April 2007 BRIEFING PAPER

RUSSIAN CLIMATE POLITICS: LIGHT AT THE END OF THE TUNNEL?

By Anna Korppoo 1 and Arild Moe 2

Russian climate politics were certainly a talking point a few years ago due to the country’s decisive role in the entry into force of the . The views of various potentially influential officials were reported by the world media almost on a daily basis. Since the ratification of the Kyoto Protocol by Russia in 2004, and its entry into force, Russian climate politics have received less attention.

In this paper we update our previous analyses of Russian climate politics and policies, and report the latest developments, including material from the discussions in the ‘JI in Russia’ workshop 26 March 2007 organised by Oxford Climate Policy in co-operation with Climate Strategies.

The main tasks of this paper are to review: • the readiness of Russia to implement the Kyoto mechanisms • the fulfilment of the compliance requirements of the Kyoto Protocol • the current political debate about climate policy by various key players • the emerging discussion on the post-2012 positions of Russia.

1 Associate Research Fellow, Fridtjof Nansen Institute, email: [email protected] 2 Senior Research Fellow, Fridtjof Nansen Institute, email: [email protected]

Background cooperate. One of the explaining factors is the fact that climate change is still In Russia the climate change issue has not regarded by many as not being a serious gained a high profile on the national environmental problem. Russia has more political agenda. This contrasts with the country’s crucial role in the entry into immediate environmental problems on its force of the Kyoto Protocol; in the territory than those posed by climate absence of the US, the Russian change, and it is not uncommonly argued participation was necessary in bringing that climate change could even benefit the together countries accounting for 55% of country (Kotov 2004, pp.3, 6-7). This the emissions of the industrialised world. corresponds with the common Russian Russia took advantage of this powerful attitude that humankind is rather the negotiating position to secure a better deal ‘ruler’ than the ‘carer’ of nature (Helanterä under the Protocol (Korppoo 2002, & Tynkkynen 2002, p.134). Many leading p.388). The ratification discussion itself figures in the Russian scientific world was prolonged, and Russian policy-makers working on climate change are known as openly called for guaranteed benefits climate sceptics (Moe & Tangen 2000, pp. (Bureau of Economic Analysis 2002). In the end, the political benefit of European 13-14) as shown for instance by the recent Union support for Russian accession to views of Academician Yuri Izrael (until the World Trade Organisation, together recently co-chair of the Russian delegation with presenting Russia as the principal to the COPs) who is arguing that there is facilitator of the Protocol, were sufficient no serious threat to the climate (Izrael enough benefits to merit ratification 2007). They had a significant influence on (Korppoo et al 2006, p.20. the national debate during the ratification discussion (Karas 2004, p.5; Müller 2004a, This process characterises the Russian p.1). For many actors indifferent to or approach to international climate politics; sceptical of climate change, the climate direct benefits related to climate change regime is mainly regarded as a system for pacts play a key role encouraging Russia to wealth redistribution. .

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Development of Russian GHG emissions Mt

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Figure 1 Development of Russian GHG emissions in 1990-2004. Source: National Inventory Report of Russia, p.9.

Russia’s commitment under the Kyoto expected by Western governments and Protocol is to maintain emissions on the experts. Kyoto was regarded as a great 1990 level. But as the Russian economy opportunity for Russia by the latter while contracted and later restructured, many voices in Russia consider the emissions fell dramatically as shown in potential benefits related to the Kyoto Figure 1. Thus, Russia has surplus, or mechanisms as insignificant and the rules unused, emission allowances and could too bureaucratic. This attitude is receive revenues by selling them in the reinforced by rapid economic growth and international emissions trading market. Since purchase of these quotas will not high export incomes for the government mean permanent emission reductions as well as large energy companies in later anywhere they have often been termed years. Another factor explaining the ‘Hot air’. (See for instance Mastepanov et government’s ambiguous attitude to JI is al. 2001, p.128 or Moe et al 2001, pp. 5-6). that the benefits mainly would accrue in the private sector, and therefore, outside Due to the Soviet legacy of inefficient the control of the government3. energy production, transportation and consumption infrastructure, Russia has a 3 huge potential to host Joint In the past the Russian government, and especially president Putin, have demonstrated Implementation (JI) projects as well as that they want to control the private sector, even embarking on emissions trading. to the point of renationalisation in order to regain control. Against this background, the Russian However, the Kyoto mechanisms have government handing over AAUs - which are not gained as strong support in Russia as

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The energy sector is very important to the sinks of all greenhouse gases not Russian economy. The cooperation of this controlled by the Montreal Protocol; sector is needed in order to implement the (d) It has in place a national registry; Kyoto mechanisms since a very large (e) It has submitted annually the most share of the JI project potential is owned recent required inventory, including the by actors producing and transporting national inventory report and the energy. common reporting format. (f) It submits the supplementary Russian compliance under Kyoto information on assigned amount

Russian GHG emissions were some 33% (FCCC/CP/2001/13/Add.2). below the Kyoto commitment in 2004 and the quantitative compliance with the For a long time development of Russian Kyoto emissions limitation target during compliance institutions was extremely 2008-2012 is expected to be easily slow (see for instance Korppoo 2004). But achievable without further domestic in 2006 positive signs started to show. measures (Russian government 2006, • Responsibilities between p.74). But in addition, countries have to governmental agencies were divided. satisfy a set of institutional criteria to be • In 2007, Russia submitted its GHG eligible to participate in the Kyoto inventory for years 1990-2004 in the mechanisms. Common Reporting Format and the National Inventory Report. A Party included in Annex I with an • In its National Report on the Kyoto emission reduction or limitation commitments, Russia calculated its commitment during the first commitment Assigned Amount and described the period is eligible to transfer and/or process as required, including acquire Emission Reduction Units (ERUs) information on the selection of sinks if it is in compliance with the following to be included and the national GHG eligibility requirements: inventory and registry systems. (a) It is a Party to the Kyoto Protocol; • A GHG registry is expected to be (b) Its Assigned Amount has been launched during the first half of 2007. calculated and recorded; The administrator of the registry will (c) It has in place a national system for the be the Federal Center of estimation of anthropogenic emissions by Geoecological Systems, attached to sources and anthropogenic removals by the Ministry of Natural Resources (MPR). (Russian government 2007.) state property – in return to investments to the private sector seems politically problematic.

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Based on this list it seems possible that establishment of bilateral arrangements Russia could achieve full compliance by with investor countries as Memoranda of the end of 2007 or early 2008, depending Understanding and reducing the risk for on the UN FCCC procedure and the the Russian Federation should private JI International Expert Review. This would projects fail. be a major development facilitating Russia as a supplier of ERUs and AAUs. The roles of ministries other than the MEDT may add to the bureaucracy of JI in Russia project approval as project developers will want to ensure support to their projects, Eligibility to host JI projects also requires and therefore, are likely to lobby the a designated focal point and publication relevant ministries directly. MEDT has of national guidelines for JI. Russia is yet been pushing for a one-stop-shop to submit these details to the JISC. A draft solution in order to avoid such a situation national procedure on JI approval exists which could even undermine the but it still needs to be accepted by the credibility of Russian JI projects should governmental administration and signed the competitive ministries choose projects by either the Prime Minister or a Deputy based on economic benefits received Prime Minister. rather than the established criteria. Also private Russian companies may be The relevant ministries have officially uncomfortable having to lobby agreed on a draft text after a prolonged government agencies. The more debate on their respective roles. It seems successful private companies have by now clear that the Ministry of Industry and got used to dealing directly with foreign Energy and the Ministry of Natural partners without much government Resources still want to secure a role for interference. themselves in project approval. In the current draft of the JI procedures these There are still uncertainties regarding ministries will be conducting a first transfer of ERUs by the Russian selection of projects while the Ministry of government, which is connected to the Economic Development and Trade property rights for emission allowances. If (MEDT) remains the leading agency and uncertainty remains it could seriously the focal point for project investors. undermine the attractiveness of JI in Russia, and in order to become a credible The Ministry of Foreign Affairs (MID) JI host the Russian government will have has expressed concerns over how to deal to solve this issue. The problem can be with the foreign affairs aspect such as considered as potentially more serious in

5 the case of Russia than many other Emissions trading and GIS in Russia governments given the current uncertainties with the definition and A domestic emissions trading system is enforcement of property rights in the unlikely to be established during the first country in general. commitment period. Establishing the EU Emissions Trading Scheme showed how The legislative basis for JI procedures is complicated and politically difficult likely to be linked to the Federal Law on establishing such a system can be. In Capital Investments (adopted 1999, Russia, additional complexities associated amended 2000 and 2004). The Russian with ownership rights and government is planning to run all JI underdeveloped market structures prevail. projects through the JI Supervisory A Green Investment Scheme (GIS), an Committee as Track 2 projects. This arrangement to recycle revenues from would contribute to the transparency of emissions trading to further emission Russian projects which has been reduction projects, was originally a questioned by many project investors. Russian initiative (Tangen et al 2002; Moe Even though doubts about the Russian et al 2003). No practical steps have been project selection procedure – and taken to establish a GIS in Russia, and potential corruption influencing the according to MEDT the arrangement is quality of projects – remain, it is indeed not a priority. However, the same ministry reassuring that Russia has chosen to focus has accepted a grant from Japan through on the Track 2 approval. the World Bank for studying a GIS arrangement in the country (PointCarbon According to a MEDT official, there are 31 January 2007). no plans to introduce preferential project types, specific requirements on One issue the study is likely to look at is additionality or project finance. However, the possibility to administer GIS funds efficiency criteria for projects have been domestically as the present Russian suggested by the Ministry of Industry and budget code does not allow extra- Energy. At the time of writing these budgetary funds i.e. earmarking money for criteria have not been available to the certain uses. Under this practice it would public. In the absence of the JI be impossible to ensure the reinvestment procedures it remains unclear what these required by a GIS. Views between Russian criteria consist of, and they might experts differ whether it would be potentially limit the types of JI projects possible to implement GIS in Russia due that can be approved. to this problem. It has been argued that in practice other extra-budgetary funds have

6 been allowed, and therefore, GIS could sector. The CEO of the electricity giant become another exception. It has also RAO UES, Anatoly Chubais, claims that been argued that direct investment in GIS Russia may have lost ‘thousands of projects without the state budget as a millions of dollars in investment’ due to middleman could solve the problem. the failure to launch a domestic JI project approval system (PointCarbon 14 February A portfolio of projects delivering an 2007). However, it has been argued that emission reduction of 50 MtCO2e has the private sector actors benefiting from been planned to be developed under the JI projects, which are mostly small World Bank study. But the capacity of the companies, have no means to put pressure government to implement a GIS program on the Russian government to fast-track seems to be limited at the moment. the approval of the JI procedures. In large companies the top level management may Current debate in Russia not be interested in or aware of the potential to host JI projects as this is not Numerous Russian private sector actors directly linked to their core business and are active in the field, and a number of the scale seems small compared to the Russian experts working for international regular business activities. companies. For instance, the American investment bank Merrill Lynch invested in Future politics the Denmark based Russian Carbon Fund, and CAMCO International Russia is an important player in the post- acquired MCF Finance and Consulting. 2012 negotiations as the country is the third largest emitter of greenhouse gases Two Russian members of the JISC ensure in the world with 5.9% of total emissions. that there is domestic competence on the (UNDP 2006, pp. 353-354.) JI project approval procedures, and may have contributed to the decision to run The domestic debate on the Russian post- Russian JI projects under Track 2. 2012 position has not started yet. But the Russian Federal Service for To date 23 JI projects have been Hydrometeorology and Environmental contracted and submitted to approval by Monitoring - Roshydromet - initiated talks the JISC. The general expectation is that on future voluntary targets in COP-12 in the government will adopt the JI approval Nairobi in 2006. This initiative is expected system soon to facilitate these projects. to be taken forward in the UN FCCC But the government has also been Subsidiary Bodies’ Meeting in Bonn in criticised for being slow by the private May 2007, focusing on the rights of Non-

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Annex I Parties to get involved and political difficulties, would be allowed to receive assistance (Submission by the have such a strong position in any future Russian Federation 2007). Other climate pact as it did with the Kyoto governmental organs have not reported Protocol. This may entail that Russia can any involvement in the initiative so far. expect less co-benefits from any future Also the debate on the domestic JI climate regime. To secure continued approval process has kept the focus away Russian participation in the climate regime from the post-2012 discussion. Russian public opinion will probably become more important, and therefore, According to some Russian experts, the awareness of the impacts of climate role of the country could turn from a change on Russian territory could play a seller of AAUs to a buyer soon after the more significant role than in the past. end of the first commitment period should the positive economic Conclusion development continue. This perspective has already been flagged during the JI project implementation in Russia discussion on the ratification of the Kyoto remains hampered by the lack of a Protocol and could be a major issue domestic JI approval system which has influencing positions in future been under development for over a year. negotiations. At the time, the presidential The all too familiar infighting between the advisor expressed fears relevant ministries has been the main that the Kyoto Protocol might limit cause of the delay. JI does not seem to be economic growth (Karas 2004, p.5). a political priority regardless of its However, these claims are controversial as potential to provide financial resources for the government emission scenarios badly-needed modernisation of energy predict that this could only happen production, transport and consumption beyond 2020 i.e. during the potential third facilities. commitment period (Russian government 2006, p.74), and some analyses show that The preparation of Russian compliance economic growth to meet Putin’s target to under the Kyoto Protocol is almost double the GDP without improving finalised. But the Russian submissions still energy efficiency would be practically need to be approved by the international impossible (see for instance Müller 2004b, expert team. The JI specific compliance p.2). requirements – appointment of a national focal point and publishing national JI From an international perspective it seems guidelines – are yet to be fulfilled. unlikely that Russia, given the past

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The Russian domestic debate on the Gummerus Kustannus, Ajatus kirjat, Kyoto Protocol is inspiring more actors to Helsinki.

get involved in climate projects. But the Izrael, Yuri (2007). Climate: Putting panic debate on the post-2012 options has not in perspective. RIA Novosti 18 April 2007. started yet in. Nevertheless, Russia Karas, Jacqueline (2004). Russia and the Kyoto Protocol: Political Challenges. Briefing initiated talks on voluntary targets in 2006. Note, Sustainable Development Programme, the Royal Institute of Climate politics is still not a central issue International Affairs. in Russia. It is therefore not inconceivable Korppoo, Anna (2002) Russian that that the process of implementing JI ratification process: Why is the rest of the can be derailed or delayed because of world waiting? Research Letter, Climate other concerns and priorities in other Policy 2(2002), 387-393. policy areas. Should this happen the Korppoo, Anna (2004). Russia and potential for JI in Russia in the first compliance under Kyoto: institutional approach. commitment period will soon be lost. But Briefing Paper. Sustainable Development Programme, the Royal Institute of at the time of writing it seems like there International Affairs. might be light at the end of the tunnel of Russian JI, as the compliance system is Korppoo, Anna; Karas, Jacqueline & almost ready and the JI procedures could Grubb, Michael (eds.) (2006) Russia and the Kyoto Protocol - Opportunities and Challenges. be approved soon. Chatham House, Brookings Institution.

REFERENCES Kotov, Vladimir (2004) ‘Greening of Policies’: Perspectives in Russia. Paper presented in Bureau of Economic Analysis (2002) Greening of Policies – Interlinkages and Policy Developing Mechanisms for Trading in Quotas of Integration conference 3-4 December 2004 . Summary. in Berlin, Germany. . Mastepanov, Alexander; Pluzhnikov, FCCC/CP/2001/13/Add.2. Report of Oleg; Berdin, Vladimir and Gavrilov, the Conference of the Parties on its Vsevolod (2001). Post-Kyoto energy seventh session, held at Marrakech from strategy of the Russian Federation, 29 October to 10 November 2001. Part 2. outlooks and prerequisites of the Kyoto mechanisms implementation in the Federal Law #39-FZ, 25 February 1999. country. Climate Policy 1 (2001), pp. 125- ‘On Investment Activity in the Russian 133. Federation Pursued in the Form of Capital Investments’. Amended 2 January 2000 and Moe, Arild & Tangen, Kristian (2000). The 22 August 2004. Kyoto Mechanisms and Russian Climate Politics. The Royal Institute of International Helanterä, Antti & Tynkkynen, Veli-Pekka Affairs. (2002). Maantieteelleen Venäjä ei voi mitään.

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Moe, Arild; Tangen, Kristian; Pluzhnikov, Kenichiro Yamaguchi (2002). A Russian Oleg; Berdin, Vladimir & Maksimyuk, Green Investment Scheme. Securing Leonid (2001). The Approval System for Joint environmental benefits from international Implementation Projects in Russia – Criteria and emissions trading. Climate Strategies. Organisation. Fridtjof Nansen Institute, Report 6/2001. UNDP (2006) Human Development Report 2006. Moe, Arild, Kristian Tangen, Vladimir Berdin and Oleg Pluzhnikov (2003). For more information about Emissions trading and green investments the organisations visit: in Russia, Energy and Environment, Vol. 14, www.climate-strategies.org No 6, pp. 841-858 www.fni.no www.oxfordclimatepolicy.org Müller, Benito (2004a). Myth and Reality: Dr Illarionov’s Projections. Oxford Institute for Energy Studies.

Müller, Benito (2004b). The Kyoto Protocol: Russian Opportunities. Briefing Note, Sustainable Development Programme, the Royal Institute of International Affairs.

National Inventory Report of Russia. Moscow 2006. In Russian.

PointCarbon 14 February 2007. RAO UES criticises Russian government over JI.

PointCarbon 31 January 2007. Russia to sign agreement on GIS study.

Submission by the Russian Federation (2007). Outline of Presentation on the Voluntary Commitments.

Russian government (2006). The Fourth National Communication of the Russian Federation. In Russian.

Russian government (2007). National report on the emission commitments. Moscow 2007. In Russian.

Tangen, Kristian, Anna Korppoo, Vladimir Berdin, Taishi Sugiyama, John Drexhage, Christian Egenhofer, Oleg Pluzhnikov, Michael Grubb, Thomas Legge, Arild Moe, Jonathan Stern &

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