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Climate projects in Russia: in the past, but with new perspectives

Draft amendments to the Government Decree "On Measures for Implementation of Article 6 of the Kyoto Protocol ..." proposed by the Ministry of Nature Resources removes restrictions on issuing emission reductions in an already registered projects. Despite the non-participation of Russia in the second period of the Kyoto Protocol and the absence of new joint implementation projects in this country, business aims to increase the capacity of existing opportunities, and bankers do not deny the emergence of new opportunities for creation of a carbon market.

The draft amendments concern the emission reductions to be achieved in the framework of the already registered projects by the operator of carbon units, Sberbank. The first tender for selection of joint implementation projects was announced by Sberbank of Russia in February 2010. A limit of 70 million tonnes of CO2 equivalent has been established in the third stage of the competition.

Since the beginning of this year, joint implementation projects (and the tender itself) have lost relevance for Russia because the country refused to make commitments in the second period of the Kyoto Protocol. The Climate Secretariat of the Russian Social Ecological Union has already referred to the expert opinion, that "limiting the volume of Russian Joint Implementation projects is not reasonable, and profit losses are clearly foreseen, if Russia does not join the second period of the Kyoto Protocol." Experts from the Climate Change Global Services (CCGS) have evaluated negative impact of artificially established limit in the form of loss of more than 40 projects amounting to over 72.7 million tons.

In fact, the new draft document from the Ministry of Natural Resources has no restrictions on the transfer of the Kyoto carbon at all, but in a memorandum to it, the Ministry estimates that companies can increase achievements of current projects. The Ministry proposes to remove restrictions on issuing emission reductions under the registered projects, suggesting that after their official recognition they may be 80-100 million tons more than the set limit of 300 million tons.

According to Kommersant newspaper, the Ministry of Natural Resources prepared the amendments to the document that governs project activities within Kyoto projects in response to requests from companies expecting that after the official confirmation of reductions achieved during the period 2008-2012, their volumes may be larger than expected at the start-up of the projects. According to the head of the working group on climate of the Russian Union of Industrialists and Entrepreneurs Michael Yulkin, investors in Russian projects hope to wait for higher prices, which could happen in 2014, when measures to save the EU carbon market will bring results.

However, the Ministry of Economy is not ready to agree to the limits. This Ministry is not happy with the latest version of the draft presidential decree establishing the so-called internal carbon target for Russia. According to the deputy head of the Department of the Ministry of Economy Oleg Pluzhnikov, the Ministry will insist on reducing the six-month period, within which the action plan for implementation of the decree shall appear. Until now, the question of what should be the overall goal for Russia has not been finally resolved. The latest version of the draft decree reads that the government must ensure "compliance with limit for the greenhouse gas emissions of 75 %" not only up to 2020, but also "for the longer term." The Ministry of Economy is convinced that if such a goal does not take into account absorption of carbon by Russian forests and soils, it should be greater.

It is interesting that at the end of 2012, the Ministry of Economy and the Savings Bank, hoping for Russia's participation in the second period of the Kyoto Protocol, supported the proposal to remove the restriction of 300 million tons, but at the stage of project selection.

At the same time, Vsevolod Gavrilov, the head of the directorate of project management in the field of energy conservation and environmental management of Sberbank Russia, said that the bank, "in the event of a gap between the Kyoto Protocol and a new climate agreement, will encourage the authorities to explore the possibility of Russia's carbon market under bilateral agreements." Gavrilov noted that if some new "post-Kyoto" agreement will provide project-based mechanisms and the possibility of entering the carbon market, these features will be used: "If agreement will not be reached, we will recommend holding bilateral consultations with the Government of Japan and with the EU to establish certain bilateral agreements on mutual recognition of carbon units."

The situation with efforts to reduce emissions of greenhouse gases in Russia is quite interesting: joint implementation projects are declined, although the need for this type of project is beneficial to all. Carbon market is absent, but the controversy surrounding it does not stop. This situation once again confirms that international climate mechanisms are advantageous for Russia. Their rejection deprives our national economics of a very effective and highly needed mechanism to support low-carbon projects.