Ecological and legal principles of improving economic incentives for Environmental management and protection in the Republic of Kazakhstan
Table of contents: The Kazakh-American Free University Academic Journal №6 - 2014
Author: Gavrilova Yuliya , Kazakh-American Free University, Kazakhstan
The Environmental Code
of the Republic of Kazakhstan as of January 9, 2007  covers all aspects of
interaction between society and nature including issues of economic regulation
of environmental protection and management. Article 95 of the primary codified
environmental act of the Republic of Kazakhstan stipulates the following
economic mechanisms of environmental protection and management regulation:
planning and funding for environmental protection measures; charges for
environmental emissions; charges for natural resources use; economic incentives
for environmental protection; market mechanisms and environmental emissions
trading; environmental insurance; economic evaluation of environmental damage.
However, statutory institutions of economic
mechanism for environmental protection and management regulation need to be
worked out in greater detail as they are set out in a rather general form and
contain a large number of reference rules. The least developed aspect of such a
mechanism is economic incentives for environmental protection. Nowadays at the
scientific and theoretical level there is an understanding of the need for
incentive-based environmental charges, however, at the legislative level and in
practice such payments, having a tax character, are dissolved in the state
budget that does not give them the proper destination.
Unfortunately, the primary environmental
act of the Republic of Kazakhstan neither stipulates the special-purpose character
and expenditure of environmental charges nor mentions well-known international
experience of incentive mechanisms of payment for environmental management. The
latter include the following: a flexible mechanism for environmental payments,
tax breaks, easy-term loans, mortgage rates and mortgage interest, environmental
funds, etc. According to Article 103 of the Environmental Code the Government
the Republic of Kazakhstan may only establish maximum rates for environmental
emissions in order to enhance economic incentives for environmental protection.
However, the establishment of marginal
rates can hardly create the necessary incentives as natural resource users will
raise the price of their products, goods, or services instead of implementing
environmental protection measures.
In our opinion, this problem can be solved,
first and foremost, through the adoption of a special act covering environmental
payments in the Republic of Kazakhstan. As D. Baideldinov stated, “in order to
improve the system of environmental payments in Kazakhstan it is necessary to
develop and adopt a special act “On Environmental Payments” [2, p. 44].
We support the stated above position of
Kazakhstani scholars (D. Baideldinov and K. Rakhimberdin) and think the main
objective of the act is the creation of effective mechanisms of economic
interest of natural resource users to reduce the negative impact on the environment.
Moreover, the current system of environmental charges, gradually turning into a
form of environmental taxes and regarded as one of the sources of budget
replenishment, should change its direction towards the development of
compensation for environmental loss and stimulate natural resource users to
reduce their harmful impact. Besides, the future act should be sent to the
exemption from the payment of those business entities, which use best available
technologies and do not go beyond the standards of permissible impact on the
environment. This situation, of course, changes the content of the principle of
“polluter pays” that will change the nature of the environmental tax payments
operating today in the Republic of Kazakhstan.
Much attention is to be paid to the
components of environmental payments. As the payments include charges for environmental
management and emissions it is necessary to provide for a clear procedure of
determining the pay for each object. Further, it would allow any person to calculate
the charge to be paid.
Taking into account the domestic
Kazakhstani experience of ecological funds, it would be advisable to send environmental
payments to such newly created institutional financial associations. The future
normative act should also stipulate that the incoming funds are to be strictly
spent in accordance with the purpose.
Under the conditions of economic crisis and
reducing the state budget financing for environmental measures, the role and
importance of ecological funds must increase. Moreover, future ecological funds
are to adequately reflect the nature and circumstances of the economic situation
in the country. For example, they must ensure the allocation of easy-term
environmental loans to those natural resource users whose activities have an adverse
impact on the environment. When creating such funds, it must be taken into
account both positive and negative experiences of transitional circumstances of
Kazakhstan and other countries where ecological funds previously operated or
are currently operating. Moreover, the state and public organizations should
strengthen the control mechanisms over the receipt and expenditure of funds, as
one of the reasons of abolishing the ecological funds in Kazakhstan were examples of the funds use for purposes not directly related to the environmental
protection. At the same time, ecological funds must be independent in
decision-making. The state should provide support and establish such a level of
environmental charges, which would ensure the stability of the revenue base of
ecological funds and correspond with the cost required for the restoration of
It also should be emphasized, that in order
to avoid past mistakes it is necessary to ensure publicity and transparency of
ecological funds. The latter condition is especially important when considering
projects to be funded. The project cycle is expected to include a sequence of
specific steps after the application of the project’s author to the ecological
fund, evaluation of the project, its approval (deviation), its realization, and
its results evaluation. The legislator is to bend every effort to saving time
of the applicant as well as to the transparency of ecological funds, especially
when making decisions regarding the approval or rejection of the project.
Ecological funds are possibly to be created
directly at the enterprises and enterprises-natural resource users must form
ecological funds in the amount sufficient to perform their assigned limits of
the environmental impact and withdrawal (use) of natural resources.
Ecological funds may include the following
sources: payments for environmental emissions and use of natural resources;
charges for any claims in damages; penalties for violation of environmental
laws, environmental regulations, rules, and standards; depreciation for the
restoration of environmental installations and facilities; loans of regional
ecological funds for reducing the harmful environmental impact and irrevocable
payments (subventions) for such a reduction from the said funds; part of the
enterprise payments for consumption of natural resources in cases when the
enterprise recovers spent resources from its own funds or bank loans; income
(deposit interest) from keeping ecological funds at banks.
In case of insufficiency of these sources
the ecological funds can be replenished by the part of the balance sheet profit
of the enterprise.
Ecological funds of enterprises should be
formed and expended under the supervision of banking institutions and environmental
protection bodies. Part of the funds should be spent on improving primary
production in order to mitigate the harmful environmental impact and to conserve
The sources of regional
ecological funds should be ... “revenues from the issue of environmental loans,
budgetary subsidies, target local taxes, voluntary contributions, and interests
for environmental loans...” [3, p. 6]. One of the sources of ecological funds
replenishing can be environmental insurance premiums. As Kazakhstani researcher
G. Mukasheva correctly noted, “Insurance is one of the most important economic
institutions that existed in different economic formations but it is most fully
realized in the market” [4, p. 16].
In our opinion, in
order to promote environmental management it is necessary to review the
conceptual principles of ecological insurance in the Republic of Kazakhstan. The main purpose of this institution should be the formation of insurance
ecological funds for prevention of environmental accidents and disasters. Their
funds will be spent directly for the restoration of environmental damage caused
by accidental pollution.
In addition to the
direct interdependence of the environmental payments institute on environmental
insurance, the considered tool of economic mechanism of environmental
protection is indirectly associated with another tool of environmental
management – the environmental audit. According to the Environmental Code the
environmental audit is an independent audit of economic and other activities of
the audited entities aimed at the identification and assessment of environmental
risks and the development of recommendations for improving the environmental
safety of their activities. Clause 4 of Article 82 of the act contains the
structure of environmental information including data of ecological and
economic aspects of the subject. But the said act does not define the content
of the ecological and economic activity. In our opinion, the value of the
environmental audit is the following: its results serve as the basis for making
a conclusion on the state of economic and financial reporting, accounting,
timeliness and value of the current environmental charges; purposeful use of
capital funds allocated for environmental protection. These components must
become not only the structure of ecological and economic activities but also
the objects of the environmental audit (it should be noted that the
Environmental Code of the Republic of Kazakhstan stipulates no clear objects of
environmental audit). Thus, the problem of improving the legislation of the Republic of Kazakhstan in the field of environmental charges reveals a number of gaps to
be replenished due to both legal science and practice.
In our study it is also important to
emphasize the fact that ecological funds have significant advantages compared
with the existing system of environmental payments to the budget. All incoming
payments “are spent on anything: most often on patching holes in the budget, on
solving accidental problems, but not on solving environmental issues in the
place of the enterprise activity and the place of harmful environmental
impact”, says Andrei Karchevsky, a freelance Advisor to the Minister for the
We can mention the following as an
example: in 2006 the budget of Karaganda Region received 2.2 billion tenge of
environmental payments from industrial enterprises of the region and most part
of them was spent on road maintenance in Karaganda. This happens all the time.
Officials neither spend the environmental money purposefully nor care about funding
top priority problems from the national budget. For example, the Register of
Environmental Issues compiled by the Ministry of Environment Protection for
2008-2010 contains no programs for Temirtau, which means the latter will get no
money to improve its environmental situation” [5, p. 4].
Atyrau Region may serve as another similar
example: for 12 months of 2005 the actual amount of environmental revenues to
the regional budget accounted for 4 546 220 000 tenge or 141% of the
plan. But for environmental measures in 2005 it was allocated only 357 870 000
tenge or 1/10 of these funds.
Statistical data on environmental payments
in the North Kazakhstan Region are also of particular interest. Every year the
local budget receives funds from payments for environmental pollution. The
analysis shows that each year environmental payments increase (in 2005 the
amount of environmental charges exceeded that of 2002 in almost 3 times). However, in practice the allocated funds are insufficient to implement the
necessary measures .
The former Minister of Environmental
Protection N. Iskakov speaking at the board meeting reported that in the
western region of Kazakhstan the environmental funding is a small percentage. Thus,
“in 2006 Aktobe Region planned to finance environmental protection to the sum
of 100 million tenge, which is 3% of the planned volume of the payments. West
Kazakhstan Region allocated for these purposes only 0.2 billion tenge or 4% of
the amount of actually received environmental funds .
Thus, on the basis of the foregoing, it
should be emphasized that there is an urgent need to stipulate in the environmental
legislation the obligation of spending environmental funds strictly on environmental
conservation, restoration, and other environmental purposes. Ecological funds
are not the only means of economic incentives of natural resource users to reduce
their harmful impact.
Together with the introduction and
development of ecological funds it is important to work out the procedure of giving
the enterprises a regime of accelerated depreciation of environmental
facilities and structures, cleaning equipment, and other eco-technology. The
introduction of accelerated depreciation in foreign countries contributed to
the accumulation of capital for upgrading the outdated technology and
transition to less harmful equipment. Thus, the amortization period for
pollution control equipment in Canada is two years, in France – a year for 50% of equipment. Besides, the system of economic incentives for
“nature-friendly production” providing various benefits and bonuses is to
function simultaneously with the above mentioned tools.
Thus, the system of environmental charges
should be organized in such a way that it would be more profitable for natural
resource users to apply new technologies and develop nature-friendly processes
than to pay taxes and penalties. But for this purpose the amount of payment
should not be symbolic. At the same time, penalties are a form of negative
motivation for environmental management and protection as their main function
is a punitive one.
It is known that one of the reasons for the
unfavorable environment in Kazakhstan is the underestimation of the real
economic value of nature and the cost of natural resources or services. The
experience has shown that neither the centrally planned economy nor the modern
market economy could and can adequately take into account the economic value of
nature. In our opinion, the adequate consideration of environmental factors in
economic performance, as well as full economic assessment of natural resources
through environmental inventories can help to improve the system of
environmental payments in Kazakhstan.
The improvement of environmental charges
may also be contributed by other mechanisms such as the loan rate which is an
additional charge to compensate the constant environmental damage caused due to
lack of non-waste technology. Loan rates are not included in the price of the
final product, but depend on the environmental damage and the cost of its
restoration. It can be represented in the form of a loan to be paid by the
nature user to the state stimulating non-waste production. Moreover, the
environmental authority, when passing the use of natural resources, takes the
security deposit from the user; it is fully refundable to the latter, if the resource
is returned in adequate state. The loan rate must consist of various factors
affecting the environmental pollution including both the quantity and quality
of environmental emissions, and characteristics of the object polluted (whether
it is a specially protected natural area or a city or an area with adverse
environmental conditions, etc.).
In general, loan rates should stimulate
natural resource users to environmental compliance. Such a system can be a
powerful economic lever of careful use of natural resources. Loan rates are required
to reimburse the basic costs of the state for environment protection measures.
Together with the introduction of loan
rates it is important to provide in the future normative act the possibility of
credit granting to the natural resource users for the payment of loan rates.
The price paid for the use of credit should be the loan percentage. When
changing it at a constant amount of the loan rate, the environmental authority
may stimulate the implementation of various nature protection measures; when
refusing to provide credits to pay the loan rates, it may force the closure of
the enterprise most damaging the nature.
Such economic and environmental tools, of
course, require a comprehensive approach to the development of a legal
framework to ensure their functioning. In particular, the provision of credit
facilities to enterprises engaged in environmental protection is complicated by
the fact that the banking legislation does not contain all necessary
prerequisites. It is obvious that banks engaged in lending, should, in turn,
somehow compensate for the costs associated with the issuance of preferential
loans thus being economically interested. But for a start it is necessary to
mention a new type of environmental services of banks - a flexible use of a
wide range of banking products for financing environmental business. It
requires the bank-specialists’ expertise in the field of environmental auditing,
management, and marketing. The latter circumstance would be aimed at increasing
the volume of banking services.
An example of the expansion of such
services can serve the ecological balance compilation and the publication of
annual environmental reports of the Credit Suisse Bank. “The information of
getting Series 14001 # 150 Environmental Certificate was brought
to the public via the Internet through publications in the press. The Bank
primarily expresses interest in the companies having the specified certificate.
For example, if two companies are in need of credit and one of them is
certified Series 14001 #150, then, of course, preference will be given
to that having the specified environmental certificate ...” .
Today it is very important for the Republic of Kazakhstan to have the environmental component reflected in banks activities.
The state should support the banks implementing new environmental products,
programs, and activities. It should also provide assistance to the banks
sponsoring environmental activities, conducting environmental lottery, etc.
In general, the legal system of the Republic of Kazakhstan in the field of economic incentives for environmental management
is still being formed and developed. There is much to do for improving the current
legislation and developing new norms to regulate relations in the direction
1. Environmental Code of the Republic of Kazakhstan (2008). Almaty.
2. Rakhimberdin K. (2001).
Legal protection of air should be based on market rules. Legal reform in Kazakhstan. №3(11).
3. Andarova R. (2001).
Economic mechanism of environmental management in the market. The Bulletin of
the Ministry of Education and Science of the Republic of Kazakhstan. №1.
4. Mukasheva G. (2005). Environmental insurance as an economic tool of legal
mechanism. Femida. №12 (120).
5. Bondar A. (2008). Evening
32(537) as of August 6, 2008.
6. http://dpr.sko.kz /rus/
site/ news/ 2006/ 12/35.
Table of contents: The Kazakh-American Free University Academic Journal №6 - 2014