Connecting for the Climate: Linking ETSs in the CAREC Region

The Climate Challenges in Central Asia

Climate change poses a severe threat to Central Asia, a region highly vulnerable to environmental disruptions and heavily reliant on fossil fuels. Given the associated risks to the economy, stability, and social cohesion, the urgent need for decisive action is clear. However, tackling such a multifaceted issue requires regional solutions.

The Role of Linked Emissions Trading Systems (ETSs) in Mitigating Climate Change

As Central Asian countries step up their efforts in meeting decarbonization targets and implementing green economy strategies, one key question arises: Can regional collaboration on emissions trading systems (ETSs) enhance climate action?

ETSs are widely recognized as effective mechanisms for reducing greenhouse gas emissions. Specifically, by placing a cap on emissions and allowing companies to trade allowances, they create financial incentives to lower emissions. However, finding the resources required to establish and maintain an ETS can be a significant hurdle for individual countries, particularly in Central Asia.

To alleviate the difficulties in establishing ETSs, linking can make a difference. In particular, by connecting systems across countries, regional cooperation unlocks the following mutual benefits:

• High-abatement-cost countries can purchase allowances from lower-cost counterparts, thereby reducing overall expenses while ensuring compliance;
• Low-cost countries can generate revenue by exporting surplus allowances, incentivizing further emissions reductions; and
• Price convergence across linked systems facilitates greater economic efficiency, distributing the burden of emissions reductions more equitably.

Yet, linking does not come without challenges. While price convergence boosts affordability, it can dampen innovation in areas consequently facing higher abatement costs. In addition, smaller systems may also be more vulnerable to economic swings, making it harder to sustain stable price controls. To balance these benefits and risks, comprehensive planning is imperative. 

Steps Toward Successful ETS Linkages in Central Asia

To establish effective ETS linkages in Central Asia, a strategic approach leveraging regional cooperation is essential.

A collaborative roadmap is vital in this regard, with clear milestones and regular progress reviews to ensure alignment and overcome obstacles. Here, harmonizing national frameworks and adopting a phased and pilot-driven approach will ensure gradual and manageable implementation.

With that in mind, the Central Asia Regional Economic Cooperation (CAREC) program offers an ideal platform for fostering dialogue, uniting government, industry, and environmental stakeholders in discussions on ETS integration. Moreover, structured forums and workshops can build consensus, address challenges, and synchronize objectives. On a similar note, existing economic and political ties between CAREC countries can facilitate dialogue on ETS linkages. Meanwhile, leveraging regional expertise, such as by leaning into the operational ETSs of Kazakhstan and China through knowledge-sharing initiatives, will strengthen capacity and promote best practices.

Conducting socioeconomic studies for each CAREC country will help to tailor strategies, while quantitative modeling will identify optimal partnerships for ETS linkages. Doing so is essential as CAREC countries exhibit varying levels of ambition in their climate change mitigation targets, ranging from highly ambitious countries like China to less ambitious ones like Afghanistan, Kyrgyzstan, and Turkmenistan. It must also be considered that countries with high fossil fuel dependence (such as Kazakhstan and Turkmenistan) may require implementation and targeted support to be more gradual, albeit with an immediate start.

Capacity-building efforts, targeted guidebooks, and international support for technical expertise and funding will further enable CAREC countries to achieve their climate goals through a robust regional ETS.

Moving Forward 

Linking ETS networks across Central Asia could be the key to unlocking transformative region-wide climate action. This ambitious vision calls for a united commitment to overcome both technical and political challenges, leading to a huge eventual payoff. With backing from international climate funds and organizations, CAREC countries now have a genuine opportunity to drive meaningful climate progress together, constructing a resilient and greener future for the entire region.