Implications of the Emission Reduction Policies for a Fossil Fuel Abundant Economy

Abstract This study provides an economywide assessment of some policies tailored to reduce greenhouse gas emissions generated as a result of the fuel combustion processes in the energy sector in an economy that holds large reserves of fossil fuel, e.g. crude oil and natural gas. It presents the results from the recursive dynamic computable general equilibrium model that we developed for Kazakhstan, an example of a country that largely relies on export revenues of crude oil sector and has high energy intensity due the abundant coal reserves. To diversify the economy and transition to green economy Kazakhstan ratified international agreements and initiated a green economy concept that sets targets to reduce CO2 emissions and energy intensity. However, the country experiences obstacles, for instance, the emission trading scheme was suspended in 2016 and was enacted in 2018 as it met the opposition from the energy and energy-intensive sectors. Moreover, the emission reduction policies are likely to reduce GDP growth as they have direct effects on the key traditional sectors with high energy intensity. Our preliminary results indicate that setting the cap on emissions will generate a GDP loss of 1.5 percent by 2030 relative to the baseline scenario. Keywords: greenhouse gas emissions; computable general equilibrium; GDP; emission reduction