Socio-economic constraints to low-carbon transitions: insights from Kazakhstan's Emissions Trading Scheme

In this research, we examine energy facilities' (both electricity and heat) responses to emissions trading in Kazakhstan, a fossil-fuel-dependent developing country, to understand why facilities have delayed the adoption of substantial carbon mitigation measures. Our research relies on the frameworks of sociotechnical systems (STS) and firm-level exploration-exploitation trade-offs (EET) because energy transitions are dependent on firm-level characteristics as well as industry - and society-level environments. We find poorly designed and inconsistent regulations, ambivalence to the carbon emissions, challenges from vested interests, energy security regulations and desire for stable socio-economic conditions to be the main society-level factors impeding the effectiveness of the Kazakhstan Emissions Trading Scheme (KazETS). The main industry-level factors hindering the KazETS were found to be the involvement of the state-owned enterprise (SOE) Samruk Energo which accesses government funding for coal-based facility investment, abundant coal reserves that are extracted at low cost, increasing costs and decreasing quality of fuel, relatively very high cost of natural gas, increasing demand for electricity and heat, lack of market competition and no international firms operating in energy generation. Finally, the main firm-level factors restricting investment in low-carbon technologies are low market incentives for investment to replace technologically obsolete assets, the lack of firm-level carbon strategies and very low capacity of workers. ETSs operate in STS, which hinder low-carbon investment.Effective ETSs require coordinated governance systems, which can be promoted by an inter-ministerial steering committee that oversees management of the ETS.Effective ETSs require restrictions to SOE facilities accessing government funding for replacing or expanding coal-fired generation.Indirect emissions policies should be considered in regulated energy markets to correct inefficiencies related to incomplete pass-through of the carbon price.Effective ETSs require increased public awareness of the social costs related to coal use is required.