The Future of JI: climate change issue disappeared behind technical details

Ekaterina Uspenskaya

September 6-7: JI Technical Workshop dedicated to the prospect of JI projects after 2012 took place in St.Petersburg. Hosted by Sberbank, it received a broad range of guests representing foreign investment bodies as well as other interested parties. The main objective was to discuss the possibilities for JI implementation in Russia in view of the expiration of the Kyoto protocol in 2012.

On July 23, 2010, The Russian Ministry of Economical Development approved the list of the first 15 Russian JI projects and the list is likely to get longer due to the interest of both foreign investors and enterprises in Russia. But the Kyoto Protocol (with its Article #6 sanctioning JI activities) is due to expire on December 31, 2012 which creates a significant uncertainty for the whole JI scheme and increases additional risks for investments in case there is no necessary base for the regulation of this sphere between the member countries.

Regardless of the 2012 issue, JI is a fertile ground for international business. For a large number of banks JI constitutes a new alternative to the projects executed within the Clean Development Mechanism framework, which is nowadays facing certain financial and prognostic issues. China, a huge potential CDM market, has made its choice towards supporting Chinese institutions. In many other developing countries, especially in Latin America, CDM is facing strong counteraction by social and environmental activists, peasants and entire small indigenous nations, given the fact that the CDM essentially enables corruption in order pursuing maximum profits while turning a blind eye on the needs of local communities and the regional environmental safety. According to a representative of Endesa Carbono, the largest carbon credit buyer in Europe, due to the difficulties in the very procedure of CDM project approval and implementation, JI in Russia would be an “easy CDM”.
The interest exists on the Russian side as well. Russian banks as, for instance, Gazprom Bank, have actively and successfully taken part in CDM projects, China included. There is a positive response from other CIS enterprises that took part in the JI. The participant from Ukraine told about the benefits acquired by a mining company: the funds received as part of their JI project allowed them to purchase Halliburton co-generating equipment which helped them to decrease methane emissions to the atmosphere. Thus, bringing investment as part of JI is always a good idea, at least for helping enterprises to renew their old premises and equipment to facilitate cutting GHG emissions in the long run.
But the 2012 issue is exacerbated by the lack of clear legal regulating framework for JI in Russia. It is obvious that even if Cancun negotiations result in a new agreement, the process of its ratification will take significant time, and the time it becomes operational in Russia is hard to predict. The gap in regulatory mechanisms is hardly avoidable. In this connection the appeals by EBRD and other actors of the European carbon market to sign agreements between the EU, Russia (and possibly Ukraine) to avoid the gap-derived uncertainties are completely understood. Right now it is way too early to talk about any similar agreements.

In its turn, Sberbank is predicting a significant growth of JI project applications and hurries to promise a more simple approval process: there will be no bidding as such, and the projects will be examined on a first-come first-served basis.

As to the JI-derived carbon units, it is noted that no demand will exist for additional units in the setting of already existing ERU overflow from CDM, and that the influx of newly generated units may cause disturbance in secondary markets. According WWF’s Alexey Kokorin, it is necessary to first create an internal carbon market in Russia, let is stabilize and set acceptable prices on carbon before letting ourselves open unto the world markets.

Despite the fact that the climate issue was mentioned in the end of the event (by WWF and UNEP representatives), it is very characteristic that once again, while discussing a climate change related issue only technical financial and procedural aspects were touched upon. Contrary to the sustainability principle, the issue of correspondence of future JI projects to Russia’s goals of socio-economical development remained unspoken.

JI should develop as a mechanism of clean technologies introduction in the first place, to provide for GHG emissions cuts. Projects aiming at introducing renewable energy technologies and energy efficiency should be prioritized. This way not only will the emissions reduction issue dealt with, but it will also have a long term effect on Russia’s economy fossil fuels dependency minimization, and help decrease its energy intensity and increase its competitiveness.