environmental arms of the government (and hence the legislative changes needed).
Stakeholder co‑operation should be intensified at the interagency level, with the regulated community. In the context of using the full enforcement pyramid, stakeholder co‑operation also comprises interagency co‑ordination and external dialogue with the regulated community and the public at a sub-national level. This co‑ordination should be intensified, as the integration of environmental permitting and compliance monitoring regimes accelerates in regions. Environmental regulators in oblasts will have to consult other authorities and collaborate with them in compliance monitoring and enforcement. Assessment of capacities and needs requires further analysis, which could draw on OECD’s most recent work on multi-governance and political economy. Tools to be mobilised will depend on the specific objectives of the capacity building, audience and local institutional context.
The OECD has long experience of providing targeted interventions that could be harnessed. These interventions include assessment of administrative capacity, benchmarking and provision of advice. If feasible, they also include establishing and making sustainable a “policy and reform” support unit that can combine the knowledge of local conditions (via local experts) with international experience, and the catalytic role of international assistance. And SIGMA’s Principles of Public Administration and experience from the establishment of the Reform Support Teams in Ukraine could be used as guidance.1
At a more granular level, Kazakhstan could take advantage of the OECD’s ample experience to strengthen its compliance assurance systems, instruments and tools. Kazakhstan could envision screening the compliance assurance system based on an updated OECD approach and the EU IMPEL reviews, and then developing recommendations. It should encourage review of criteria for identifying, classifying and selecting installations for compliance monitoring and how to use risk-based tools for inspection planning, including those previously developed by the OECD. Finally, it should promote support to co‑ordinated inspection campaigns based on standard checklists.
Kazakhstan should enhance exchanges with practitioners in OECD member countries. Visits to the Czech Republic or the Netherlands should build on previous visits to the Slovak Republic, Spain and Poland. It should continue to use resources, tools, expertise developed by the European Union Network for the Implementation and Enforcement of Environmental Law and the International Network for Compliance and Enforcement. To that end, it could explore linkages programmes and agreements to loan staff. These actions have become possible as more and more OECD member and partner countries publicly disclose compliance monitoring information and some even provide access to enforcement activities. Experience also suggests that a great deal of the value of Kazakhstan’s participation in OECD committees stems from the formation of a network of peers. These provide targeted support for reform that extends well beyond the confines of formal committee or working group meetings. The government should thus allocate sufficient funds and experts to continue to engage with the relevant working parties and programmes of relevance under the OECD’s Environmental Policy Committee. This would fall under the Memorandum of Understanding between the OECD and Kazakhstan renewed on 21 November 2018. Green growth and environment policy are one of the main pillars that structures co‑operation over the next few years, building on the progress and results achieved during the first phase. The OECD Green Action Taskforce 2019-20 Programme of Work is entirely fitting, as it entails reforming regulatory regimes for large emission sources, including state-owned enterprises.
5.4. Enhancing data availability and quality for adequate monitoring and evaluation
The Ministry of Energy, Ministry of National Economy and Ministry of Finance should provide detailed data on the amount and type of pollutants that various categories of companies are emitting. They should also detail the amount of payments of various categories of companies. These companies should be identified, among others, by industry, region, size and ownership (foreign vs. domestic) to allow analysis of correlations between pollution emissions and payments. This would raise the level of transparency and trust.
Kazakhstan could intensify efforts to perform continuous monitoring and control over emission of pollutants through the CERC. It should encourage equipment for constant control of air emissions at large power plants, boilers and industrial enterprises. This could possibly take place in the context of establishing new forms of intervention and enabling approaches that support self-monitoring. While the air quality monitoring network has been significantly expanded in terms of number of monitoring stations and parameters being tracked, there are still opportunities for improving the network. This is particularly the case for the density of automatic air quality monitoring stations in large urban areas and industrial areas.
To move to a system of pollution prevention and control based on BAT, Kazakhstan will need to ensure that all operators (nature users) within scope establish verifiable emissions monitoring to provide accurate and reliable data. The BAT Reference guidance, or equivalent, should set out monitoring methods as an element of the recommended techniques. Requirements for each installation should be specified in integrated environmental permits and compliance-verified. If necessary, authorities should enforce the requirements. Elements for BAT, permitting, monitoring and compliance, and enforcement must be properly joined. This could be done by setting out how these elements are linked in a revised Environmental Code.
A well-functioning Pollution Release and Transfer Register would signal clearly to large polluting industries to be transparent about their emissions. It would also guarantee public access to data on emissions.
Kazakhstan should accede to the UN Economic Commission for Europe Kyiv Protocol on Pollutant Release and Transfer Registers under the Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters.
Kazakhstan should consider following the OECD Council Recommendation on PRTR (OECD, 2018[1]) and comply with the OECD harmonised lists of pollutants and sectors for PRTR.
Interested parties should submit an annual report on emissions and transfers of pollutants, wastewater and wastes to a national database. To that end, Kazakhstan should promulgate the necessary law or regulations to require enterprises belonging to the sectors under the Kiev Protocol, as well as other sectors required to comply with a BAT-regulatory model, to submit this report.
Building on the January 2017 workshop organised with the UN Institute for Training and Research (Ministry of Energy of Kazakhstan, 2017[2]), Kazakhstan should continue to commit to learning from international good practices and possibly join the OECD Working Party on PRTR (WG-PRTR). The WG-PRTR discusses how to seek further harmonisation and efficiency in PRTRs, drawing on experiences of member countries. It shares good practices on using PRTR data, including tracking progress towards achieving the Sustainable Development Goals.
Improving accessibility of the web-based platform will require proper scoping and funding. This will allow further development and maintenance of the state PRTR, providing for more awareness, usage and ownership of the reported data. Ultimately, the PRTR should become the one-stop shop for all stakeholders and for all national and international commitments.
The OECD is ready to support Kazakhstan with its work on assisting PRTR implementation. It aims at developing practical tools and guidance to help countries install and implement a PRTR, including through information and technical support. Special focus goes to improving PRTR data quality, exploring PRTR data applications and harmonising PRTR across the countries.2
Well-designed monitoring will allow Kazakhstan to track implementation of recommendations and achievements to encourage better environmental performance, adjust activities as needed and forecast the most likely medium-term and long-term outcomes. A monitoring and evaluation (M&E) system is more than the data systems used to track spending and outputs. Rather, it refers to regular and systematic collection and use of M&E information at various levels, be it an agency or the entire government (Mackay, 2010[3]). Ex-ante and ex-post appraisal will thus be critical.
Kazakhstan could draw on OECD experience to enhance cost-benefit analysis. For many countries, cost-benefit analysis is now central to the design and implementation of policies, particularly those related to the environment. The OECD has a long tradition of promoting the use of cost-benefit analysis in environmental policy development. The work ranges from the evaluation of environmental damages in monetary terms and the role of discounting to case studies of the application of cost-benefit analysis. The 2018 report “Cost-Benefit Analysis and the Environment: Further Developments and Policy Use” provides a timely update on recent developments in the theory and practice of cost-benefit analysis. These could further inform decision-making processes in Kazakhstan (OECD, 2018[4]).
The OECD is ready to engage with Kazakhstan on its use of empirical programme evaluation studies to perform ex-post assessments of environmentally related tax policies. A number of studies credibly identified causal effects of environmentally related tax policies. However, they did not necessarily provide all the information needed to fully inform the policy-making process. Recent OECD analysis argues that cost-benefit analysis could enrich ex-post assessments of environmentally related tax policies. It could provide decision makers with a broader perspective of social costs and benefits, allowing identification of potential trade-offs among policy objectives (OECD, forthcoming[5]).
The OECD’s continuous work on the lifecycle of regulations will also benefit Kazakhstan in relation to regulatory impact assessment. As noted recently, systematic approaches to evaluating whether laws and regulations achieve their objectives in practice are rare (OECD, 2018[6]).
Kazakhstan should continue to participate in OECD policy monitoring instruments. These could include, for example, the System of Integrated Environmental-Economic Accounting and Green Growth Indicators. The OECD explores monitoring and evaluation on a variety of environmental topics, including on its own through the various working groups and technical committees in particular the Working Party on Environmental Information, the Working Party on Integrating Environmental and Economic Policies or the Joint Meetings of Tax and Environment Experts. Kazakhstan should ensure continuous presence of its delegates at both political and technical levels.
5.5. Enforcing at ground level with adequate incentives
OECD/EU countries have some mandatory requirements on environmental inspections. The EU IED requires member states to set up a system of environmental inspections and draw up inspection plans accordingly. The IED requires a site visit with risk-based criteria at least every one-three years.
Kazakhstan has changed much of its legislation underpinning the inspection regime. This has been driven by the strategy towards enabling more private-led growth and increasing the attractiveness of the business and investment climate. Further clarifications will nevertheless be required. This is especially the case on issues related to the period during which a subsequent violation will be treated as a repeated violation (e.g. use of one-year interval or more).
The 2015 Entrepreneurial Code3 consolidated all laws regulating business activity as a whole, except for specific activities. Subsurface use, banking and insurance, for example, are regulated by special laws such as the Subsoil and Subsoil Use Code.4 This Code is the reference legislation regulating all inspection procedures, including environmental inspections. The revised Environment Code should thus reference and not duplicate these provisions. Consequently, Kazakhstan should consider which Code could be used to set out the full range of compliance assurance approaches. Many of these could be applied more widely than to the environment, so the Entrepreneurial Code may be the “natural” home.
Before the Environmental Code, the 2011 Law on State Control and Surveillance (no longer valid) introduced common principles for various inspections and risk-assessment-based planning of inspections. It was amended in 2012 to introduce the ban on planned inspections for small and medium-sized enterprises during the three years from their registration date.
The right incentives should remain a priority. Kazakhstan should phase out incentives focusing on the number of fines issued. Incentives promoting the use of all non-compliance responses (and not only the generation of performance information) are needed. Otherwise, non-compliance responses would be reduced to record-keeping and revenue-raising. Performance targets based on an internationally recognised standard such as the ISO 14031 for guidance/methodology5 could encompass: environmental state and conditions; operational activities and processes (e.g. use of abatement technologies and techniques); and management activities and processes (of sectors and organisations).
5.6. Drawing resource implications for better compliance, possibly with cost recovery charges
Kazakhstan should design transition schemes for expected loss of revenue to the state due to reforms. The transition to an OECD/EU system of enforcement, including the reform of penalties, could result in loss of revenue to the state. The same is true for some oblasts highly dependent on these environmentally related taxes for the general budget. Any consequential changes to other parts of the framework for environmental protection could also lead to revenue loss. Transition schemes should be designed, the nature and details of which go beyond the mandate of the joint project. Such plans would require in-depth socio-economic analysis with access to data, which could not be granted for practical and confidentiality reasons.
Kazakhstan needs to secure adequate funding and capacity to adopt features of the most modern environmental regulatory systems derived from the OECD. It should determine its needs in terms of competent staff (e.g. in conducting equivalency analysis), appropriate technologies and administrative processes/systems. Each should be evaluated in terms of best standards of an effective and efficient system that incentivises high levels of compliance, better environmental performance and uptake of cleaner technologies.
Kazakhstan should further assess the opportunity to establish “cost recovery for services” to regulated industries. This would follow the practices of some more advanced OECD countries that opted for more market-based instruments (MBIs).
Revenue streams would i) recover the costs of implementing environmental protection; and ii) incentivise better environmental performance and deter non-compliance. Both points are linked because the costs of environmental protection should decrease as environmental performance and levels of compliance increase (there should be an inverse relationship).
The payments (charges and taxes) for poor performers should outweigh any economic advantage that would have been gained by non-compliance. MBIs should reflect externalities. Conversely, payments should be reduced for good performers. The differential in payments for good and poor performance should give a clear economic advantage to better performers.
The example of the Scottish Environment Protection Agency (SEPA) Charging Scheme could be of interest.6
SEPA derives about half its income from charges to operators of regulated activities. The remainder is from government grant-in-aid.
SEPA charges for: i) applications, which are one-off charges intended to recover costs from new authorisations or changes to existing authorisations; and ii) annual changes, which are annual charges to recover ongoing costs of regulating an authorised activity.
The charging scheme was developed using a combination of different datasets: past time recording data, workflow estimates, risk scores to plan inspection levels and complexity of reporting requirements.
The scheme sets charges for waste management licences and exemptions; pollution prevention and control permits; authorisations for holding/use/disposal of radioactive substances; authorisations and registrations for discharges to water, water abstraction, impoundment and engineering; and registrations and authorisations for disposal to land.
5.7. Furthering the work on air pollution from mobile sources
Kazakhstan should continue to act on air pollution from mobile sources, which is expected to increase. The use of cars continues to grow, 70% of which are ten years or older. These older vehicles use low-quality fuels with high sulphur content and are barely compliant with Euro 2 standards. The transport sector causes 2% of the SO2 emissions, almost 40% of the CO emissions, 17% of the NOx emissions, 20% of emissions from non-methane volatile organic compounds and an estimated 35% of PM2.5 emissions (UNECE, 2019[7]).
The introduction of fuels of higher quality (Euro 2, 3 and 4 standards) has been announced and described in technical regulations but not yet implemented. The three oil refineries are being upgraded towards Euro 4/5 standards. However, more is needed to steer car and truck owners towards natural gas, petroleum gases or electrical propulsion and improve urban air quality, especially during winter. The vehicle taxation still does not take environment impacts fully into account. According to the Tax Code, the rates of vehicle taxes are differentiated based on engine volume (cm3). For instance, the tax rate for a vehicle with an engine size between 3 000-4 000 cm3 is 15 times higher than that for a vehicle with a size less than 1 100 cm3. For cars over 4 000 cm3, the tax rate is 117 times higher. In theory, this tax rate can incentivise purchase of smaller cars that, all things being equal, are less environmentally harmful. However, the policy conflicts with practice in a number of OECD member countries. These members have a long history of using one-time or recurrent vehicle taxes on the basis of CO2 emissions or fuel efficiency to drive demand for fuel-efficient and cleaner cars (UNECE, 2019[7]). The introduction of economic incentives to facilitate renewal of the car fleet will require further consideration. At the same time, the country should review economic incentives for annual inspection of motor vehicles to check the quality of exhaust fumes and completion of a one-time audit of the whole operational car fleet until 2020 (Kazakhstan, 2013[8]). The switch to gas or electrical combustion of all public transport in Almaty and other big cities (Nur-Sultan, Karaganda and Shymkent) should be further analysed, depending on gas resources and decisions on gas price subsidies. The recent OECD work, “Promoting Clean Urban Public Transportation and Green Investment in Kazakhstan”, could inform this work (OECD, 2017[9]).7
References
[8] Kazakhstan (2013), Concept for Transition of the Republic of Kazakhstan to Green Economy Approved Decree of the President of the Republic of Kazakhstan on May 30, 2013 #557.
[3] Mackay, K. (2010), “Conceptual framework for monitoring and evaluation”, PREMNotes, Vol. August/1, http://siteresources.worldbank.org/INTPOVERTY/Resources/335642-1276521901256/PREMNoteME1.pdf.
[2] Ministry of Energy of Kazakhstan (2017), Inception Workshop on Phase 2 Project on POPs Monitoring, Reporting & Information Dissemination, https://cwm.unitar.org/cwmplatformscms/site/assets/files/1271/kazakhstasn_national_prtr_inception_workshop_report.pdf.
[4] OECD (2018), Cost-Benefit Analysis and the Environment: Further Developments and Policy Use, OECD Publishing, Paris, https://doi.org/10.1787/9789264085169-en.
[6] OECD (2018), OECD Regulatory Policy Outlook 2018, OECD Publishing, Paris, https://doi.org/10.1787/9789264303072-en.
[1] OECD (2018), Recommendation of the Council on Implementing Pollutant Release and Transfer Registers, OECD Legal Instruments, Paris, https://legalinstruments.oecd.org/en/instruments/44.
[9] OECD (2017), Promoting Clean Urban Public Transportation and Green Investment in Kazakhstan, OECD Publishing, Paris, https://doi.org/10.1787/24090344.
[5] OECD (forthcoming), Ex-Post Cost-Benefit Analysis of Environmentally Related Tax Policies, OECD Publishing, Paris.
[7] UNECE (2019), Environmental Performance Reviews: Kazakhstan, Third Review, Environmental Performance Reviews Series, United Nations Economic Commission for Europe, Geneva.
Notes
← 2. See further details on http://www.oecd.org/env/ehs/pollutant-release-transfer-register/oecd-activities-to-assist-prtr-implementation.htm.
← 6. https://www.sepa.org.uk/media/348734/guidance-environmental-regulation-scotland-charging-scheme-2018.pdf.
← 7. This report discusses the main results of an OECD project in 2017 on how to reduce air pollution from urban public transport in Kazakhstan. It analyses how to design a green public investment programme in this sector. The investment programme was designed to support modernisation of the urban transport fleet in the country and stimulate the domestic market to shift to modern buses powered by clean fuels. Two phases of the programme were foreseen: the first covers the cities of Kostanay and Shymkent, while the second covers all major urban centres. These investments are expected to improve air significantly.