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Carbon for the Market

The creation of carbon markets date back to the time when the Kyoto protocol came into force. Market mechanisms are one of the main tools of climate policy, by using which states and businesses may buy and sell carbon emissions credits on the national, regional or international markets.
Modern carbon market is developing in several directions. The first one encompasses both national and international trading systems. The first and great example of this is the EU ETS (The EU Emissions Trading System).

The second direction is project-based and implies trading carbon emissions within the framework of projects such as the CDM (Clean Development Mechanism) scheme. For example, it allows developed countries to invest in technology and infrastructure of developing countries to help reduce their emissions. Within the CDM, the investing country obtains its emissions reduction units by investing into green projects in poor countries.

The third option for carbon market to operate is to trade credits between countries – the so-called green investment. In this case, in exchange for carbon credits, a country receives the means to be invested in activities to reduce GHG emissions.

Regional carbon trading systems is yet another option for this system to operate.

Aside from solving the main issue of reducing GHG emissions, carbon markets allow for the achievement of a number of other objectives. Some countries and businesses may meet their emissions target obligations by purchasing emissions permits and other carbon market products, depending on the type of market and country in question.
Other states, by taking part in carbon trade, receive the opportunity to attract investments and use new technologies to reduce their emissions, which allows for the creation of favorable conditions to develop their economies more efficiently.

One of the most important results of carbon markets and carbon trade is the creation of a mechanism to include the costs of GHG emissions reduction into product prices. Naturally, increased prices for energy carriers (as the result of including the carbon-related costs) will reduce the competitive capacity of fossil fuels and carbon-intensive products.

Modern international carbon market includes the mandatory carbon trading systems as well as voluntary commitments markets that formally imply the lack of any official interference.

According to a report by Ecosystem Marketplace and Bloomberg NewEnergy, in 2010, the trade volume within mandatory systems grown 1, 25% compared to 2009, while for the voluntary market the number is 34%, reaching 131 million tons of CO2 equivalent, or US$424 million.

It is important to note that carbon trade is a very young area, thus its ups and downs are an inevitable and perfectly natural part of its formation process, which, according to experts, will be followed by the stages of growth and further development. The success of local markets is especially impressive; however, national, regional and field-based markets are gaining momentum as well.

Carbon market failures were largely provoked by the uncertainty of market development after 2012 and political frictions concerning the creation of trading systems in a number of developed countries. The recession in industrially developed countries led to the drop in the volume of GHG emissions due to cutbacks in production.
Carbon trade, the way it was implemented within the Kyoto protocol framework, was strongly criticized by environmental NGOs. Oftentimes, green investment projects were plain business projects, far from being “green”. There have also been cases of double accounting for emissions reduction.

Already around 90 developed and developing countries have presented their plans to launch national or regional carbon regulation schemes. Around 40 countries and over 20 regions have already introduced carbon pricing in the form of carbon taxes or launched emissions trading markets that cover around 12% of their total volume, according to Kommersant.

Russian authorities, namely Sergey Donskoy, Russia’s Minister of Natural Resources, have announced the possibility of introducing carbon pricing. The Ministry has developed guidelines and a manual for quantitative estimation of GHG emissions volume. The documents describe the order of the procedure to be used as a basis for further monitoring, reporting and verification of emissions. They contain formulas to calculate GHG emissions from different sources.

The attitude of Russian businesses towards the developing carbon regulation system remains ambiguous. A number of companies call for an immediate creation of a carbon market, while others are against this sort of regulations and suggest postponing this issue until 2018.
According to Georgy Safonov of Moscow Higher School of Economics, the process of creating carbon markets is gaining momentum. Almost all Russia’s BRIC partners are actively getting involved in this process. It is not beneficial to stay away. Russian companies have an enormous accessible potential to reduce their emissions, compared to, for instance, their Japanese counterparts. Besides, many Russian companies have already finished the prep work in this area and do know how to act and what to do next. Additionally, given the negative trends of our economic development, these options may provide an additional impulse to stimulate and develop national economies.

Olga Senova, Head of Russian Social Ecological Union’s Climate Secretariat, says that “carbon trade is a non-transparent mechanism and a false solution, which does not lead us directly to GHG emissions reduction, and thus is unacceptable. Other carbon market mechanisms (such as investing in other countries’ projects) appear more promising at first sight, as they seem to be able to stimulate low-carbon development. However, in this case, the key principle must be to use the best available technology and to keep all decision-making concerning the selection of low-carbon projects fully transparent. This sort of approach may hold promise for Russia.”

Many NGOs, especially in developing countries, see carbon markets are a way to commodify nature and put price tags on its services. This approach is most likely to result in corporations of the Global North having all the “rights for nature”. In order to ensure climate justice and to solve the ecological and climate issue, the entire economic structure, including its financial institutions, has to change, instead of merely introducing an “eco” aspect into the current version of global market economy, which has demonstrated its inconsistency in the past decades. “System change – not climate change” is a popular slogan that encompasses this message.