Russian business braces for carbon trading

Carbon trading will soon become reality for Russian companies, whether under the Kyoto protocol or whatever agreement supersedes it. Analysts say it could be to Russia’s advantage.

Carbon trading was one of the key elements for reducing greenhouse gas emissions agreed in the Kyoto Protocol. Russia was the last to ratify the protocol, which came into effect in 2005.

Under the trading system, a government issue permits companies to emit a certain volume of greenhouse gas. If a company then wants to emit more CO2 equivalent, then it can buy the right from another company that will emit less. This system also works between countries. But even if the mechanism was widely adopted, it still would not properly address the problem of green house gas emissions says Lennard de Klerk, Chair at JI Action Group

“The challenges are more geopolitical – we have China as a new power that is growing in its emissions, we have US that are a bit reluctant to reduce their emissions because it is going to hurt their economy and we have Europe that is very active and want to reduce the emissions.”

Ukraine’s National Environmental Investment Agency wants to create a joint carbon trading platform between Russia, Kazakhstan and Belarus. The first domestic carbon trading proposal was made by Russia's largest bank, Sberbank, earlier this year. Thirty-five companies made bids for 77.5 million tons of CO2 equivalent.

China is also looking to start a national system for trading carbon within the next the five years.
Nevertheless, Lennard de Klerk remains unsure about the kind of economic benefit the trading will bring

“An average project will reduce 2 million tones of CO2, if we take 10 euros for a tone we are talking about 20 to 30 million euros as extra revenue that you can take from an investment in energy efficiency.”

So far very little money has been made from carbon trading in Russia and the private sector is hesitant about making long-term investment in carbon trading, as the Kyoto protocol expires in 2012 and its successor has not yet been agreed.

Without profit incentives it is hard to persuade private companies to get involved in the market. Despite a lack of governmental support for emissions trading the company expects to meet its long term projections said Eliano Russo, Head of Carbon Sourcing Unit, E.ON Climate and Renewables

“We are on this market with a long term view, despite difficulties that we are facing to find an international agreement we will stay on this market.”

But the governments will get another chance to re-write the rules in 2012 when the Kyoto Protocol expires, and possibly build in more financial incentives for companies to go green.