Without a new agreement Russian Kyoto projects will face uncertainty

Olga Podosenova

The very first bidding for JI projects was held by Sberbank in spring 2010, and the following July Russian Ministry of Economic Development approved the first 15 of Russian JI projects. The overall emissions reduction from all winning projects of that bidding equaled 30 mln tons of CO2 –equivalent. The demand for the part of Russian quota among the companies that submitted their projects for the second bidding outnumbered the supply by two times. Sberbank received a total of 58 submissions with the total emissions reduction of 75,6 mln tons and a claimed investment of 3,3 billion Euros. In mid-January 2011 the Ministry published the list of 18 winners.

In the next days Sberbank, which is Russia’s official carbon units’ operator, is to announce the beginning of the third round for JI projects. It is expected that the applicants will be evaluated according to newly devised field-based groups. It is also possible that in the future there will be no competition procedure the way it exists now, and that only a kind of a quality control will remain. Group differentiation of projects would allow avoiding situations when projects compete not only among the like, but also among those representing a totally different branch of industry. Obviously, it is hard to compare, for instance, a project for gas utilization at an oil deposit and a wind power development project in a remote northern settlement.

According to Artem Churikov, AEnergy’s Analytics department chief, there are no renewable energy based projects among the submissions, since many potential participants, mostly representing medium-sized business, are not completely sure of the possibility of a fair competitive selection.

Competition’s guidelines encompass 3 criteria, such as energy and environmental efficiency; technical and financial potential and economical and social effects from the project. The last criterion is assessed based on the data (provided by the investor) on compliance of the project’s expected results with the decisions of Russia’s government regarding the innovative development of the economy and the society, as well as with the decisions by the Commission on economy’s modernization. Formally, even projects representing metallurgy, the oil sector as well as renewable and housing, are eligible to take part in the competition, it is nearly impossible to imagine the same energy efficiency criteria for all of them. And renewable are more likely to experience difficulties there: there is no chance to enter the energy market, thus no possibility to provide the energy to a broad range of consumers. “There has to be green tariffs, otherwise no-one will ever get into that business, and our respectable partners in energy will continue multiplying themselves.”

At the moment the majority of applicants are major Russian companies that are already at ease in the country’s economic system and are backed up by a huge administrative resource with the absence of climate subsidies.

The lack of job-proven realization mechanisms ads to the problem. Russian market actors are thinking hard on how to sell their approved emissions reduction units and comply with Sberbank’s guidelines at the same time. It was expected that Sberbank will produce a typical ERUs purchase and sale contract, but has not done so yet, thus it remains unclear how to comply with the bank’s requirements in practice. At the same time there is a tendency of decreasing ERUs prices on the European secondary market from 14 t0 11 Euros per ton. And since there is no clarity about post-Kyoto mechanisms, it is likely that the prices will continue falling.