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More comments on Kyoto mechanisms in Russia: long preparations and no moving forward

Olga Podosenova

The new Resolution of the Government of the Russia Federation “On Measures to Implement Article 6 of the Kyoto Protocol to the United Nations Framework Convention on Climate Change” (the “Resolution”) does not imply any simplification of the bidding process, nor does it provide more opportunities for small-scale renewable energy projects. The new changes even aggravate the competition in this already very narrow field.

So far in Russia a sufficient legal base for JI projects implementation has been created. There are related articles in our federal laws and in the Tax and the Civil code, there are Government resolutions and an established order of creating and maintaining the accounting of emissions reduction units. However, the Russian JI market may hardly be called functioning. Meanwhile JI creates a lot of benefits for other countries: biofuels are rapidly developing in Hungary, wind energy in Lithuania and New Zealand, and municipal heating systems modernization projects in Ukraine – all thanks to the JI scheme.

Several gradual changes in the Sberbank bidding system seemed to give certain hope for the Kyoto market development in Russia as the number of relatively small projects increased and the field-based classification of bids was supposed to give equal chances to different projects. When the Ministry of Economical Development of Russia initiated “public consultations in order to evaluate the administrative impact of the model Government resolution “On measures to implement Article 6 of Kyoto protocol…”, this gave us hopes. However the resulting document made us abandon all of them that were connected to the JI market development in Russia.

That would be logical if the document, for instance, increased the level of requirements to the evaluation of project results. Instead, it over-complicated the already complex bidding system by adding a lot of unreasonable bureaucratic obstacles. So it became clear that there was not even talk about fighting the “excessive administrative restrictions” of any sort.

It is hard to understand the true reasons behind the new total ERU limit of 300 mln tons of CO2-equivalent. Before that we had expected that despite heavy competition there will be space for everyone – biofuel producers, associated gas utilization projects, projects on boiler houses modernization, renewables and forestry. However, considering the already selected 70 mln tons at the first evaluation stage and the increased competition, nobody is aiming at including small-scale projects into the scheme.

Meanwhile, Russian JI projects are still of interest for external investors due to the opportunity to reduce emissions at lesser costs, since the investments are more effective here because of the high energy intensity in our country. The JI mechanism carries a lot of unused opportunities for local entrepreneurs and increases sales and growth opportunities for small- and middle-scale businesses.

That is why it seems logical enough that the business community is waiting for the Government to implement a working JI approval procedure, a special market-based mechanism of supporting and stimulating projects aiming at reducing energy consumption and the emissions. But as it turns out, nobody was even going to create such conditions for businesses.

At first, one may have though that everything was just about to change, the way it often happens in Russia – we are slow at preparing, but fast at doing. But the pattern didn’t work for Kyoto mechanisms. We have been preparing for so long and are not going anywhere..