Kyoto protocol: Russian decision gives global green light

Oct 04, 2004 Datamonitor

The Russian government has recommended that the State Duma ratify the Kyoto Treaty, paving the way for it to come into force in three years' time. The move will aid the country's economic modernization while creating exciting opportunities for EU utilities.

While the Russian government's recommendation is yet to be debated in parliament, President Putin's majority is big enough to render the issue largely academic. It is expected that the final vote will be held before 1 January 2005 - the date when the EU introduces its emissions capping and trading scheme that is based on Kyoto targets.

This will mark the conclusion to a drawn-saga, as until recently it seemed unlikely that Russia would ever come on board. Under the Kyoto agreement, Russia is required to keep its CO2 emissions below the 1990 level. On the face of it, this is an easy target as Russia currently produces much less than that. However, the country has been reluctant to ratify the treaty because of the belief that the adoption of Kyoto targets would undermine its stated target of doubling GDP between 2000-2010.

The breakthrough occurred earlier this year when Russia promised to revise its position in return for EU support in WTO accession talks. Ultimately, however, it is economic arguments in favor of ratification that have won the day. The country's two main energy companies, RAO UES and Gazprom which together account for 38% of Russia's total emissions, are convinced that by 2012 they can decrease their emissions against the 1990 base level by 15-20% and 45%, respectively, and sell the unused allocations to EU companies in order to fund their technical overhaul modernization programs.

Russia's embracing of Kyoto will boost the nascent EU emissions market, injecting some much-needed liquidity and lowering the price of emissions credits. Perhaps more importantly, EU firms, especially energy companies, will now be able to earn extra credits through projects aimed at increasing energy efficiency in Russia, including its residential utilities which are in dire need of technical modernization.

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