KAZAKHSTAN: PUSH ON RENEWABLE ENERGY, KYOTO PROTOCOL IS

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SUBJECT: KAZAKHSTAN: PUSH ON RENEWABLE ENERGY, KYOTO PROTOCOL IS
MOTIVATOR

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2. (SBU) SUMMARY: A Presidential Administration official told us on
October 31 that a draft law on renewable energy currently in
Parliament is expected to be passed before the end of the year. The
Ministry of Energy will create a new subdivision responsible for
renewable energy and energy savings. Kazakhstan's concern over
energy security and sustainability has led to this increased focus
on renewable energy. Kazakhstan has a huge renewable energy
capacity in small hydro, wind, and solar, and there are many
sectors, especially agriculture in remote areas, where these
technologies have ready application. It will take time to renovate
and rebuild electricity capacity installed during the Soviet period,
so there is now an opportunity to build small renewable energy
systems and integrate them into the electrical grid. The Kyoto
Protocol is a motivator for action on renewable energy. Kazakhstan
is the only Kyoto Protocol Non-Annex I country to subsequently
request to join Annex I -- i.e., to join the group of countries
subject to binding commitments on emissions. Kazakhstan ranks
fourth in the world in carbon emissions per dollar of GDP and wants
to improve this ranking. Kazakhstan expects to benefit from the
Kyoto Protocol's carbon trading system to get additional investment
funds for renewable energy. END SUMMARY.

FORWARD MOVEMENT ON RENEWABLE ENERGY LAW


3. (SBU) Presidential Administration Consultant for Energy and
Environmental Issues Kanat Baigarin told the Regional Environmental
Officer (REO) on October 31 that a draft law on renewable energy now
under consideration in Kazakhstan's Parliament is expected to be
passed before the end of the year. He promised to give REO a copy
as soon as possible. Baigarin said an earlier version of the draft
law had included provisions requiring oil and coal companies to buy
certificates in renewable energy projects, as is the case in Great
Britain. He opposed this scheme, because "it would have destroyed
the power market in Kazakhstan." Forcing oil and coal companies to
support their competitors would violate normal market relations, he
said, and companies would quickly find a way to get around this
requirement, with corruption not far behind. Baigarin believes the
government must create an integrated plan for renewable energy in
the context of Kazakhstan's total energy balance and support it
directly with government financing. When renewable energy reaches
one to two percent of total energy output, then Kazakhstan can
consider moving to a certificate scheme, he argued.

RENEWABLE ENERGY OPPORTUNITIES ABOUND


4. (SBU) Baigarin said the government's concern over energy security
and sustainability has led to an increased focus on renewable
energy. The Ministry of Energy will soon create a new subdivision
responsible for renewable energy and energy savings. Even though
things look good for now as far as coal, oil, and natural gas are
concerned, the government is looking ahead and sees the need to
diversify its energy sector. Baigarin explained that Kazakhstan has
a huge renewable energy capacity in small hydro, wind, and solar,
and there are many sectors, especially agriculture in remote areas,
where these technologies have ready application.


5. (SBU) Baigarin said in the past there was no real opportunity to
consider renewable energy, but now Kazakhstan has the financial
resources, technical capacity, and economic incentives to develop
renewable energy in some sectors of the economy. He cited the
persistent problem of inadequate power supply in southern
Kazakhstan, especially in rural agricultural areas, where wind
generators and small hydro stations can complement the electrical
grid. To illustrate the existing potential demand, he noted that
officials closed down more than 500 small hydro power stations in
the 1970s because the government decided they were not efficient and
chose instead to rely on large hydropower plants in Kyrgyzstan and
Tajikistan. Given the current problems with energy and water

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distribution and management in Central Asia, it makes good policy
sense from an energy security perspective to reconsider developing
renewable energy sources in that region as an additional option.


6. (SBU) Baigarin said that Kazakhstan is currently using its entire
installed electricity-generating capacity built during the 1970s.
The system now needs to be renovated and rebuilt, and that will be
very costly and cannot be done over a short period of time. There
is now an opportunity to build small renewable energy systems and
integrate them into the electrical grid. As an example, Baigarin
said companies could build small gas turbine systems in western
Kazakhstan that use the gas that is associated with oil production.
Baigarin said the drive for renewable energy may actually push small
and medium enterprises to participate in building these power
systems and tap into alternative power sources. Many communities
are at the end of the grid line, and if they could resort to
renewable energy sources, this would make their energy supply more
stabile and reliable.

KYOTO PROTOCOL MOTIVATES RENEWABLE ENEGRY PUSH


7. (SBU) Baigarin, who was Kazakhstan's lead negotiator for the
Kyoto Protocol, reminded REO that Kazakhstan has signed but not
ratified the Kyoto Protocol. However, he expects Parliament will
finally ratify it before the end of the year. The fact that the
ratification process has taken so long is a result of the concern
among some that Kazakhstan would not be able to meet its annual
greenhouse emissions targets if the economy were to develop as
planned. (NOTE: While Russia, Belarus, and Ukraine were in Kyoto's
Annex I from the start, Kazakhstan, together with the other CIS
states, was a Non-Annex I member -- which meant that it initially
had no binding commitments on greenhouse gas emissions. Baigaran
explained that under "pressure" from its poorer Central Asian
neighbors, which believed Kazakhstan had gotten a free ride, but
also with a sense of responsibility, Kazakhstan applied to join
Annex I in 2000 -- a request that member countries accepted the
following year. Kazakhstan is the only Non-Annex I country that has
moved to Annex I, he noted. END NOTE.)


8. (SBU) Baigarin said that the Kyoto Protocol now has more support
in Kazakhstan because it is seen as an excellent opportunity to
encourage development of renewable energy resources and promote
energy conservation. He explained that, according to UN data,
Kazakhstan ranks fourth in the world in carbon emissions per dollar
of GDP. Kazakhstan acknowledges this is a problem and wants to
improve its ranking. In addition to government plans to fund some
renewable energy projects, Kazakhstan expects to benefit from the
Kyoto Protocol's carbon trading system. The base year for
calculating greenhouse gas emissions under the Protocol is 1990, the
year before the collapse of the USSR. Because of the initial steep
drop in economic production -- and thus greenhouse gas emissions --
in the CIS states following their independence, Kazakhstan's
emissions are even now 35 percent below 1990 levels. Conversely,
Japan, for example, is annually exceeding its base year emissions by
approximately 15 percent, as a result of which it needs to buy
carbon credits from other countries, such as Kazakhstan. Baigarin
said the government intends to use the windfall from selling carbon
credits to invest in renewable energy projects.

HOAGLAND